In today's global market, the efficient transportation of goods is a key competitive advantage for businesses. In logistics sector, managing the costs and time associated with smooth movement of goods is essential. As such, "demurrage" and "detention" have emerged as important concepts in logistics operations. Both terms refer to additional costs incurred in a logistics environment. While the two are similar concepts, they are used differently depending on their purpose and the context in which they are applied. Let's take a look at the concepts of demurrage and detention and differences between them, and how they can affect the logistics costs.
Demurrage or demurrage charges, is a term used primarily in shipping and refers to the additional costs incurred when a carrier exceeds its "free time," the amount of time it has agreed to hold a logistics shipment in a container yard (CY) such as port or railroad depot. Demurrage is usually charged for exceeding a vessel's waiting time or cargo unpacking time. Demurrage is applied according to the contract between the carrier (shipping company) and the ship owner, and is designed to prevent containers from being held for long periods of time. It is charged per container per day as a compensation for the delayed time, and the rate may increase for longer stays. In addition, a storage fee at the CY terminal is also charged separately depending on the delayed schedule.
Detention, unlike demurrage, is a cost incurred after the container has been released from the CY and refers to additional costs incurred when a container is not returned within a timeframe designated by the customer. Generally, when the recipient returns the container, if the container is not returned within the set period of free time, the detention cost is incurred. Detention is applied according to the contract with the container lessor or shipping company, and is a system introduced to ensure the quick recovery of used and empty containers. If the return is delayed, a certain amount of additional cost will be charged.
Since demurrage and detention occur during both the import and export procedures, it is important to have a proper understanding of which situations will incur additional costs based on your shipment's logistics activity.
Demurrage during the import process is charged when a container is received at CY after being unloaded from a vessel, but is not released after the free time, while detention is charged when a container released from CY to a shipper is not returned within the free time.
Detention during the export process is charged when a container leased to a shipper does not enter the CY after the free time has expired, while demurrage is charged when the container is not loaded onto a vessel within the free time after entering the CY.
Demurrage and detention usually occur during vessel transportation and container transportation, respectively. Demurrage occurs when a vessel exceeds its waiting time in port or exceeds its cargo unpacking time, and detention occurs when a container exceeds its return time and does not return an empty container.
The cost of demurrage is determined by the contract between the carrier and the ship owner, and is incurred due to excess waiting time or cargo unpacking time. The cost is set according to the terms of the contract.
The cost of detention is determined by the contract with the container lessor or ship owner, and additional costs are incurred if the return deadline is exceeded. The cost is charged based on the number of days overdue.
Demurrage and detention are charged differently at each port depending on the region and circumstances. Using a 14-day demurrage and detention period for a standard container as a benchmark, the port with the highest demurrage and detention charges is the Port of New York in the U.S. at $2,478. This is followed by the Port of Oakland ($2,325), the Port of Los Angeles ($2,069), the Port of Savannah ($2,014), and the Port of Long Beach ($1,973). The top five ports with the highest demurrage and detention were all located in the United States, as imports from China, the United States' largest trading partner, were stuck and congested in U.S. terminals during the pandemic.
The port with the lowest demurrage and detention was the Port of Busan in South Korea, at $40. This is about a 62-fold difference from the Port of New York, which charges the highest demurrage and detention, because 1) South Korean ports are highly productive and have fewer regulations, and 2) the Port of Busan serves as a transshipment facility enabling cargo to pass through hubs. The other ports with low charges are Jeddah, Saudi Arabia ($43); Piraeus, Greece ($75); Vladivostok, Russia ($78); and Colombo, Sri Lanka ($106).
Demurrage and detention are additional costs incurred in logistics activities that directly affect the cost of logistics, which in turn affects the efficiency of the logistics process. If a company incurs costs due to excessive waiting time on a ship or a delay in the return of a container, such costs will be reflected in the selling price of the goods. When the selling price of goods increase, customers are forced to pay higher prices.
Shippers can minimize demurrage by leveraging logistics visibility to understand when and why goods are being delayed, and they can avoid detention by tracking container return schedules.
Understanding the differences between demurrage and detention is critical to properly manage the respective charges in the logistics transportation sector. Since demurrage and detention have different charging criteria and targets depending on the transportation sector and contract terms, it is important for shippers to consider those differences appropriately to manage their costs, which will be an important factor in increasing the efficiency of logistics operations.
Cello Square provides a demurrage/detention management function for each container that takes free time into consideration, and automatically sends an alarm when free time is about to expire to help prevent unnecessary demurrage and detention charges. # Reference