What are the common causes of demurrage and detention?, intrigues a Sinay news source.
Enhancing global supply chain efficiency
Shipping lines have a significant responsibility for effectively allocating resources, enhancing global supply chain efficiency, and recovering expenses. They face daily challenges such as ensuring the availability of equipment and space, adhering to expected departure and arrival dates, maintaining transit times, and facilitating the quick release of goods. These challenges must be addressed to minimize unnecessary and costly delays and contribute to the reduction of port congestion.
As a result, shipping lines impose demurrage and detention fees on importers or consignees who fail to comply with specified timelines. Understanding the factors that lead to such penalties and implementing proactive solutions will help importers and consignees avoid potentially huge extra costs.
What are the main reasons for demurrage and detention fees?
Demurrage charges are applicable when containers or cargo remain inside the port terminal beyond the allotted free time, awaiting collection by the consignee. This period begins upon cargo discharge from the vessel and typically ranges from 7 to 14 calendar days.
Likewise, importers are liable to pay detention fees if the empty container is not returned to the designated container yard, whether inside the port or another location specified by the shipping company, within the permitted free days.
In summary, both fees have been set to:
- discourage excessive delays;
- prevent bottlenecks and congestion at ports, terminals, and storage facilities;
- cover additional expenses for the shipping lines (equipment rental, port storage, and administrative formalities)
The difference between demurrage and detention in their respective timeframes. Demurrage fees are incurred when the container is still within the terminal, whereas detention charges are applied if the container remains in the possession of the consignee beyond the number of free days provided by the shipping line.
To avoid demurrage and detention charges, consignees have to be aware of their main causes and take appropriate actions.
Port Congestion
Such a situation occurs when there is a high volume of cargo lying at the port, which limits space and resources for handling and processing shipments. Congestion can result in delays in loading or unloading cargo, causing demurrage and detention charges to accrue. Since the pandemic, some of the major ports around the world still suffer port congestion (Shanghai and Qingdao in China, Long Beach, and Los Angeles on the US West Coast, Singapore, Hamburg in Germany, Rotterdam in the Netherlands, etc.). This leads to important delays in the delivery of raw materials and manufactured goods and impacts many industries.
Delayed Cargo Retrieval
Delays in cargo retrieval from the port terminal or designated yards disrupt the smooth flow of operations and create additional costs for container utilization and storage. This can occur due to factors such as inefficient yard management systems, limited workforce availability, or congestion within the port. Implementing advanced tracking and scheduling technologies can help optimize cargo retrieval processes and minimize the likelihood of demurrage and detention fees.
Documentation/Administrative Issues
Incomplete or inaccurate paperwork can cause delays in customs clearance and the release of cargo. As a result, the cargo remains in the custody of the port until the documentation issues are resolved. This occupancy of space and the additional costs incurred need to be recovered through demurrage and detention charges. To mitigate these issues, companies can invest in digital documentation systems, employ experienced customs brokers, and ensure proper documentation procedures are followed throughout the shipping process.
Delayed Customs Clearance
Delays in the customs clearance process, including inspections, duty assessments, or documentation verification, can lead to extended container dwell time and subsequent demurrage and detention charges. Good preparation and efficient coordination with customs authorities are crucial to expedite the clearance process. Utilizing automated customs clearance systems and maintaining proactive communication with customs officials can help streamline the process and reduce the risk of incurring additional fees.
Equipment
Unavailability or inadequate utilization of equipment, such as containers, chassis, or handling machinery, can contribute to delays in cargo movement. Insufficient equipment resources or operational inefficiencies can lead to demurrage and detention charges as containers are held for longer periods than anticipated. Investing in proper equipment maintenance, optimizing equipment utilization through advanced planning tools, and collaborating with reliable equipment providers can minimize equipment-related delays and mitigate the associated fees.
Communication
Poor communication among stakeholders involved in the shipping process, including shippers, consignees, carriers, and port authorities, can lead to misunderstandings, coordination issues, and delays in cargo handling. Effective communication and information sharing are essential to avoid demurrage and detention situations. Implementing robust communication channels, such as digital platforms for real-time updates and establishing clear lines of communication between all parties involved, can significantly enhance coordination and reduce the risk of delays and additional charges.
Natural Elements
Natural disasters, adverse weather conditions, or unforeseen events can disrupt port operations and transportation networks, causing delays in cargo movement. These external factors can result in demurrage and detention charges as the timeline for cargo delivery is affected.
It is essential for stakeholders in the supply chain to address these causes and implement proactive measures to minimize demurrage and detention incidents.
How to avoid being charged with demurrage and detention?
Optimize sourcing and logistics planning
Streamlining procurement and transportation processes is crucial to avoid disruptions in the supply chain and ensure smooth operations at the destination. Developing strong relationships with reliable suppliers and other stakeholders is vital for effective collaboration and communication. Utilizing digital platforms enables real-time container tracking, information sharing, document exchange, and quick resolution of potential issues.
