What is Demurrage?

Intermodal ports, like the Port of Oakland, are incredibly efficient when you consider how complex their operations are.

Certain charges and fees are a tactic used to keep shipping containers, port space, and similarly valuable resources available. That includes demurrage. This helps keep the supply chain moving and delivering cargo more efficiently.

Let’s take a closer look at what demurrage is and why it’s used. We’ll also review how to keep demurrage costs low.

What is Demurrage?

Basic Definition of Demurrage

Demurrage generally has two different meanings, both related to the costs of holding onto an asset.

You likely won’t hear the two used alongside each other. That said, demurrage in finance refers to the price of owning a commodity or asset. Investopedia explains that it can refer to storage fees, insurance, and similar costs.

In shipping, demurrage charges have a similar meaning. Demurrage’s definition in shipping is a fee charged when a shipping container remains in a port beyond the free time allotted to a customer in their contract with the shipping company.

Demurrage fees are only charged once the free days included in a shipping contract run out. The free days represent the cost-free time a customer has to move the container out of the port, empty it, and return it. Sometimes, extra free days can be negotiated. However, it’s best to have a plan to empty a container before that time runs out.

This is related to, but different from, charges like storage fees (charged by the port for container storage within that area) or per diem fees (charged by the shipper when a container is outside the port, for example at a client warehouse). Per diem charges are also called detention fees.

What are the Reasons Demurrage is Charged?

Demurrage is charged by shippers because a full container sitting in a port is occupied. That means it’s unavailable to the shipper or that business’s other clients.

Shippers generally own these containers, so having one sitting full in a port denies them the use of that asset. Intermodal freight transport relies on a steady supply of available containers to efficiently carry freight.

Charging demurrage fees keeps the supply chain moving more smoothly. While they’re never a welcome expense, they are at least predictable. The intent of demurrage charges covers two priorities for shippers:

  1. Giving customers an incentive to return empty shipping containers quickly
  2. Getting compensation for an asset that remains unusable and out of reach until it’s returned

Who Has to Pay Demurrage?

The client, whether an importer or exporter, has to pay demurrage fees if a container is kept within a port and not loaded or unloaded and returned to circulation.

The Port of Oakland, seen from an aerial view.

How is Demurrage Charged?

Demurrage is most commonly structured as a per-day fee. If a container sits loaded in a port beyond the allotted free time, it will cost the customer more and more money over time.

This is similar to detention or per diem fees. These are also generally charged on a daily basis once free time expires. The difference is detention or per diem is applied while the container is outside the port and the shipper is awaiting its return.

How to Prevent Demurrage Charges

Now that demurrage’s meaning in shipping is clear, let’s focus on what your business can do about it. While demurrage fees can be a source of frustration, they’re also very predictable. That makes them a little easier to deal with.

To keep demurrage charges low, and to ideally avoid paying them at all, you can:

Build a Relationship with a Reliable Drayage Carrier

Having a carrier ready to pick up your container soon after it arrives takes demurrage off the table. It also gives you more time to unload and return the container, avoiding per diem fees.

The very best drayage providers also offer warehousing and other services that can help when your own warehouse is full. That’s especially important for temperature-sensitive shipments that need to be carefully controlled.

Carefully Read Your Contract

Make sure you have a clear understanding of how many free days are available and the specific demurrage fee charged.

Track and Monitor Your Shipments

Knowing about a delay or other issue means you can communicate that information to your drayage carrier. It also allows you to prepare your own resources accordingly, like staff to unload the shipment, an available loading dock, and storage space.

Iraheta Bros. is here to help you efficiently move your cargo from the Port of Oakland, whether to your own warehouse or our own. Our drivers are experts in drayage, from navigating the Port to using the best equipment for each job.

Simplify your transportation needs today!

What is Demurrage?

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