Demurrage and Your Cargo

The topic of demurrage is deceptively simple. It can become a complex, expensive mess very fast. We will cover demurrage in depth - what it is, why it exists, who charges it, who pays it, and what to do about it.

What is demurrage?

As a technical definition, demurrage is compensation for detention of a ship, freight car, or other cargo conveyance during loading or unloading beyond the scheduled time of departure.

It can be better understood simply as a storage fee for cargo that is left sitting at the terminal after discharging a ship. Demurrage is a fee that begins accruing after an allotted period of "free-time" has passed. Cargo is given X amount of days (typically 5 business days) to be picked up from a terminal before any demurrage fees can be applied.

Why does demurrage exist?

Despite many peoples beliefs, demurrage is not a money making scheme. Demurrage exists as an incentive for shippers to pick up their cargo in a timely manner.

Marine terminals and ocean shipping lines business models are based on throughput - the volume of cargo moving though it's network. Terminals are not designed to be storage facilities for cargo and shipping lines are not built to let their container be used as a free storage unit either. Demurrage is an incentive for shippers to keep the cargo moving and terminals fluid. Terminals and lines would prefer not to charge any demurrage at and have cargo move faster. They would rather have the terminals move more cargo than charge demurrage (moving more pays better).

Dwell fees in 2021/22

As a note, through the supply chain turmoil of this last year, many terminals found it necessary to implement a dwell fee in addition to the demurrage. This is to further encourage shippers playing games to keep terminals fluid. One electronics manufacturer in particular forwarded their inventory 1 year to keep supply on the West Coast and opted to pay demurrage as a warehousing fee. The dwell fees helped eliminate the backlog.

Who charges it?

Demurrage is charged both by terminals and by shipping lines when their equipment is in the mix.

Terminals charge demurrage that is set by the port authority in anything that exceeds its free time. If you are using a container that is owned by the shipping line, they will also charge demurrage on their equipment in an effort to incentivize the empty equipments return.

Line demurrage is typically much more than terminal demurrage.

Who pays it?

Demurrage can be paid by anyone. The best question is who has responsibility for the demurrage. There could be many reasons cargo enters demurrage and each reason might mean a different party is responsible.

If cargo enters demurrage for a customs paperwork or clearance issue, the broker should be responsible. If it enters because of a trucker issue: no chassis or lack of available capacity, then the trucker should be responsible. If it is because the line did not release the cargo (typically payment related), the BCO would typically be responsible.

The short answer is, whoever caused it to enter into demurrage should be the one responsible for paying the demurrage.

Who pays 2021/22

Many truckers are over capacity in 2021/22 or there are empty container return constraints or warehouse issues that are effecting their ability to pick up containers. Many truckers are not stating that BCO's/forwarders are responsible for all demurrage and dwell fees that may occur. Wether its right or wrong, legit or not, it's happening.

What to do about it?

The best advise for demurrage charges is: take care of it early. BCO's who find they are now responsible for demurrage charges begin to panic about the cost of their shipment and have a difficult time recovering their cargo. I have had several explain that their trucker was an issue or they didn't understand why they were being charged demurrage. These conversations stretched over many days and the fees continued to accrue for them. I always recommend paying, and asking if there is any refund that can be given if you believe the terminal in is error for charging.

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