Demurrage can be a major source of headaches for everyone involved in the shipping industry.

With the costs involved in shipping goods always rising, the last thing you want is a hefty bill of demurrage before your cargo is even released.

In this guide, we’ll cover exactly what demurrage is, why it’s charged, and some steps you can take to minimise the cost.

What is demurrage?

There are two different kinds of demurrage.  

The first is a penalty fee paid by the shipper, charterer, or consignee to the shipping line or terminal operator in the event of delayed loading or unloading operations of the chartered vessel.  

The second kind is charged for late pick-up of containers at the port of discharge.

Containers are usually owned or leased by shipping lines and sublet to traders and shippers.  For businesses to keep moving, they must ensure their containers are loaded and unloaded on time.

Regarding the first kind of demurrage, the contract between the shipping line and the charterer—called the “charter party”—provides a certain amount of free time called “laytime” during which the vessel is to be unloaded. Demurrage is charged down to the minute when laytime is exceeded.

The second kind of demurrage, used in container shipping, refers to the number of days a container is standing at a terminal before loading onto a vessel (in the case of exports) or after discharge (in the case of imports).  

Containers also have a set amount of days, called “free time,” where they are allowed to be standing before demurrage is charged.

There are ways to avoid these late charges, and the best way to start is to understand why they’re levied.

Why is demurrage charged?

Any delay in loading or unloading a vessel and its containers translates into lost profit on the shipowner’s side and congestion at the port.  

If a ship is berthed longer than expected, subsequent contracts get delayed, and the shipowner can’t exploit the full capacity of its fleet. It can also disrupt other scheduled shipments as a result, which can have a ripple effect on the whole supply chain.

It’s the same for shipping containers.  If a full container is held up at the port, it can’t be used for the next onward journey.  If many containers are held up, it can lead to shortages for the next shipment.  Plus, if the container yard at the port is full of containers, new containers cannot come into the yard.

The shipping line bills demurrage to compensate for the financial loss resulting from the ship being out of commission beyond the agreed laytime.

The container fee compensates the terminal for the increased operational effort.  In most cases, this is billed to the shipping line and then passed onto the shipper, but in some countries, it needs to be paid directly to the port terminal.

It is a prerequisite for settling demurrage before containers can be removed from the terminal.

Simply put, demurrage fees help to make sure commerce continues to flow.

How many free days are there before demurrage charges?

The number of free days can be negotiated in the contracts between the shipping line and the charterer or shipper.  More favourable terms are generally offered when shippers are moving high volumes.

It also depends on the port terminal, as all terminals have different rules.

Broadly speaking, laytime ranges from two to seven days and freetime from three to 15 days.  Many variables affect this, including vessel size, amount of cargo, and if the port works on weekends.  

Establishing the exact number of days with the shipping line and port terminal is important to avoid the fees.

Who pays for demurrage?

Demurrage charges are, in essence, a method of ensuring vessels are unloaded and cargo is collected from the port for onward travel—either by the ocean carrier or truckers for overland travel—within a set time frame.

As this responsibility falls on the shipper or consignee, they generally bear the fees when they exceed their free time.

Demurrage fees are levied on imports and exports as delays can cause disruptions regardless of where the cargo is being shipped from or to.  Whether it’s the importer or exporter who pays depends on when the fees are incurred in the journey and the agreed commercial terms.

How much does demurrage cost?

Given the scope of this article, it's impossible to put an exact number on the cost as the overall cost of demurrage can vary, depending on your contractual agreements, ocean carriers, and terminals.

According to a 2020 report by Container xChange, the average cost of demurrage for a 20’ dry container after 14 days was $537.

The report also noted a difference of $190 from the cheapest (Busan, South Korea, with a daily charge of $6.46) to the most expensive (Los Angeles, USA, at $196.88 per day).

What is an example of demurrage?

While it’s outside the scope of this article to give an example of charter party demurrage, we can explain container demurrage.

Let’s assume Dwight and Jim expect a shipment of ten containers each at the same port from the carrier. Should they become liable, the demurrage fee is $100 per container per day.

Jim can’t receive the shipment during his free allotted days and his containers wait at the port for another five days. Dwight receives his shipment the day after they arrive, well within his allotted free days.