Closely monitor the expected time of arrival (ETA) of the cargo
To effectively prepare for the cargo’s arrival, having accurate information about the expected time of arrival (ETA) at the destination port is crucial. Utilizing tools such as Sinay’s ETA calculator can greatly assist in staying informed about the ETA of a specific vessel, enabling efficient planning and resource allocation. This ship/ocean freight tracking system obtains information from the vessel’s Automatic Identification System (AIS), providing real-time updates on its location and progress throughout its journey.
Ensure all necessary documents are ready
Customs clearance and cargo release require various documents from the ocean carrier. The list includes, but is not limited to:
- Original Bill of Lading (B/L), which serves as evidence of the contract of carriage between the shipper and the carrier. It includes details about the cargo, such as the description, quantity, and destination.
- Commercial invoice, which provides a detailed breakdown of the goods being shipped, including their value, quantity, and description of the products. It allows for the calculation of customs duties and taxes applicable to the imported goods.
- Packing list, which is a comprehensive inventory of the commodities being shipped, including details about the packaging, weight, and dimensions of each item. It helps customs officials control the contents of the shipment.
- Certificate of Origin, which confirms the country in which the goods were produced. It may be required to determine eligibility for preferential trade agreements, tariffs, or other trade-related purposes.
- Import license, which grants permission to import specific goods and is obtained from government authorities.
- Customs declaration form, which provides information about the goods being imported, including their value, origin, and any applicable custom codes or classifications.
- Insurance certificate, which shows that the merchandise is covered by an insurance policy during transportation.
- Other specific documents: depending on the nature of the goods and the country of import/export, additional documents may be required. For example, sanitary or phytosanitary certificates for food or agricultural products, certificates of conformity for regulated goods, or permits for restricted or controlled items.
It is highly recommended to consult with customs authorities or a customs broker to obtain a comprehensive list of required documents for any specific shipment and ensure compliance with all relevant regulations.
Importers should also be prepared for payment of customs duties and taxes, as well as the shipping line’s bill for freight (if payable at destination) and local fees.
Having all paperwork complete and accurate in advance facilitates a smooth clearance and release process and helps consignees avoid demurrage and detention charges.
Planning and booking transportation services for the transportation of the cargo from the port to its final destination is essential. This requires coordination with trucking companies or rail operators to ensure the availability of vehicles and other necessary equipment according to the desired schedule. It is important to transmit all necessary documentation, such as shipping instructions, customs paperwork, and permits, to the transportation service provider in a timely manner. This ensures that they are informed about the cargo’s weight, dimensions, and any special handling requirements.
Most companies now utilize real-time transportation visibility platforms (RTTVP) to streamline cargo or container tracking and tracing. According to Gartner’s definition, these software tools provide customers with live updates on the location and status of their goods.
Prepare the warehouse to receive the goods
The reception of the cargo at the warehouse should be as quick as possible to minimize the container’s idle time and minimize disruptions to daily activities.
- A reception area shall be dedicated to incoming cargo to facilitate unloading, sorting, and inspection and prevent congestion. Shelves, racks, and storage areas also have to be organized to accommodate the incoming goods.
- Adequate equipment (forklifts, pallet jacks, conveyor systems…), as well as a sufficient number of trained crew, have to be ready to handle the unloading and storage of goods efficiently.
- Real-time communication and effective communication has to be maintained by the transportation provider about the estimated time of arrival (ETA) of containers for better planning and resource allocation, minimizing the truck’s waiting time.
Having all necessary documentation ready, such as the original Bill of Lading, packing list, and customs clearance documents helps to expedite the verification and paperwork process.
Conclusion
By incentivizing customers to streamline their logistics operations, demurrage and detention charges help maintain the smooth flow of goods and increase the efficiency of the global supply chain.
Both the International Maritime Organization (IMO) and local regulatory bodies, such as the Federal Maritime Commission (FMC) in the United States, support and promote initiatives that contribute to a robust and efficient maritime shipping industry. These entities also oversee the practices of shipping lines regarding detention and demurrage fees, ensuring that the tariffs set by each company comply with all applicable regulations.
Coordination and active involvement of all stakeholders in the shipping industry is vital to optimize overall supply chain operations and ensure the smooth functioning of global trade. To make more informed decisions, shippers and consignees may also rely on ocean supply chain specialists. For instance, Ocean Insights GmbH, a Germany-based company supplies real-time tracking data and market analysis.
Frequently Asked Questions About Common Causes of Detention and Demurrage
Demurrage fees are charged when containers or cargo remain inside the port terminal beyond the allotted free time, typically ranging from 7 to 14 calendar days after discharge from the vessel. On the other hand, detention fees are imposed when the empty container is not returned to the designated container yard within the permitted free days.
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Source:Sinay
