Are you clear on the difference between demurrage and storage fees?
When you are shipping freight, keeping costs low is a major concern. This means it’s important to understand the various fees involved, and how you can maximize your shipping spend.
Successfully navigating demurrage vs detention vs storage fees can save you money. While you can’t always avoid demurrage, detention, and storage fees, you can build a logistics and transportation strategy that reduces their financial impact.
While there’s no substitute for the help of shipping professionals like Iraheta Bros, we are happy to provide a bit of clarification on what these fees are, and how they are different from one another. While we’ve previously discussed the distinction between demurrage and detention, storage fees are different from both and warrant our attention as well.
What is the Difference Between Demurrage and Storage Fees?
Demurrage and storage fees are different in nature and purpose. Perhaps the most significant difference is that demurrage fees are charged by the shipping lines (or the owners of the container), and storage fees are charged by the port or terminal. In both cases, the charges are passed on to the customer.
What are Demurrage Fees?
Demurrage fees are incurred when goods or cargo are not removed from a transportation provider’s container within a specified time frame. This time frame is usually agreed upon in advance and is typically referred to as the “free time” or “grace period” for the cargo to be unloaded or picked up.
As we’ve discussed before in our blog, “Free time is provided to use and move a shipping container at a port without cost. Once the allotted free time expires, demurrage starts, and charges can be applied. This added cost can be applied to both imports and exports.”
If the container remains occupied beyond this period, demurrage fees are assessed as a penalty for the delay. These fees are intended to compensate the transportation provider for the costs and inconvenience of storing and managing the goods beyond the agreed-upon time frame.
What are Storage Fees?
Storage fees, Shipping XChange says, “refer to the payment charged by the port to store containers at the terminal beyond the allotted free days. Port storage charges are collected for full containers uncleared for import, full containers yet to be shipped for exports, and empty containers within the port.”
If a container remains in the port for longer than the allotted free days, the port assesses storage charges. Primarily, these are seen as a way to encourage shippers to remove their goods from the very limited port area.
What Makes Storage and Demurrage Fees Complicated?
There are circumstances in which a shipping customer may incur both demurrage and shipping charges.
Shipping and Freight Resource tells us “Demurrage and/or Detention is the charge levied by the shipping line on the consignee if the container is not cleared and returned to the nominated empty depot within the specified free days offered by the line. The free days and charges might vary depending on the country and shipping line. It is possible that a container can incur both Demurrage and Storage on the same shipment.”
Which Will Cost You More?
Simply put, it’s hard to tell and may vary based on what port you are working with, and the specifics of your contract with your shipping provider. According to Shipping XChange, “the Los Angeles port can charge as high as $280 per container per day from the sixth day onwards; while the Shanghai port charges as little as $ 9.98 per TEU per day.” Similarly, demurrage charges may vary based on your provider.
But remember, sometimes a customer will incur both types of charges. Additionally, the fees may change over time as a result of variable conditions or regulations.
Tips for Avoiding Demurrage and Storage Fees
Be sure to plan your logistics and transportation needs well in advance. This can help you avoid delays and ensure that you have the necessary space and resources to handle your goods.
Communicate with Your Shipping and Logistics Partners
Make sure to communicate your needs and expectations clearly with your shipping and logistics partners. This can help ensure that your goods are handled properly and that any issues are addressed promptly.
Monitor Your Shipments
Keep track of your shipments and their progress, so you can anticipate any potential delays or issues. This can help you avoid demurrage fees.
Consider Alternative Storage Options
Explore alternative storage options, such as a private warehousing service. If this is an option, it may be more cost-effective than port storage fees, but may still incur demurrage fees.
Optimize Your Supply Chain
Look for ways to streamline your supply chain and eliminate bottlenecks. This can help you avoid delays and reduce demurrage fees.
Know the Terms and Conditions
Be familiar with the terms and conditions of your shipping and storage contracts, so you can avoid any unexpected fees or charges.
As you can see, it’s vital to work with logistics partners you can trust.