Dwight isn't charged any demurrage as he picks up his containers within the free days.

On the other hand, Jim has to pay demurrage charges for his 10 containers for the additional five days over his free time.

What are the effects of demurrage?

Demurrage can cause several pain points across the supply chain.  Some of the biggest ones are:

• Financial loss
• Legal issues
• Supply chain issues

Let’s take a deeper look at them.

1. Financial loss

In the example we showed in the previous section, Jim incurred a $5,000 demurrage fee for not picking up his containers on time.  This fee was for 10 containers – now imagine how high it would be if he had 100 containers or more.

With demurrage rates varying so greatly across ports and carriers and charges increasing with every additional day over the free time (in most cases). The cost can rise exponentially also because of arbitrary thresholds, depending on the port's geographical location. For instance, it could be the first three days free, then $100 for the next three days, then $150 for the next, and so on.

For shippers who move high volumes of cargo, it’s crucial to negotiate for extra free days and to make sure the containers are collected swiftly to avoid bills that can reach six figures and above.

2. Operational challenges

Delays in a vessel’s arrival count against the free time charterers have to load or unload their cargo, increasing the risk of demurrage.  

Container shipping also comes with complications and logistical challenges, especially in intermodal transport, that can also lead to higher demurrage fees.

For example, demurrage fees must be paid before the container is released to the importer.  This can sometimes lead to a further day’s fee being added on between payment and the importer arriving to collect. On-carriage is then delayed even further.

3. Legal issues

Legal issues can arise when there are disputes surrounding who is responsible for the delays, such as if the shipping line charges the shipper demurrage for a delay that was, in fact, their fault.

Plus, with new legislation enacted in the USA relating to demurrage and detention fees, carriers can get into a lot of trouble charging the fees without proper documentation.

The bill, which took effect on 16 June 2022, stated that failing to include all the information on the demurrage invoice would “eliminate the shipper’s obligation” to pay the charges.

That could mean a massive loss for the shipping company.

4.  Supply chain issues

Delays in container turnaround don’t just result in demurrage fees.  It can completely disrupt the entire supply chain.

During the global lockdown resulting from the COVID-19 pandemic in 2020, hinterland transportation broke down, meaning many containers were held at port far beyond the agreed freetime.

This led to massive increases in charges to shippers, with demurrage costs doubling at the peak of disruptions in 2021.

The disruptions caused port closures that hampered operations, and containers weren’t loaded or unloaded at their origins and destinations because of factory closures.

This, in turn, caused a major backlog of both loaded and empty containers waiting to be collected for onward travel, which exacerbated an existing container shortage.

What is the difference between demurrage and detention?

The difference between demurrage and detention is that demurrage applies to containers exceeding the freetime within the port terminal. In contrast, detention applies to containers and equipment that is outside the terminal, i.e., on its way to or with the consignee.

Two types of detention charges are applied after a free time period.  They are:

• Per diem detention:  When containers owned by the shipping company are taken off-site (e.g., out of container yards, rail yards, etc.) to deliver the contents to their destination but are not returned within the designated time limit.

Per diem charges are accrued at a fixed rate for each shipping container per day, until you return the empty container to the port or depot.

• Driver detention:  When a lorry driver is delayed beyond an agreed time limit while goods are loaded at the pick-up point or unloaded at the dropoff location.

Driver detention is charged hourly, depending on a trucker’s waiting time at the pickup or dropoff location. It’s effective as soon as the free time is surpassed.

The two types of detention fees are not mutually exclusive, so they can apply simultaneously.

What is the difference between demurrage and storage?

Storage charges are incurred when the port authority or terminal stores the containers on its land, such as in its warehouses.  

You will be charged storage fees when your container remains at the terminal past the given free days.  Once again, this fee is charged on top of demurrage.

What is the difference between demurrage and despatch?

Just as charterers are penalised for exceeding their allotted lay days, they can be rewarded with a despatch payment for quick loading and unloading operations that allow an efficient vessel turnaround.

Usually, shipping lines pay despatch at half the rate of demurrage.

What are the main causes of demurrage?

Many factors can delay the loading and unloading of a vessel and collection of containers—from extreme weather and workforce shortage to port congestion, old port infrastructure, hinterland transportation delays, and local holidays.

