Intermodal freight transportation depends on fast turnaround times. That means having the equipment available to continue sending and receiving shipping containers is crucial.
Businesses sometimes exceed the amount of time they’re allotted for the use of assets like shipping containers. They may also fail to pick up a container at an intermodal port by a previously agreed-upon deadline.
In those cases, shippers charge fees to encourage their assets to stay in circulation. Demurrage and detention fees are two of the most common examples.
Let’s take a closer look at demurrage vs. detention and how these fees affect businesses. Understanding them can help your company save money.
Container Demurrage Vs. Detention: What are They?
What is Demurrage?
In a very general sense, demurrage in intermodal freight refers to containers that contain cargo while held inside a port. More specifically, a shipping line will apply a demurrage charge when customers exceed the limits of their agreement.
Free time is provided to use and move a shipping container at a port without cost. Once the allotted free time expires, demurrage charges can be applied. This added cost can be applied to both imports and exports.
The specifics can vary from one carrier and shipment to the next. However, most container shipments have a set amount of free time between 4-7 days.
Container Xchange explains that demurrage charges promote quick turnaround times. That helps the shipper, the port, and (in a very small way) the global supply chain industry continue to operate efficiently.
The foundational reasoning behind demurrage is compensation for one business using another’s equipment. The idea is to charge the owner of the contents in the container. Why? Because they’re essentially denying the use of the container to its owner, and the owner’s other customers.
What is Detention?
Detention is similar to demurrage in many ways. Detention charges also apply to a shipping container owned by a shipper and used by a customer. Those fees are applied when a customer occupies a container for too long a period of time. Once the amount of free days (also called the free period) is exceeded, the charges start to accumulate.
The major difference in container detention vs. demurrage is the location of the container. Demurrage applies while within a port. Detention, on the other hand, applies when a container is outside of a port.
There’s another distinction to keep in mind in the demurrage vs. detention charges conversation. Detention fees are charged regardless of the state of the container. It could be fully loaded, in the process of unloading, or empty.
The charges apply because the container is away from the port and unavailable for other use. That’s the logic behind detention fees.
Demurrage Vs. Detention Vs. Per Diem Vs. Driver Detention
The question of demurrage vs. detention meaning should be clearer with these definitions. However, there are a few more terms to keep in mind.
Per diem is a standard type of detention charge. As you may be able to guess, it’s charged on a daily basis until the equipment is returned.
Driver detention is separate from the fees charged by shippers and container owners, although with a similar basic premise. It’s centered on truck carriers, container truck drivers, and their customers.
Driver detention fees are incurred when drivers have to wait an excessive period of time (generally more than a few hours) to pick up an empty or loaded container and carry it to the port. Because the drivers are waiting around instead of being able to take on other work, trucking companies will charge for the time lost.
How Can my Business Save Money on Demurrage and Detention Fees?
In the larger container demurrage vs. detention conversation, there’s one specific topic that just about everyone wants to learn more about. Namely, avoiding the costs of demurrage and detention fees.
There’s been plenty of debate about how and when to apply these charges, as the United Nations Conference on Trade and Development explains. But what can your company do in practical terms?
What can be Done to Reduce Demurrage Costs?
Ultimately, your goal is to cut down the time a filled container remains in a port after it’s unloaded from a container ship. To reduce the chances of demurrage fees being applied, you can consider:
- Pre-clear your shipments: Ensuring all your documents are in order and setting up preclearance can help get your container out of a lengthy wait for on-site customs clearance. That means more free time where your container is available.
- Understand your contract: Know how much free time is available to your company and make plans to use it effectively.
- Proactively communicate with your carrier: Schedule pickup as soon as possible and keep your trucking carrier informed of any updates or issues.
How can I Cut Down on Detention Fees?
Avoiding detention fees is all about getting a container back to the port as soon as possible. That perspective addresses per diem and other ocean carrier detention fees, as well as driver detention costs. Consider these options for avoiding these fees:
- Be ready for the shipment: Have an internal strategy in place to ensure the resources needed — a loading dock, employees, forklifts, etc. — will be ready when the container arrives. That gets rid of idle time while the container is away from the port.
- Schedule a container truck well in advance: Make sure your container trucking partner can fit the load into its busy schedule by offering advance notice.
- Track free time: Actively tracking the time remaining before fees start can help you prioritize containers for unloading.
At Iraheta Bros., drayage in the Port of Oakland is our foundation. Our experienced, skilled drivers understand how to navigate the congestion and complexities of the port. We strive to make every pickup and dropoff as efficient as possible, helping our customers avoid demurrage and detention fees.