Demurrage charges: a comprehensive guide

In the world of global logistics, not all the costs you might incur will be outlined on your shipping quote. Sometimes, in the event of an unexpected delay, additional charges are applied by parties in the supply chain.

One area where charges can arise from is demurrage, detention and storage fees, collectively known as accessorial charges. For large-scale businesses managing their own freight procurement with ocean carriers, these charges can increase the total shipping cost by approximately 10-15%. In 2022, the Federal Maritime Commission reported that detention and demurrage charges surpassed $67 million, illustrating the substantial financial impact on shippers. Such unforeseen charges often arise from factors beyond the shipper's control, highlighting the importance of planning well and working with an experienced logistics partner.

Understanding these charges and how to minimize them is essential for maintaining cost-effective shipping of wine, beer or spirits.

What are demurrage, detention and storage charges?

Demurrage, detention, and storage charges were initially established to fairly compensate equipment and facility owners for the use of their resources, such as containers, yards, freight stations and warehouses.

These charges also serve as incentives for shippers to promptly return equipment and free up storage space. However, they are often seen as unexpected additional costs by ocean freight customers, leading to frustration.

• Demurrage. A fee imposed by the shipping line for containers picked up after their Last Free Day (LFD) within the port. This fee varies by equipment type and location and is charged per container per day. It covers the cost of occupying port space.
• Detention (per diem). A fee levied by the shipping line for using the container outside the port beyond its LFD. This fee is often high to discourage shippers from holding onto containers. For example, detention starts when the container leaves the terminal and ends upon its return.
• Storage. A fee paid by the shipper to store containers at a container yard, warehouse, or on port grounds. The storage period begins when the container arrives at the facility and ends upon removal. These charges can accumulate quickly, especially in high-demand areas.

Demurrage, detention and storage charges differ based on the use of container equipment within the port terminal:

Examples of Demurrage

Demurrage is a charge applied when shipping containers are held beyond the assigned free time. The first day of free time begins as soon as the container is unloaded from the ship and placed on the quayside. Here are some examples of demurrage situations:

• Bank holidays. Ports and customs offices may be closed or operate with limited staff during bank holidays. This can lead to delays, resulting in the accumulation of demurrage charges if the container remains in the port beyond the allotted free time.
• Truck congestion. When trucks are delayed coming into or arriving at the port, containers may not be picked up within the allocated free time. As a result, these delays can cause containers to sit at the port longer than expected, incurring demurrage charges.
• Customs delays. If an importer's shipment is selected for a random customs inspection, delaying the release and pickup of the container past the last free day. Demurrage fees start counting daily until the container is released.
• Documentation issues. Incorrect paperwork or the late submission of documents can also result in demurrage charges.
• Weather delays. Severe weather can disrupt the scheduled loading or unloading of a vessel at the port, which can impact the free day period.
• Insufficient storage. If an importer lacks warehouse space to receive a shipment and leaves containers at the port, they will start accruing daily demurrage charges.
• Labor shortages. A lack of workers at ports can slow down the process of managing shipping containers, resulting in delays and impacting allowed free time.

These examples illustrate how demurrage can occur in various scenarios throughout the shipping of alcoholic beverages.

Each shipping line has its own tariff and a specific number of free days it applies. However, some lines are open to negotiation, particularly when the logistics partner has a strong relationship with the shipping line. The discussion between the carrier and your logistics provider can take place in advance or at the time it is needed.

Who has to pay demurrage charges?

Responsibility for demurrage charges can shift during the shipping process, often depending on the applicable Incoterm®.

According to FOB, the seller is responsible for the goods and any associated costs until your wines, beer or spirits are loaded onto the vessel. Once they are on board, the risk and responsibility, including demurrage charges, transfer to you, the importer.

Under EXW, the importer is responsible for all costs and risks associated with transporting the wine, beer or spirits from the supplier’s premises. This includes demurrage charges if they apply.

How to calculate demurrage and how much is it?

Calculating demurrage charges can be complex due to the varying tariffs and timeframes set by different shipping lines. Each shipping line may have its own fee structure, with some charging for the first 1 to 5 days, while others might extend this period to 8 days or more. 

To simplify this process, logistics providers often establish a standardized demurrage fee based on a set number of days. This standardization helps streamline operations and makes it easier for everyone involved to understand the costs associated with delays. 

The standardized fee provides a consistent reference point, even though the actual charges from shipping lines can differ. This approach ensures that logistics providers can offer clearer and more predictable pricing for importers, despite the variability in charges from the shipping lines themselves.

How to manage charges

At Hillebrand Gori, we offer a dispute process for detention and demurrage charges in the USA, which can be a valuable resource in case of disagreements over fees. However, to avoid incurring these charges, consider the following recommendations:

• Know the free time period. This is the number of days shippers can use or store a container without incurring charges. It varies based on the location, selected ocean carrier and equipment or facility type. For instance, free time can range from a few days to over a week, depending on the port and carrier. It's included in the SOP, the standard operating procedure each shipper receives from their logistics partner.
• Communication within the supply chain. To reduce the risk of delays, it’s essential that all parties, from the supplier to the receiving warehouse, are kept informed and aligned. Our shipment management app, myHillebrandGori, connects everyone involved in the shipment process, allowing real-time visibility of status and details.
• Work with an experienced logistics partner. A logistics partner can help manage shipping operations, coordinate with stakeholders and plan contingency measures to minimize charges. At Hillebrand Gori, we helped a leading Belgium brewer save over 50% in accessory charges by creating a system that sends an alert about any shipment that may incur a charge. This allowed the brewer to take timely action and avoid additional fees.
• Get your documentation right. Use a logistics partner to help gather, check, submit and coordinate export and import clearance paperwork to avoid errors that can lead to delays and additional charges.

It's important to remember that some shipping lines may be open to negotiation, especially when a strong relationship exists with the logistics partner. Additionally, the adoption of a standardized demurrage fee by many logistics partners enables them to offer more predictable and transparent pricing for their clients.

By following these strategies and leveraging the right tools, importers and exporters can effectively manage the shipment of their wine, beer or spirits and avoid unnecessary costs, ensuring a smoother and more cost-efficient logistics process.

How Hillebrand Gori Can Help

At Hillebrand Gori, we specialize in the global transport of wine, beer, and spirits. Our extensive experience in the industry enables us to help importers manage their shipments and supply chains. Here’s how we can assist:

• Planning advice. We have the know-how to get your shipments transported safely, quickly and within your budget.
• Expert Guidance. Our team of experts is well-versed in customs procedures and documentation requirements, helping to streamline processes and avoid delays.
• Advanced Technology. We utilize state-of-the-art logistics management systems to provide real-time visibility and tracking of shipments, for timely interventions when necessary.
• Strong Partnerships. Our established relationships with shipping lines and port authorities enables us to try to negotiate favorable terms should the need arise.

By partnering with Hillebrand Gori, importers and exporters can focus on their core business while we take care of the complexities of logistics. Contact us today to learn more about how we can support your beverage transportation needs.

Sources

¹ https://www.hillebrandgori.com/media/publication/accessorial-charges-beer

https://www.dhl.com/us-en/home/global-forwarding/freight-forwarding-education-center/demurrage-detention-and-storage-charges.html