All of these (and more) can lead to demurrage.

Let’s explore the most common causes of demurrage so you can create a realistic strategy for avoiding it.

1. Issues with the shipping documentation: If paperwork is incorrectly filled out or missing, it can significantly impact the release of the cargo.
2. Customs clearance and cargo inspection delays: Customs clearance can be time-consuming, and if there are documentation issues or if inspections take longer than usual, the cargo can’t be released.
3. Port congestion: When ports are busy, space becomes limited and there is likely to be staff and equipment shortages.
4. Extreme weather conditions:  The weather is a major disruption in the shipping industry, and unloading delays are no different.
5. Poor communication: Lack of proper communication channels between stakeholders can lead to delays that could have easily been avoided.

To avoid these demurrage triggers, follow the six tips below.

How can you avoid demurrage fees?

While demurrage can never be ruled out, thanks to the vagaries of the shipping industry, there are proactive measures you can take to minimise the risk.

Here are six ways you can do so.

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Know the port’s regulations and processes

Ensure you understand the customs clearance processes and all related port regulations, permissions, delivery instructions, etc., at the destination.  

For example, if you are shipping your cargo to the USA, you will need these shipping documents:

• Commercial invoice‍
• Bill of lading
• Packing list
• Arrival notice

Having all of your documents organised in advance is vital if you want to avoid clearance delays.

Request additional free time

If you regularly ship large volumes of cargo, you can gain “big shipper” status with shipping lines.

This makes it easier for you to negotiate better terms with the one you may choose to use.

When negotiating, request additional laytime or freetime.  Extra free days will help mitigate the risk of demurrage fees while your cargo is unloaded or your containers wait to be picked up.

Pre-clear your cargo

If possible, pre-clearing your cargo through customs can save you a lot of time.  As long as you have all the correct paperwork and everything is completed, you can pre-clear your cargo up to five days before the vessel even arrives.

On top of saving time in customs clearing, it can enable you to arrange and coordinate your pickups early too.  The more logistics you can pre-plan, the better.

Arrange pickups in advance

Just as pre-clearing the cargo can help you avoid delays at customs, having your pickups pre-arranged can save time, too, by ensuring movers and truckers are available to handle your containers as soon as they arrive.

Use vessel and container tracking solutions

It’s all well and good to be prepared for the arrival of your containers, but things can go awry at sea.  This is why it’s important to keep track of your containers and the vessels they’re traveling on so you can be proactive about delays.

That’s where the MarineTraffic tool by Kpler comes in.

With robust container tracking features, you can view carrier-independent ETA information to understand exactly when your shipment will arrive.

By integrating various data sources, including AIS, machine learning, Carrier Track & Trace, and Vessel Schedules, Kpler provides real-time container position insights.

With a live tracking map and data insights about potential delays and days at port, you can ensure smooth daily operations and track past, present, and future shipments.

Its ship tracking features enable you to track the vessels carrying your shipments from pickup to drop off and be aware of any delays in real time. And with the container tracking features, you can always remain up to date on their location—regardless of their carrier.

By having access to this accurate, real-time information on the location of your containers, you can better manage container movements and reduce the risk of incurring demurrage charges.

Share clear instructions with each party

Clear communication at every shipping process step is crucial in avoiding delays and misunderstandings.

Share all cargo and delivery-related information with all parties and stakeholders, from exporting to receiving.

Now over to you

Demurrage is, unfortunately, a largely unavoidable part of shipping in today's industry.   With massively busy shipping lanes, port congestion, and the global shipping container surplus, delays are somewhat inevitable.

Thankfully, with the steps we’ve covered and tools like MarineTraffic by Kpler, you can stay ahead of delays and be proactive about avoiding them.

Schedule a demo with Kpler to learn more and start making more informed decisions about your shipments today.

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Did you know?

All of the data and insight from this article came from the Kpler and MarineTraffic platforms. Enabling maritime professionals, commodity traders, producers and investors to reduce risk and maximise returns, to make better decisions, faster with real-time, unbiased expert research, AI-driven analytics, and precise forecasting.

See these powerful tools in action. Get your demo of the Kpler or MarineTraffic services now.

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