Unexpected expenses can cripple a business’s profitability, and those associated with international shipping are a prime example. Learning how to avoid detention and demurrage charges is a baseline capability for any business involved in global trade. As ocean freight rates naturally rise over time, especially when disruptions occur, you cannot afford any extra fees on top of them.
These charges add up quickly if not effectively managed, negatively impacting the efficiency of your shipping operations, and putting you on the wrong side of the carrier relationship. To avoid that unfortunate outcome, here are practical steps you can take to avoid detention and demurrage charges.
What are Detention and Demurrage Charges?
Before diving into ways to avoid these charges, it is important to understand what detention and demurrage charges are.
Demurrage refers to the fees charged by the shipping line or terminal when an importer fails to pick up their container at the arrival port or rail yard within their allotted “free time,” typically 2–5 working days. Essentially, it’s a penalty for using the terminal’s space and the line’s equipment longer than the agreed-upon period.
Detention charges apply when a container is hauled out of the port but not returned to the shipping line within the timeframe specified in the agreement. The detention fee compensates the shipping line for extended use of their equipment.
Daily D&D fees can range from $75–$300, depending on the shipping line and port.
Carriers impose detention and demurrage charges for two primary reasons: 1) to incent proper shipper behavior and 2) to maximize asset turnover. Also, they help ensure that a terminal’s limited storage space isn’t tied up because of a receiver’s tardiness.
To discourage shippers from exceeding the allocated free time, detention and demurrage charges are levied on an increasing scale, with the per diem rate increasing as the number of days increases.
8 Steps to Avoid Costly Add-ons to your Shipping Invoices
1. Ensure Accurate Paperwork
Ensuring that all necessary import documentation is in order can significantly reduce delays in customs clearance that impact access to containers. Paperwork inaccuracies are a common cause of delays. Work closely with your customs broker to ensure that all forms are complete, accurate, and submitted on time. An efficient customs clearance process is a key component in how to avoid detention and demurrage charges.
2. Communicate Clearly and Often
Maintaining open lines of communication with all supply chain partners is vital. It is important to get timely updates and communicate proactively with the shipping line, customs broker, and freight forwarder. The last two are often the same entity. Effective coordination with your logistics partners helps you anticipate and address any potential delays before the situation devolves into demurrage or detention charges.
3. Know Your Free Time Limits and Use Them Wisely
Make sure you know your contracted “free time” limits. Not every shipper does. Negotiate with your carrier to secure the maximum free time possible and then develop SOPs that ensure container pickup and return within that time.
4. Leverage Technology and Automation
Technology plays a significant role in modern supply chain management. Use tracking systems and automated alerts to monitor key milestones in the shipping process. These tools can provide real-time updates and notify stakeholders of any potential delays, enabling quick corrective action when necessary.
5. Choose the Right Partners
Selecting reliable freight forwarders and customs brokers makes a significant difference. Experienced partners with a proven track record will help you navigate the complexities of container management and avoid unnecessary delays. Conduct thorough vetting and establish partnerships with reputable service providers. This is particularly true of small to mid-sized shippers who lack internal expertise in global shipping and rely on their partners to manage the process. Check out our eBook: The Small Business Survival Guide to Global Shipping.
6. Conduct Regular Audits and Reviews
Conducting regular audits of shipping processes, including reviewing data on past shipments, can help you identify patterns that may lead to demurrage and detention charges. These audits help you identify root causes, implement fixes, and improve future performance. Regular audits are a critical part of avoiding detention and demurrage charges.
7. Solve Problems Proactively
Problems and delays are inevitable in shipping, but taking a proactive approach can mitigate their impact. Establish solid contingency plans and have a dedicated team ready to address issues as they arise, so you can quickly resolve them. This is one area where an experienced freight forwarder, like I.C.E. Transport, can provide invaluable assistance.
8. Negotiate Favorable Contract Terms
This can provide you with additional protection against demurrage and detention charges. Discuss the amount of free time allotted, the extent and amounts of penalties, and any exceptions that apply during contract negotiations, so you can manage your risk.
Avoiding Unnecessary Carrier Charges Just Makes Good Business Sense
Learning how to avoid detention and demurrage charges requires a comprehensive approach that combines efficient documentation, proactive communication, optimized scheduling, and strategic use of technology. By understanding the root cause of these charges and implementing best practices, businesses can significantly reduce their financial impact, leading to a more efficient and cost-effective supply chain.
Incorporating the steps outlined above not only helps you avoid unnecessary fees but also improves operational efficiency, profitability, and customer satisfaction. An experienced logistics and transportation partner can guide you.
Are excess demurrage and detention fees a problem for your business? Contact the global shipping experts at I.C.E. Transport to bring these costs in line. I.C.E. Transport is a licensed NVOCC that gives small and mid-sized businesses unmatched global shipping expertise together with the highly personalized service of a family-owned operation.
