THE CAUSES AND EFFECTS OF DEMURRAGE

Across all industries, importers and exporters face a problem: demurrage fees. It's often a surprise for shippers due to the suddenness and financial loss. Careful planning and monitoring of loading and unloading operations and the drayage process can help shippers avoid demurrage charges.

What is Demurrage?

Demurrage is a fee charged by a carrier, port, or railroad company for storing containers or rail cars that exceed the free time offered for loading and unloading. Once the free time is expired, the shipper gets charged a daily demurrage fee until the cargo leaves the terminal.

The available time for demurrage to kick depends on the location. Shipments that arrive via plane or train have 48 hours of free storage time, whereas port times typically range from four to seven days. All ports of entry have differing policies, so you should research the port's policy before shipping.

Even when shippers do their best to schedule and unload freight and have prepared all necessary paperwork, external factors can be uncontrollable and affect deadlines, which leads to demurrage. Late freight or custom release of containers, damaged containers, or overweight containers are common reasons a shipper could get charged a demurrage fee.

Shipping mistakes trigger the most common reasons for demurrage. Here are some of the leading causes of demurrage.

Payment Delays

If the shipper paid for only part of a shipment, the vessel could refuse to release the freight until paid in full. Any delay in payment will lead to cargo detention at the port, which in turn causes demurrage charges.

Paperwork Errors

Shippers may fail to prepare all initial documents for the clearing customs process because the procedures can be confusing for new shippers. Shippers need four documents to clear shipments through US Customs: a Commercial Invoice, a Bill of Lading (BOL) or Airway Bill, a Packing List, and an Arrival Notice. Although, some specific goods require additional documents. Without these documents, demurrage charges can occur.

Late Receipt of Documents

When you're shipping with a company, you need paperwork. However, if the required documents, such as the BOL, Certificate of Origin, or Packing Lists, arrive late, demurrage fees arise. Even though it's sometimes impossible to avoid delays, being proactive when filing paperwork helps avoid demurrage.

The Receiver is Unreachable

Bumps can occur in the shipping process, such as being able to reach the receiver. Sometimes, it isn't easy for the shipper to get a hold of the consignee named on the BOL. In this case, the shipper and receiver often abandon the cargo and typically forget to tell the shipping line. Since communication stops with the shipping line, they usually assume someone will come to collect the release of items. When no one receives the items, the shipping line has the right to hold the freight forwarder liable for the unclaimed cargo, which leads to demurrage fees.

Tips for Dealing with Demurrage

Share cargo and shipment delivery instructions with all parties to ensure a smooth loading and unloading process and avoid delays.

Provide a backup plan for the carrier's driver in case of port congestion – have alternative routes for a tight situation and be able to adjust.

Remember, large shippers can ask for extended free time at some ports (prominent shipper status starts at a volume of 800 containers a year).

Understand all required documents. For added clarity, consider hiring an experienced freight broker or customs agent to help eliminate paperwork-related problems.

Consider the automation of demurrage management by monitoring the cargo as they move through facilities.

Advanced planning and streamlining trading processes are the best tools to minimize the risk of demurrage charges.

Adapted from pslogistics.com