Of the many issues that can affect your supply chain, few can have a bigger impact than shipping delays. These issues are surprisingly common, and they don’t just hurt your business by upsetting the end customers who are waiting on a shipment. If you’re not careful, consistent delays can result in major financial losses stemming directly from demurrage and detention charges.
According to the Federal Maritime Commission, the total amount of detention and demurrage billed by 9 carriers that were a part of their VOCC Audit Program increased roughly nine-fold, and collected increased roughly ten-fold between Q2 2020 and Q1 2022. In dollar terms, these nine carriers have collected approximately $12.9 billion in detention and demurrage charges between April 2020 and March 2023.
Demurrage fees are charges that are incurred when a company uses a ship’s or airline’s shipping containers within the terminal past the allotted number of free days. Demurrage fees are charged for each day that a shipping container remains in use, with fees often increasing each day as the delay continues.
Detention fees operate similarly. Detention charges are financial penalties imposed when cargo containers are held beyond the allocated free time at ports, terminals, or in the possession of the shipper or consignee.
Even when you’re not directly to blame for such disruptions, the costs can still get passed to your organization.
Proper planning and clear communication can help avoid unnecessary delays. Coordinate with your suppliers, consignees, and carriers to ensure everyone is on the same page regarding schedules and expectations.
Moreover, familiarize yourself with the terms and conditions of your shipping contracts to understand the free time allowances for cargo storage at ports and the timeframes for returning equipment.
Customs regulations are complex, and any missteps or delays in adhering to these requirements can lead to extended hold times at ports and terminals. This usually happens when a consignee doesn’t provide the required documentation for customs clearance in time or if the documents received by the consignee are incorrect or insufficient.
However, you can minimize the risk of customs-related delays and ultimately avoid costly demurrage charges by ensuring meticulous compliance with customs procedures, including accurate documentation, tariff classifications, and adherence to import and export regulations.
Streamlining cargo handling operations is a key strategy to reduce both demurrage and detention fees.
By optimizing various facets of the supply chain, including cargo handling, documentation, communication, and scheduling, companies can significantly reduce the risk of delays that lead to demurrage and detention charges. Efficient loading and unloading processes, well-maintained records, and real-time tracking technology all contribute to smoother operations.
Moreover, effective coordination with all parties involved, including carriers, suppliers, and consignees, is also crucial. Make sure your supply chain operations software allows you to efficiently share all the pertinent shipment information with relevant stakeholders. Equipped with accurate location data, decision-makers can make informed decisions and take timely actions when needed, ensuring the smooth flow of operations.
One of the most effective strategies to mitigate demurrage and detention charges is to prioritize order and inventory transparency throughout your supply chain. By maintaining accurate and real-time information about your inventory levels and order requirements, you can make more informed decisions to prevent unnecessary delays and charges.
This is how you can achieve this:
Reviewing and renegotiating contracts is a strategic approach for reducing demurrage and detention fees in the shipping industry.
Start by thoroughly examining your existing contracts, paying close attention to the terms related to free time, demurrage, and detention charges. Identify areas where you believe the terms can be more favorable to your operations.
Armed with a clear understanding of your needs and past challenges, initiate discussions with your carrier or service providers. Engage in constructive negotiations to adjust contract terms that can lead to more reasonable free time allowances and charges.
The goal is to establish terms that align with your shipping patterns and operational efficiency while mitigating unnecessary financial burdens.
Regularly revisiting and updating contracts ensures that they stay aligned with your evolving business needs and helps you proactively manage and reduce demurrage and detention fees.
Disputing detention and demurrage charges can be a complex process, but it is essential for logistics professionals to address unjust fees.
Here are a few tips on how you can negotiate and reduce demurrage and detention charges with your carriers and terminals:
Timely and thorough documentation, coupled with effective communication, is often the key to successfully disputing detention and demurrage charges and ensuring a fair outcome.
For seasoned logistics specialists, it is not a secret that depending solely on carrier-provided information can be risky. Supply chain visibility is a foundational requirement to accurately plan, monitor risks, assess impacts, resolve issues, and drive continuous improvement. Therefore, utilizing container tracking technology to stay informed about the location and status of your shipments is of utmost importance.
With Unity SCM, you can gain complete operational visibility of your entire supply chain in a single real-time dashboard under your fingertips. Our solution helps reduce Demurrage and Detention charges by at least 38%, while some of our customers were able to reach a 100% reduction of Demurrage and Detention charges.
Book a demo today to see for yourself how we can help you get the most out of your shipping operations and reduce the risk of unexpected costs.
