You’ve probably heard enough of people saying “D & D” but have no inkling of it really meant. Demurrage and detention are among the most common terms that importers, exporters and freight forwarders encounter on a regular basis.
There is also confusion in understanding the difference between these two terms. In many cases, these costs can be detrimental to the extent that customers abandon their cargoes to avoid paying for hefty charges.
Demurrage and detention is largely prevalent among import cases though it also happens for export, at a much lower rate.
This article will lead you through understanding the definition of demurrage and detention, why it is charged, who charges it and who should be responsible for it.
Demurrage and detention seems to be inseparable, but the truth is, there is distinctive difference between the two.
What is demurrage?
It is a charge levied by the shipping line to importer in the event that delivery of the full container out of the port / terminal (for unpacking, unloading, etc.) has not been performed within the permitted free period.
A container is discharged off a ship on 1st of June and the consignee only approaches to retrieve the container for delivery on 11th of June.
Assuming we consider the standard free days offered by the shipping line (different from port free days) is 7 days from date of discharge, the free days should expire on 7th of June.
Therefore, the box would have been stored in the port / terminal for a total of 11 days when you collect on the 11th of June.
11 days – 7 days = 4 days of overstaying
So, the shipping line will charge the consignee demurrage for 4 days (7th to 11th June) at a pre-fixed rate.
What is detention?
It is a charge levied by the shipping line to importer in the event that full container(s) have been taken for unpacking (assuming within the free period) but emptied container(s) have yet to be returned before the expiry of the given free days.
Referring to the above example, the customer took the container out of the port / terminal on the 6th of June which is within the free period, but the empty container is only being returned to the nominated depot on the 18th of June.
So, the shipping line can charge the consignee detention for 11 days from 7th (expiry is 8th of June) to 18th of June at a pre-fixed rate.
Requesting Additional Free Days
Yes, you may negotiate and request for additional free days from shipping lines. They would usually ask if it is for demurrage or detention as they want to ascertain whether you are going to keep the container before or after moving out from the port or terminal.
However, the definition of demurrage and detention varies from one port to another, so the shipping lines need to understand and clarify accordingly.
Shipping lines normally offer free period in combined demurrage / detention and is hardly for demurrage only or detention only.
Why does shipping line charge demurrage and detention?
It is said that the cost of the container, maintenance, leasing and repair works constitute about 20% of the shipping line’s operation cost. A container, just like a fleet or ship vessel, only generates revenue when in circulation instead of idling.
For instance, from the above example, having the container overstaying for 11 days simply means the particular container(s) will not yield revenue for that period of time.
Charging the demurrage and detention is the shipping line’s way of being compensated for the absence of revenue otherwise possibly generated by the container(s).
Who should pay for the charges?
In the case of imports, the consignee would be liable and in exports, shipper would have to pay for the charges. There could however be cases that the consignee is not able to clear the container as documents have not been received from the shipper in time. Or, there may be delay caused by accidents, lack of manpower, congestion, human error, etc. in which consignee or the freight forwarding agent should outline the responsible party for the charges incurred, wherever they are.