What is the Difference Between Demurrage and Detention?

If you have no initial knowledge of demurrage and detention, then you might think these two terms are interchangeable. But this is not the case. No doubt they are closely linked with each other, but both of them have their own meaning and other related information.

Due to the confusion between the two terms, most of you face financial losses and pay an extra surcharge.
In recent years, we have seen a drastic increase in these surcharges, due to which it is necessary to learn more about these terms and all other related things.

Key Difference Between Demurrage and Detention

Demurrage in forwarding and shipping refers to a penalty\fee imposed by the yard terminal for keeping your goods at the yard\port after the free time has elapsed. In short, the penalty is imposed on the client for having the goods stay at the container yard or rail ramp longer than the free time. The reason for this penalty is to encourage the clients not to delay picking up their goods from the port.

Detention in forwarding and shipping refers to a fee charged by shipping companies for using their containers or equipment outside the terminal beyond the agreed-upon free time provided to the customer. This fee is intended to compensate the shipping company for the lost opportunity cost of not being able to use their equipment for other shipments while it is being delayed and to encourage the timely return of equipment

Okay! You got the gist of it, but before moving on to their details, you need to understand what “Free Time” is in shipping.

What is Free Time in Shipping?

The term “Free Time” will be used a lot in this post as it is one of the key factors when understanding Demurrage and Detention.
The Free Time in case of demurrage is the time allotted to the client to store his cargo on the container yard or the rail ramp without being charged. In contrast, the Free time in detention is the time allotted to the client to pick up and return the empty containers back to the carrier after off-loading.

The free time for demurrage and detention can vary from different carriers. The minimum Demurrage free time for U.S. base ports is four calendar days (4CD) and two calendar days (2CD) for U.S. inland ports. On the other hand, the minimum Free Time is four calendar days (4CD) for detention.

Once the free time has elapsed, demurrage or detention charges will typically begin to accrue per diem, resulting in high additional costs for the shipper or consignee.

Alright, you are all set to get the details at this point. Let’s start with Demurrage, shall we?

What is Demurrage?

When the cargo arrives at the port, it is stored inside the container yard or in the rail ramp. At this state, the cargo is inside the “Free Time”. The client is allotted free time for storing the cargo at the container yard or rail ramp. Once this free time has elapsed, the cargo comes into the state of Demurrage, in which an amount is charged to the client for each passing day.

This surcharge amount is levied when the buyer has not taken their goods away from the port or terminal within the allowed free time. The main purpose of demurrage is to incentivize the quick release of containers and reduce congestion at the port or terminal (free up the container/rail yard).

The demurrage fee is typically charged per diem, and the rate can vary based on the container’s size, the cargo type, the carrier, and the terminal’s location.

What is the Allotted Free Time in Case of Demurrage?

If you want to avoid the demurrage fee, then it is important that you should know about the allotted free time for each case. As mentioned above, the minimum Demurrage Free time for the base port is typically four calendar days, which means 96 hours from the moment of arrival. However, the exact allotted free time varies from carrier to carrier.

Note: Demurrage and Detention are part of the terms and conditions in your shipping contract.

How is Demurrage Fee Calculated?

Calculating the Demurrage fee is not difficult at all. However, most people make many mistakes in calculating Demurrage. But do not worry. We will guide you to calculate it in detail.

Generally, to calculate the Demurrage, take the “Per Day Demurrage Fine” according to the type of container that you are using and multiply it by the number of days the cargo stayed at the container or rail ramp after the free time.

To demonstrate this, let’s take the data for CMA (carrier) for the country Canada

	DEMURRAGE				Country
Carrier	Days after free time	20GP	40GP	40HQ	Canada
CMA	Free Time	4 days Free (WD)
	1-3 days	160	160	160
	4-6 days	210	210	210
	Thereafter	260	260	260

From this data, you can easily see that:

• The Free time for all three different container sizes is 4 Working Days, starting from the time of arrival. However, for some carriers and some countries, the free time is for calendar days and not working days.
• For 1 to 3 days after the Free time has elapsed, the containers will be charged $160 per day per container
• For 4 to 6 Days after the Free time has elapsed, the containers will be charged $210 per day per container
• More than 6 Days after the Free time has elapsed, each container will be charged $260 per day per container.

Now, suppose you have a shipment come in on Monday (the first working day of the week) with 10 20ft General Purpose Containers, and they stay in the yard for 9 days in total. This means that the first 4 days were free, and you must pay a Demurrage fine from day 5 to day 9.

So, this basically means the Demurrage fee that you have to pay is

10 (containers) x [($210 x 3) (Day 5 & 6 & 7) + ($260 x 2) (Day 8 & 9)] = 10 x (630 + 520) = $11500

We have compiled a list of various carriers (CMA, COSCO, OOCL, HPL, and more) and their demurrage fee plans when working in the United States and Canada for you. If you want to download the list, then click on the button below

Why Do You Face Demurrage?

