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What is demurrage and how can you avoid it?

Stacks of cargo containers at a busy international port.

Shipping goods around the world can seem like a complex task. Your business has to work hard to prepare the necessary paperwork, understand the customs requirements of each country and keep everything moving on schedule. But what about those factors that are apparently outside of your control? One such factor is demurrage.

Demurrage is a charge applied to shipments left in a terminal after the allotted free time. While this may sound like a technical matter, demurrage poses a logistical challenge to shippers large and small and can prove expensive if not managed proactively.

Every commercial shipper will likely run into demurrage charges at some point. And while charges vary from terminal to terminal, the average cost of demurrage continues to rise year after year.

So, as global trade increases and international terminals get busier, what steps can your business take to minimize exposure to demurrage across your supply chain?

Demurrage defined

When your cargo arrives at a terminal, it is given a certain amount of time that it can stay there for free, before it needs to be moved out. Demurrage, which is sometimes referred to as storage, is the charge terminals place on your shipment if it is held up at the terminal for some reason (awaiting transportation, still clearing customs, etc.) after this free time has expired.

Free time, also known as lay time, differs from vendor to vendor, and varies among modes of transportation. In general, shipments arriving by rail or air are given 48 hours of free time. For regular containers arriving by ocean, free time runs about four days, with less time given for open top or special containers.

When it comes to calculating demurrage, every vendor, terminal, warehouse and container station has its own policy. So, whenever you’re shipping containers, it’s important to understand the demurrage policies in force along your transit route.

How is demurrage enforced?

When you run into demurrage charges, terminals will expect you to settle the cost quickly, using the method of payment they prefer.

“The terminals dictate price, as well as the type of payment,” explains Robert Snedeker, Northeast brokerage area manager at UPS Customs Brokerage. “They now want credit card payments, not checks or guarantee letters that could hold things up. And if you don’t pay up in full, the terminal won’t release your shipment.”

Once you start to incur charges, costs can mount up quickly. Charges are often per container, per day, and they continue to go up after certain increments of time. Smaller companies can be particularly at risk from the disproportionate impact of demurrage on their bottom line.

“We’ve seen containers where mistakes have happened over an email,” explains John Taddeo, New York brokerage manager at UPS Customs Brokerage. “Maybe somebody didn’t get an email over a shipment and nobody picked it up, and that container could rack up $30,000 in demurrage. I’ve seen storage charges add up to the value of the merchandise.”

While a larger company is more able to absorb the cost or use its clout to negotiate the demurrage charges down, smaller companies could be financially devastated by one such costly mistake.

Demurrage versus detention  

People often get demurrage confused with detention, but they are not the same thing. Detention, or per diem, charges are applied to container equipment after it leaves the terminal, if the equipment is not returned within the allotted number of free days.

Along with demurrage, detention is another charge that you’ll want to try to avoid by planning ahead.

How businesses can minimize demurrage fees

Is it possible to avoid demurrage altogether? Probably not, says Taddeo. “It’s unavoidable in certain instances: port congestion, limited chassis supplies, customs exams, lack of truckers.” Even the most prepared shipper can find themselves stuck with a demurrage charge. “I am sure everyone pays demurrage, that much you can bet on,” he states.

But there are ways to keep such instances to a minimum. Start with proactive planning and make sure you are prepared for everything in advance, including customs clearance, proper documentation, paying duties and generally staying two steps ahead of the actual arrival of the cargo.

 “All importers need to have some kind of system to make sure that everything is being done for them the quickest it can possibly be done,” advises Taddeo. “They need to be on top of where their shipments are at all times. Once they lose track of that, that is when mistakes happen. If you just assume your container is going to get delivered to your door, a lot can go wrong.”

How UPS can help businesses manage demurrage

Whether you’re a small business that’s branching out or a large company that’s entering new markets, UPS has the customs expertise and global brokerage network to help get your shipment where it needs to be with minimum hassle.

“When we work with a customer for their whole supply chain, we can collect the documents needed for customs clearance and start working in advance, so when the containers arrive all of the steps have been taken,” Taddeo explains. “That means before the free time ends, we can pick up the containers and move them out of the terminal to avoid demurrage.”

Because UPS can handle everything door-to-door, you won’t have to deal with several different companies at different stages. “We’re in control of many factors that wouldn’t be controlled if an importer worked with a different steamship line, a different customs broker, and a different freight forwarder,” says Snedeker. “Since everything is controlled within our network, it helps reduce the risk for demurrage.”

Most importantly, UPS has a low tolerance when it comes to demurrage. “Our business attitude is that avoidable demurrage is unacceptable, and that goes a long way toward minimizing it,” Snedeker declares.

Key takeaways for staying ahead of demurrage

Becoming aware of what demurrage is and taking a proactive approach to avoiding it will help you save money as you send more shipments around the globe. Here are seven key takeaways to keep in mind:

  1. You can minimize demurrage, but you can’t always avoid it.
  2. Plan for your shipment as far in advance as possible.
  3. Get the necessary customs documentation prepared ahead of time for swift port clearance.
  4. Proactive communication with each of the stakeholders involved in your shipment is critical.
  5. Once your shipment has left its origin, keep close tabs on its progress to avoid surprises.
  6. Lean on the resources and expertise of a service provider like UPS to simplify your international shipping.
  7. Track and analyze your demurrage charges for future planning.

Find out how UPS freight solutions can help ensure your cargo is picked up and delivered on time to avoid the headache of demurrage.

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