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Demurrage charges: Definition, example, and how to avoid it

Demurrage fee is charged to exporters for delayed unloading and loading of goods from transportation. Learn more about the process in the blog.

There are a range of fees associated with global trade that exporters should be aware of to avoid unexpected costs. One of the most common and expensive charges is demurrage, which applies when containers stay at ports longer than the allowed free storage time. Both importers and exporters can benefit from understanding these charges and finding ways to minimize them. This blog post will cover what demurrage charges are, how they work, who they affect, and practical ways to avoid them.

What is demurrage?

Demurrage is a fee that must be paid for containers that occupy port or terminal space beyond a set period, usually referred to as “free time.” The free time period permits importers and exporters to transport goods freely without incurring additional charges. However, if the cargo isn't moved within this time, penalty or demurrage is levied every day. Shipping companies and port authorities impose demurrage to force businesses to clear their shipments, which, in turn, ensures the smooth running of ships and the right use of port space.

Demurrage for exporters

For exporters, demurrage fees can occur when their goods are not loaded onto a ship within a specified time frame in the early stages of the export logistics process. This can happen if the exporter is not able to provide necessary documentation or if there are issues with cargo. The demurrage charges can add up quickly, making the transaction expensive for the exporter, especially if the delay is significant.

Customs issues

Customs inspections or stringent regulations can halt the shipping process until further investigations are complete.

Documentation errors

Inconsistent, wrong, or missing documents can prevent a container from receiving clearance for transport.

Logistical delays

Issues with inland transport (such as delayed trucks or port congestion) may lead to the inability to carry the cargo.

Demurrage for importers

Importers face demurrage charges when cargo arrives at the destination port and cannot be moved promptly. Such occurrences may be attributed to:

Incomplete documentation

Customs clearance may be delayed if importers do not provide additional required documents, including customs paperwork.

Transport delays

A shortage of available trucks or rail transport may mean, in some cases, that the container will sit at the terminal for longer than planned.

Unanticipated port congestion

Delays can occur in crowded ports if an importer does not organize cargo pickup on time, thus prolonging port stay.

Why is demurrage important?

Demurrage charges are essential for efficient port and shipping operations. They help prevent terminals from becoming overcrowded by encouraging containers to move out promptly. Without these fees, containers might sit at terminals too long, causing delays and inefficiencies. For terminals, demurrage also covers the costs of handling containers that overstay, such as storage, maintenance, and monitoring.

Why are demurrage charges imposed?

Demurrage charges are imposed for several reasons. Some of these are as follows:

• Space management: Terminal space is limited, and demurrage incentivizes businesses to clear their cargo promptly, preventing overcrowding.
• Operational costs: Fees help cover the additional costs terminals incur to manage and monitor containers that overstay.
• Resource allocation: By charging demurrage, terminals ensure containers don’t monopolize port resources and space.
• Increased throughput: Demurrage promotes a faster cargo turnover, essential for ports handling high volumes.

Feature

Demurrage Charges

Detention Charges

Definition

Charges for containers remaining at the terminal beyond free time

Charges for containers held by the consignee outside the terminal for longer than agreed upon in the contract

Purpose

Ensures terminal space is cleared

Encourages return of containers

Cost calculation

Daily rate within terminal limits

Daily rate once container is removed

Application

Applies within the terminal

Applies outside the terminal³

How much does demurrage cost?

Demurrage can costs can range from a few hundred dollars to several thousand depending on factors such as port location, container type, and terminal policies. Typically, charges start as daily rates and increase over time, with some terminals escalating fees the longer the container remains unclaimed. Charges are usually the highest in ports that are congested or when peak shipping seasons are in progress, and there can be cases when terminals escalate the fees every day. Businesses should take these expenses into account and review demurrage rates in advance to avoid unexpected costs.⁴

How are demurrage charges calculated?

Demurrage fees are determined based on the daily demurrage rates at the terminal and the number of days the cargo exceeds the allotted free period. However, the exact amount varies depending on multiple factors. These include:

Free time

This refers to the free days available to keep the cargo at a terminal before charges set in, which can be different across shipping lanes and ports.

Daily rate

These are the fees that accrue in a gradual manner each day after the free period is exhausted.

Container type and size

Charges for larger containers and specialized cargo are often higher.

Port region

Ports located in regions with high demand and limited space have high increase rates.

Tips to avoid demurrage charges

The following are some tips that can help exporters avoid demurrage costs:

Plan and schedule in advance

Ensure transport is ready to move containers as soon as they arrive, reducing port dwell time.

Prepare documentation early

Accurate and complete documentation speeds up customs clearance and avoids unnecessary hold-ups.

Leverage tracking tools

Real-time tracking systems can alert businesses about delays and allow them to respond quickly.

Engage with shipping partners

A strong relationship with carriers and port staff can provide flexibility during unexpected delays.⁶

Example of demurrage charges

Consider a small Indian business exporting skincare products to the US through a port in Mumbai. Due to unforeseen delays in documentation and unprepared transport arrangements, the brand’s shipment stays at the terminal seven days beyond the allowed free period. If the daily demurrage fee is ₹5,000, the brand will end up paying ₹35,000 in extra charges. This situation could have been avoided by arranging transportation in advance and ensuring that all import documentation was accurate and prepared.

Conclusion

Demurrage charges can drastically increase logistics and transportation costs for importers and exporters. Businesses can avoid demurrage charges by planning ahead, preparing all documentation, and engaging with trusted shipping partners. With Amazon Global Selling, Indian businesses can streamline their export processes, access international markets efficiently, and reduce logistical complexities. Exporters can leverage Amazon’s tools and programs to simplify customs documentation and international shipping and avoid delays and unexpected charges like demurrage.

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Frequently Asked Questions

Who has to pay demurrage?

Cargo owners have to pay demurrage charges.

How long does it take before demurrage charges are applied?

The time before demurrage charges is applied varies by carrier and port.

What are laytime and demurrage?

Laytime is the time allowed for loading and unloading. Demurrage is a charge for exceeding this time.

Do demurrage charges apply to less than container loads (LCL)?

Yes, demurrage charges can apply to LCL shipments if they exceed the free time at the terminal. However, rates and conditions may vary, so businesses should check with their shipping provider.

How much is demurrage per day?

Demurrage rates generally range between $50 and $150 per day, depending on the port and container type. Some ports increase daily rates over time to discourage extended stays.

What is free time in shipping?

Free time is the period allowed for shippers to clear or move cargo from the terminal without paying demurrage charges. It typically ranges from 3 to 7 days, though this varies by port and contract.

Published on March 29, 2023.

Sources:
1. https://www.investopedia.com/terms/d/demurrage.asp
2. https://sinay.ai/en/what-are-the-common-causes-of-demurrage-and-detention/
3. https://www.maersk.com/logistics-explained/transportation-and-freight/2023/08/28/what-is-demurrage-detention-in-shipping-for-buyers
4. https://www.tradefinanceglobal.com/freight-forwarding/demurrage/
5. https://www.withvector.com/blog/demurrage-definition/
6. https://www.expedock.com/blog/10-tips-to-reduce-container-detention-and-demurrage-charges

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