Today, demurrage and detention costs are probably top of mind in the lists of controversial charges incurred by shipping lines on customers. International trade is experiencing frustration related to these additional fees, leading to significant issues in the global supply chain. Levying detention and demurrage charges causes much more than just massive transportation costs.
Due to the time-consuming efforts and the money involved, demurrage and detention have become inevitable factors in global trade when it comes to container shipping. This is why it is essential to have a better understanding of the real impacts these costs can have on a company’s global supply chain operations.
In this article, we’ll take a closer look at what demurrage and detention are exactly, explaining what are the main causes and how increased visibility can help manage proactively these costs.
What are demurrage and detention costs?
Demurrage costs are incurred when containers are held at a port or terminal within the set free time offered by the shipping line. Free time refers to the number of days a shipper or a carrier can use a container for free. In other words, it occurs when containers have not been moved out of the terminal within the free time allowed. If containers stay at port for too long and stack up, this would lead to a significant risk of port congestion.
Detention costs come into play when the container is held outside the port or terminal for unpacking but the empty container has not returned to the shipping line within the free time. In principle, once the vessel is discharged, cargo owners can pick up and move their containers out of the port within the free days allowed. But, in reality, the period of free time is usually not enough for them to avoid incurring charges. The container detention is then charged by the shipping companies to the freight forwarder and the carrier for the use of their container.
In theory, demurrage and detention costs are incurred to compensate the shipping line for the use of the container but also to have a faster containers turnaround time and more efficient shipping. However, according to shipping companies and ports’ rules and regulations, demurrage and detention costs can vary which results in more confusion and complexities in the assessment of these costs.
The main causes of detention and demurrage costs
In principle, carriers and ports should be responsible for making cargo available to the shipper before considering applying any demurrage and detention charges. But the reality is quite different. Here, the main causes of high detention and demurrage charges are poor supply chain visibility and lack of real-time notifications from shipping lines and port operators.
Most of the time, carriers are not being notified of the arrival of their container at the terminal. The lack of real-time alerts and notifications leads then to sleeping containers inside the port, causing demurrage costs to be applied. Because of not being informed early enough, carriers cannot anticipate the necessary time for unloading.
Today, most shippers rely on the information shared by shipping companies to have updates on the container progress in ports, including remaining free days or cargo availability. Depending on shipping companies and ports to get dependable data is hardly adequate and can lead, in the end, to costly charges.
Information and visibility on waiting time are essential to understand and assess the demurrage and detention costs incurred accordingly. At the end of the day, cargo owners eventually end up paying penalties that are not necessarily justified. This is why the use of container monitoring solutions like IoTrack is needed to have access to reliable, real-time data and enable cost verification independently from carriers.
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How to better manage demurrage and detention with increased visibility
Because of these challenges, there is a critical need for cargo owners to have enhanced visibility over the status of the container to better understand the charges that are imposed on them and act accordingly. To build this intercontinental flow visibility, the implementation of a tracking solution to monitor in-transit containers is quite inevitable. With IoT-enabled technology, solutions like IoTrack give access to actionable information providing enhanced visibility.
Real-time, actionable and accurate data
With a global view on containers, cargo owners can get more actionable information on waiting time at discharge ports, knowing where the shipment leaves the port, and when it is returned to the carrier. Precise data enable cargo owners to better understand and assess the demurrage and detention costs they’ve been charged. Using reliable information gives cargo owners real bargaining power because they know if the costs are justified or not compared to the data collected. By gaining transparency into their global supply chain operations, cargo owners can have a comprehensive view of their flows and costs.
Synchronization of the operations: better information sharing
With real-time updates on the progress of shipping containers, cargo owners can communicate reliable information on the safe arrival of the cargo at the port. By using accurate real-time data, they will no longer depend on shipping lines and ports operators, optimizing their cargo collection process efficiency. Real-time notifications and alerts lead to a better synchronization and acceleration of the operations during the container shipping process, especially in the case of a sleeping container, a deviation, or port congestion. The right information is shared at the right time allows us to anticipate any delay and assess the unloading time at the arrival port, avoiding any additional charges.
Flows diagnosis: Improving the costs by accelerating the flows
Having access to real-time, accurate, and actionable data enables cargo owners to better manage their schedules. With shipping container monitoring, they will get a precise understanding of the status of their container to better assess the performance of their flows. A flows diagnosis allows cargo owners to know if their container is held too long at one place, estimating the time needed to arrive at the final destination. Using this information, they can accelerate their flows and notify carriers of any potential delays at arrival.
For instance, the tire manufacturer Michelin chose the provider Safecube to get real-time end-to-end flow monitoring. The implementation of real-time alerts with IoTrack allowed the identification of sleeping containers staying at the arrival port for more than 10 days. If you’re interested in knowing more about how Michelin manage to reduce its demurrage costs: https://safecube.com/usecase-cost-reduction/
Terms negotiation: Negotiate the free time accordingly
Knowing the effective arrival and container transfer time, cargo owners can negotiate with shipping companies for more or less container free time accordingly. The confirmation of the waiting time at the arrival allows ensuring an effective and fast cargo collection. If more time is required for their container, renegotiating the terms to extend the free time can help prevent costs surprises later on. It is time-saving for cargo owners to anticipate the needs early enough to reduce, if not to avoid, demurrage and detention charges for their cargo.
To conclude, we can say that demurrage and detention can be managed efficiently even if they seem to be inevitable. To do so, clear visibility is necessary to have a better understanding of the costs incurred.
By choosing the right solution for container shipping monitoring, cargo owners will be provided with actionable real-time data that will help them to renegotiate their free time terms, better synchronize their operations, and finally accurately anticipate, avoid and verify their demurrage and detention costs.
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