Per Diem vs Demurrage: What’s the Difference?

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The last thing any business wants to deal with is additional and avoidable costs.

Both demurrage and per diem fees are common issues for businesses that use intermodal shipping. Understanding demurrage vs. per diem and how both affect your company is crucial for avoiding them. And that means more money in your business’s reserves.

Let’s take a closer look at both demurrage and per diem fees. Then, we’ll review how to best manage those costs.

What are Per Diem and Demurrage Charges?

Per Diem Fees and Detention Fees Explained

In general, shippers (i.e. the businesses that operate container ships — ocean carriers) own the shipping containers used in intermodal freight transport. As part of their contracts with customers, shippers allow customers to use those containers to transport their goods.

Intermodal shipping eventually requires that containers leave a port or railyard to be unloaded by a customer. After that task is complete, those containers are returned empty for use by the shipper and its other customers.

Keeping shipping containers in circulation is a foundational need for shippers. The entire intermodal transport industry relies on them. If there aren’t enough containers available to accommodate all customers, shippers can lose business and damage relationships with clients.

When a customer keeps a container outside a port beyond a previously agreed-up length of time, shippers apply a fee. That time period is called “free days.” The number of free days can vary from one shipper or customer to the next.

Per Diem Meaning in Shipping

This fee for holding onto a container is called per diem, meaning “by the day.” This cost is also known as detention, as Flexport explains.

Per diem charges discourage businesses from keeping containers at their facility. Otherwise, some businesses may use them as extra storage space. Others simply may not place a priority on returning the container without the possibility of an additional fee.

You can call it detention or per diem in shipping. Either way, this fee is similar to but distinct from another common and avoidable cost. That fee is called demurrage.

Demurrage Fees Explained

Demurrage, detention, and per diem all refer to additional costs in container shipping. They all relate to customers of shippers keeping a container out of circulation.

The same basic principle applies as with per diem charges. The shipper wants to keep its containers available for customers to actively use in transporting cargo. A container that isn’t actively moving through the intermodal freight transport system is occupied. That’s a waste of an asset in the eyes of shippers.

The difference between demurrage and detention or per diem is the location of the container. Per diem applies outside of the confines of an intermodal port, when a container is in transit or at a customer’s facility. Demurrage applies when a container is still in a port.

Demurrage Meaning in Shipping

Demurrage is a charge that’s applied to customers with occupied containers inside a port. Once their free time expires, the fee starts to apply. This is often within a range of 4-7 days, but could be longer or shorter. It varies depending on the contract.

Demurrage encourages customers to move their containers from the port, unload them, and return them promptly. It helps the shippers keep containers in circulation to serve all of their customers. Crucially, demurrage in shipping also helps to cut down on congestion within ports, keeping the supply chain moving a little more smoothly.

Intermodal containers stacked high in a port

How to Avoid Demurrage and Per Diem Fees

For both demurrage and per diem fees in shipping, the most important piece of advice is to ensure a shipper’s equipment is returned promptly. Pay attention to the free days provided and make a plan that takes them into account.

Efficiently unloading and returning every container used will help your business avoid these fees and keep more money in its reserves.

In both cases, your business will need a dependable partner for drayage. This refers to the short-length trips that bring a container from an intermodal port or rail facility to a final destination via a tractor-trailer.

This is the crucial “last mile” of delivery, where your shipment actually reaches your warehouse or a storage facility. Only then can it be unloaded and made ready for a return to the shipper.

There is more specific money-saving guidance to consider for both demurrage and per diem or detention charges as well.

Money-Saving Tips for Demurrage Fees

Arranging for customs clearance in advance of your shipment’s arrival can give you more time to pick up, unload, and return the container. Have your documents ready and look into options for customs preclearance.

Building a relationship with a drayage carrier is also critical. Communicate proactively with them, let them know if delays happen. Be clear about requirements related to free days and timing. Have a plan for picking up and returning the container to the port.

Money-Saving Tips for Per Diem Fees

Coordinate internally with warehouse staff ahead of the container’s arrival. The first option is to ensure there’s space to unload a container soon after it arrives.

If there’s a lack of available free space in the warehouse, consider using a warehousing service. While it represents an additional cost, it’s generally more manageable and less expensive than a per diem fee. Using a warehouse also allows you to store perishable, temperature-sensitive items in the best possible conditions.

Per diem costs can also be managed through a strong relationship with your drayage carrier. Make contact with them well before your container arrives. Keep them updated about any delays or issues.

Your company should also track free time on a per-container basis. If there is a delay in unloading, that makes it easier to prioritize containers based on the amount of free time remaining.

Iraheta Bros. can help your business keep these costs low with exceptional drayage and warehousing services. We have the experience, equipment, and expertise needed to efficiently navigate the Port of Oakland and keep your containers on schedule throughout the entire process.

Simplify your transportation needs today!

Per Diem vs Demurrage: What’s the Difference?

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