In our inflationary environment, shipping providers need to look for ways to reduce expenses more than ever before.
After all, shipping rates for moving goods by road and rail increased 23 percent year-over-year through December 2021. Making matters worse, those rates are likely to keep rising in 2022—meaning budgets are tight and customer expectations are rising.
Two common issues that plague shipping companies today are demurrage and detention. When they aren’t managed properly, they can seriously affect your bottom line—and your reputation.
In this post, we’ll provide an overview of demurrage and detention and some tips to help you avoid related penalties.
Most ports and warehouses today provide a window of free time for storing shipments when they arrive. Ports often allow up to a week of free time, while land and air shipments typically allow only one or two days. However, times can vary drastically from place to place, so it’s worth confirming policies before you use a facility.
Once the free period ends, the facility will typically charge a demurrage fee that accumulates at various intervals until the item is picked up. This can be $75 to $150 or more per container, per day.
Demurrage can stem from a variety of causes, such as missing documentation, customs delays, or bad weather.
Detention is the charge that merchants have to pay for using a container after free time expires.
For example, suppose you import a container to a shipping facility in Seattle. After the container goes through customs, you have to return the container to the port. If you don’t return the container in time, the carrier can charge a detention fee.
Just like with demurrage, detention fees can accumulate at set intervals—potentially resulting in heavy fines.
Of course, detention and demurrage charges can negatively affect your bottom line and create tension with shipping partners—neither of which is good for business.
Detention and demurrage are also now in the spotlight following the introduction of the Ocean Shipping Reform Act, which would require terminal operators and ocean carriers to certify that any late fees comply with federal regulations. Otherwise, the issuing party could face penalties. The bill has passed the U.S. House but is not yet law.
Further, the act would place the burden of proof for reasonableness of charges on the carrier instead of on the receiving party.
So, how do you avoid detention charges? Here are a few strategies.
Detention and demurrage policies tend to vary across different locations. Some facilities maintain strict policies, while others may be willing to work with you to reduce expenses.
As such, consider negotiating during the initial quoting process. If you anticipate potential shipping delays, you may be able to request more free time and avoid penalties.
Remember: Everything in life is negotiable—including shipping quotes. Don’t be afraid to play hardball and shop around for other options if a shipping partner won’t work with you.
When negotiating shipping contracts, it helps to have as much data at your fingertips as possible. There are countless factors that can influence shipping times and potentially lead to demurrage and detention. These factors include staffing issues, weather patterns, shipping volume, and port or warehouse traffic.
By using predictive analytics, you can anticipate potential issues and negotiate strategically to buy yourself more time.
The customs clearance process can take anywhere from 24 hours to several days or weeks. When delays occur, shipping providers may still tack on demurrage or detention fees—leaving you to foot the bill.
For this reason, you should always check whether your country offers preclearance in order to expedite the customs process and gain faster entry.
It may also be worth working with a customs broker, who can streamline entry into your destination country. Customs brokers specialize in helping goods pass through borders.
Working with a customs broker can make the shipping process easier. But there are some potential pitfalls to avoid.
First, the broker has to be reputable and capable of moving items through customs. And if you decide to work with a customs broker, make sure the fee doesn’t exceed what you would otherwise pay in detention and demurrage fees.
Oftentimes, shipping delays stem from a lack of communication between consignors and consignees. To illustrate, a shipment may arrive, but the consignee may not receive the notification in time.
This may happen for a variety of reasons like inaccurate ETAs, poor shipping alerts, and negligence on the consignee’s part. However, you can potentially avoid these types of issues by maintaining strong communication between team members.
Consider using tools like text messaging, apps with real-time alerts, and email notifications. You can also use real-time tracking to increase visibility. These tools can also come in handy when transporting specialty items that may require extra loading or unloading time—or that may need special clearance at customs.
Shipping teams often put the majority of their time and attention into shipping products to their destinations. Unfortunately, many neglect to account for loading and unloading.
It’s possible to reduce detention and demurrage by factoring these processes into scheduling and budgeting for the extra time it takes to properly load and unload items.
When shipping products, you have to anticipate issues. Common obstacles include port congestion, mechanical failure, and staffing shortages.
As such, it’s a good idea to have backup options whenever possible. This may include having extra drivers on standby or forming partnerships for on-demand land, air, rail, or water shipments. By having backup crews ready to go, you can sometimes avoid delays and reduce your chances of having items or containers sit too long.
Many shipping companies are still using outdated paper-based or spreadsheet-based management systems to run their operations. These methods are highly inefficient and often contribute to mistakes, disputes, and shipping delays.
In light of this, one of the best ways to prevent detention and demurrage fees is to digitize your shipping documents, including the bill of lading, manifest, invoice, and proof of delivery. In doing so, you can streamline processing and prevent paper issues from affecting your delivery process.
Vector is transforming the shipping industry by improving visibility and transparency for logistics and field services companies. The folks there can digitize your entire pickup and delivery process, allowing you to ditch paper and manual processes. This way, you can minimize data entry, improve communication, and reduce shipping complications—and enjoy better business outcomes because of it.
Plus, Vector can provide your business the data that you need to track and monitor fees like demurrage and detention. This is particularly useful for businesses that ship at scale. With this type of data at your fingertips, you can make adjustments and monitor progress. Over time, you can lower shipping costs and reduce conflicts.
What’s not to like?
At the end of the day, you can’t always prevent demurrage and detention from occurring—especially during times of crisis, when ports and receiving facilities may have long wait times and staffing shortages.
However, you can take precautionary steps to anticipate potential problems and manage shipping delays. Digitizing your shipping operations and modernizing your management process is a great place to start.
To experience the transformative power of Vector’s digital shipping solutions, request a free trial.
This post was written by Justin Reynolds. Justin is a freelance writer who enjoys telling stories about how technology, science, and creativity can help workers be more productive. In his spare time, he likes seeing or playing live music, hiking, and traveling.
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