Multiple causes might put you in a situation where you have to pay a demurrage fee. However, some reasons might be valid, while others might be out of your control. But don’t worry, as we will list each major and common one for you. Some of these reasons include

1. Conflict Between Shipper and Consignee: If the shipper doesn’t receive payment from the consignee, then the shipper can hold the shipment because of this conflict. Alternatively,  there can be a delay when the shipper\consignee sends the payment to the carrier a little too late. Because the carriers need a few days to complete the job, and if the payment is delayed, then this causes a delay in the job.
2. Delay in Custom Clearance: If the client delivers incorrect documents to customs or if the documents are delivered a little too late, then this can cause the shipment not to be released by customs before the Last Free Day (LFD). This eventually results in Demurrage.
3. Unclear Arrival Time: If the arrival time of the cargo has not been clearly communicated with the clients or the forwarders, then the shipment can fall victim to Demurrage.
4. Port Congestion: This one is pretty obvious. If the terminal is over-congested and cannot provide an appointment date, this can easily lead to Demurrage.

Recommended Ways to Avoid Demurrage Fee

By reading the above section of this article, you might have gotten the idea of how seriously this demurrage fee could affect your budget. Now you must be thinking what some of the ways using which I can avoid the demurrage fee:

Well, we have good news for you! Of course, there are many ways that will help you in avoiding the demurrage fee. We will be listing most of them for you,  so you can avoid paying the demurrage penalty in the best possible way:

1. Pickup Planning And Settling Payment: You must plan your pickup schedule in advance. This advance planning will make sure that you have truckers available to receive the goods/items from your containers. Moreover, you should clear the payment 5 to 7 days before the shipment arrives at the port to release the shipment as soon as possible.
2. Prepare Clearance Documents: If you want to reduce the release timing of the shipment from the port, prepare the custom clearance documents 3-4 days before the arrival of the vessel at the destination port.
3. Backup Planning: In the world of shipment, it is a compulsion to have a backup plan. This will allow you to deal with unpredicted delays, and you will not have to pay a large amount of demurrage fee. For example, the trucking company runs out of truckers to transport your cargo. In such cases, having a backup plan will save you from the demurrage fees.
4. Pre-pull the Container: It is not rare to see a case where the warehouse couldn’t receive the container earlier. To avoid this, a good practice is to have containers pre-pulled to store them in a trucking company’s yard.
5. Undivided Attention: Make sure that you give all your attention to the shipment order by keeping yourself in contact with the receiver. If you don’t know about this process, then make sure to familiarize yourself with it because it will also help you avoid the demurrage fee. Alternatively, if you cannot give your attention to the process, then make sure to find a responsible and professional freight forwarder. One that pays attention to the status of the goods and keeps you notified.
6. Sharing of Delivery Instructions: If you are about to deliver any shipment order, then make sure to share the delivery instructions with all the concerned parties to avoid maximum misunderstanding.
7. Requesting For Extra Time: The container might contain food or other products which are comparatively difficult to handle. If this is the case, then make sure that you request some extra free days just in case of unpredicted delays.
8. Study Your Contracts: Understand the terms and conditions of your shipping contract and your responsibilities and obligations to ensure that you comply with the requirements and avoid any penalties.

What is Detention?

After discussing everything regarding demurrage, now is the time to have an overview of the concept of detention. As said earlier, detention and demurrage are different concepts, although they seem to be the same.

The customer/client leases containers from different carriers to deliver their goods from the container yard to their warehouses to unload their goods for a specific free time. If the shippers or consignee is still using the equipment after the free time, then the carrier that owns the containers starts charging the client a certain amount. This charged amount is known to be a detention fee.

Note: (These containers are provided by carriers like COSCO, Evergreen, ONE, MSC, and more)

Types of Detention

We have two further categories of detention.

1. Per Diem
2. Driver Detention

Per Diem Detention

Per Diem detention refers to the detention fee charged per container per day. This is the fixed fee charged until and unless the equipment is returned to the port.

Charging a “Per Diem” detention fee is beneficial because it discourages the consignee from holding the containers or equipment for a long period of time. If the consignee starts holding on to the equipment for longer time durations, then this will mean that the carrier will not have enough containers for other clients. This would mean that the delay in returning the containers can cause the carrier to lose potential business. 

Driver Detention

Driver Detention is not the main focus of this article. Still, in short, driver detention is the amount charged based on the driver’s waiting time at the terminal or the delivery warehouse.

What is the Allotted Free Time in Detention?

The allotted free time for detention depends on the carrier you choose. However, the minimum time is four calendar days for U.S. import shipments.

How is the Detention Fee Calculated?

To calculate the detention fee for your cargo, you will need to know the quota of your carrier in the specified region\country. 

