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Explaining Demurrage vs. Detention With Simple Examples

 


For an importer-exporter, the words “demurrage” and “detention” both mean the same thing in the end—fees. Of course, these two types of penalties are distinctly different. Not understanding what the terms mean can add up to painful financial losses.

Demurrage fees and detention fees are both charged on a daily basis, ranging from $50 to $150 or more per container per day. Importers-exporters run into demurrage fees and detention fees for the same basic reason, a delay in moving freight or freight containers that exceeds a carrier’s free time, a kind of “grace period.”

Even though demurrage and detention are simple concepts, their meanings often get lost in technical explanations. Let’s use some straightforward examples to explain what situations might cause these two types of fees to be charged.

For the sake of our example, let’s call our importer-exporter company Scarlet Shippers and call our carrier Orange Ocean Liners.

Example 1: Detention of export containers

Scarlet Shippers plans to send four containers filled with copper wire to a client in China via Orange Ocean Liners. In a common practice, Scarlet Shippers uses shipping containers provided by Orange Ocean Liners, which allots five days for the containers to be picked up, filled and returned for export.

 

While Scarlet Shippers is already in possession of the shipping containers, the manufacturer of the copper wire informs them that the product will arrive four days late. The logistics manager at Scarlet Shippers knows he’s already had the containers for one day. He has to wait four days for the copper wire to arrive, it will take at least two days to get the containers back to port.

 

The containers finally get filled and returned to Orange Ocean Liners terminal for export, two days past the allotted free time. Scarlet Shippers knows it’s going to get hit with detention fees for holding onto the containers too long. Orange Ocean Liners charges $75 per day, per container.

 $75 detention fee x 2 days of detention x 4 containers = $600

Example 2: Demurrage of export containers

Demurrage fees and detention fees are distinct charges, but they can be levied in tandem. An importer-exporter might be dismayed to find both on their bill.

Now that the four containers of copper wire have made it to the terminal, Orange Ocean Liners allows them to sit free-of-charge for five days. After five days, they will charge a demurrage fee of $100 per container, per day.

With all the distraction of the copper wire delivery being delayed, the logistics manager at Scarlet Shippers made a mistake on the export customs documents. They find out about the problem after the containers have already been in the terminal for four days.

Now the logistics manager must file new customs paperwork and wait for it to be approved, which takes another three days.

Unfortunately, the containers miss the steamship they were booked to board and must wait an additional five days for the next steamship. Orange Ocean Liners charges demurrage fees for the extra seven total days the four containers sit at the terminal.

$100 demurrage fee x 7 days of demurrage x 4 containers = $2800

Example 3: Demurrage of import containers

Finally, the four containers of copper wire are aboard a steamship and on their way to China to fulfill the order for Scarlet Shippers’ client.

Once the containers reach port in China and are unloaded, Orange Ocean Liners will hold them for three days without charge. After that, they charge a $100 fee per container, per day. These fees are also sometimes referred to as “per diem” fees.

Unfortunately, Scarlet Shippers’ client, the consignee company that ordered the wire has a problem getting a truck to port. The containers sit in possession of Orange Ocean Liners for a total of five days. Orange Ocean Liners charges for two days of demurrage for the four containers.

$100 demurrage fee x 2 days of demurrage x 4 containers = $800

Example 4: Detention of import containers

Once the consignee finally picks up the four containers of copper wire, Orange Ocean Liners gives them five days to transport them, unload them and return them. If the consignee has not returned the containers after five days, Scarlet Shippers is charged by Orange Ocean Liners a daily detention fee.

Again, the consignee company in China reports experiencing problems. This time it has to locate new warehouse space after its previous space fell through. Because of this delay, the containers take six days to get back to the Orange Ocean Liners terminal at the China port.

$75 detention fee x 1 day of detention x 4 containers = $300

Scarlet Shippers receives its final invoice for the cargo shipment, with an additional $4500 in demurrage fees and detention fees.

This may be an extreme example of what happens in a scenario when everything goes wrong. Certainly most shipments run more smoothly. However, situations like this one might convince an importer-exporter to stop doing business with certain vendors or clients that cost them more in fees than they make up in profits.

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