Generally, to calculate the Detention fee, take the “Per Day Detention Fine” according to the type of container that you are using and multiply it by the number of days the container stayed outside the terminal or the designated location after the free time. 

To demonstrate this, let’s take the data for HMM (carrier) for the country United States:

	DETENTION				Country
Carrier	Days after free time	20GP	40GP	40HQ	United States
HMM	Free Time	4 days Free (WD)
	1-4days	160	160	160
	5-8days	195	195	195
	Thereafter	245	245	245

From this data, you can easily see that:

• The Free time for all three different container sizes is 4 Working Days. However, for some carriers and some countries, the free time is for calendar days and not working days.
• For 1 to 4 days after the Free time has elapsed, the containers will be charged a $160 Detention fee per day per container
• For 5 to 8 Days after the Free time has elapsed, the containers will be charged a $195 Detention fee per day per container
• More than 8 days after the Free time has elapsed, each container will be charged a $245 detention fee per day per container

Now imagine a scenario where you took 5 containers (on a Monday) from the carrier and didn’t return them for 11 days. Then the first 4 days were counted within the Free Time periods, and you will have to pay a detention fee from day 5 to day 11. 

So, this basically means the Detention fee that you have to pay is:

5 (containers) x [($160 x 4)(Day 5, 6, 7 & 8) + ($195 x 3) (Day 9, 10, 11) = 5 x ( 640 + 585) = $6125

If you want to calculate the Detention fee for other carriers (CMA, HMM, ONE, OOCL, SML, and more) for the United States and Canada, then we have compiled a list with the latest quotas.

We have compiled a list of various carriers (CMA, COSCO, OOCL, HPL, and more) and their demurrage fee plans when working in the United States and Canada for you. If you want to download the list, then click on the button below

Why Do You Face Detention?

Just like demurrage, detention is also faced due to many reasons. 

In the case of imports, the delivery might stay uncompleted because of various reasons. These reasons may very well include the following:

• The receiver is not reachable.
• The warehouse has no capacity to store new arrivals.
• The terminal is clogged up and cannot accept the return of empty containers.

Now let’s talk about how you can actually avoid the detention fee easily.

Recommended Ways to Avoid Detention Fees

You can surely avoid detention fees if you take care of the below-mentioned list of things.

1. Proactive Management: Plan ahead and coordinate container arrivals to optimize your warehouse receiving process. Check the warehouse’s daily container capacity and stagger your shipping schedule to avoid overwhelming the warehouse. Doing this can streamline the receiving process, improve supply chain efficiency and avoid detention.
2. Optimizing Your Delivery Experience: To ensure timely and efficient delivery, it is highly recommended that you schedule an appointment with the warehouse well in advance. Doing so allows the warehouse ample time to prepare your order for shipment and potentially offer an earlier delivery appointment that aligns with your schedule.
3. Preparation of Involved Parties: If you have dispatched your cargo in advance, the next step is to ensure that all the concerned parties are ready to take their actions. The loading party should be ready to load the stuff, while the unloading party should be ready to unload the stuff from your container. This will also enable the warehouse to allocate the necessary resources to fulfill your order and minimize potential delays or errors in the Delivery Process.
4. Container Management: Make sure that the containers are managed using the FIFO technique, which means “First-in, First-out”. This will help all the empty containers to move out quickly within the allotted free time. Other than this, keep pushing the trucking company to return the container before the LFD (Last Free Day) to avoid detention.
5. Taking Special Permissions: Certain carriers provide different free time durations, which can vary depending on the cargo’s category. Therefore, you should always look at all the available carriers and get quotes and choose the one that gives more “Free Time” and special detention permission due to the cargo category.
6. Lease Shipper-Owned Containers (SOC): It is better to lease a container from an exchange or shipper because they usually provide much longer free detention time. This extended duration of free detention is often enough. This is helpful, especially for peak seasons. It sounds weird, but that’s true because shippers also want their equipment to relocate and keep a good balance between in and out of the port that is why they provide extended time and lower fee penalties.

Lastly, let’s quickly discuss both of these in regard to imports and exports.

Demurrage and Detention for Import & Export

Let’s start with exports. In export, demurrage is charged from when a container arrives at the port until it is loaded on the vessel. In comparison, detention is charged from the time you take the container from the shipping line to pick up the cargo until you return it to the depot.

In the case of imports, demurrage is charged when the container is unloaded or discharged from the vessel (ship) and is currently waiting at the terminal (container yard, rail ramp) to be collected. Whereas detention is charged when the buyer receives a container and they have to unload the cargo and return the container to the depot assigned by the carrier.

Wrap up

By reading this post, you should know the difference between demurrage and detention. If you have a profession linked to the shipping world, then this knowledge should be known by you at every cost. To avoid unnecessary fees, ensure you take care of various instructions so you don’t have to pay additional fee structures. We hope that you gained some beneficial knowledge through this article!