Demurrage, detention and freight rates

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Demurrage, detention and freight rates

Demurrage, detention and freight rates

 

demurrage, detention and port charges

This is a summarize of the original article of "Correlation between demurrage, detention and freight rates" written by Hariesh Manaadiar and posted on his educational blog. If you'd like to read the original article, please visit https://shippingandfreightresource.com/demurrage-detention-and-freight-rates/

If you are a trading company or a freight forwarder who involves in international ocean shipping, you may have encountered incidents where your shipment, for whatever reason (let's say, Custom inspection, strike, port congestion, etc.) employ ocean carrier's containers for prolong period in seaport or your warehouse. And soon you face a huge bill of, whether it is Demurrage or Detention – from the liner which may be much larger that the value of the containers itself.

Hariesh wrote that shipping lines may consider demurrage and detention a necessary evil, importers & exporters may find it largely unreasonable.

 

The author state it in the simple terms,

  • "Demurrage is a charge levied by a shipping line to the consignee while the full container is in their custody within a port or terminal.
  • Detention is a charge levied by a shipping line to the consignee from the time the full container is released till the time the empty container is returned to a container depot nominated by the shipping line."

Hariesh also state the fact that the applicable and tariffs for demurrage and detention charges set by the shipping lines have been the subject of debates & discussions in the recent past.

"Shipping lines have been accused of increasing the tariffs for demurrage and detention while reducing free time, both of which impacts severely on the bottom line of the consignee.

Shippers and consignees from all over the world have accused shipping lines of trying to generate revenue from demurrage and detention to the extent that they are calling it an abuse by the shipping lines to maximise profits.

But is this true and could there a case by the shipping lines for this?"

The author's above question & the following analysis however show that his insight was multidimensional and perhaps that's what made his blog one of the best educational website in the industry.

"The shipping lines quote freight rates based certain calculations such as slot costs, vessel operating costs, port costs, container lease costs, supply and demand and port pair combination.

In some markets, the shippers and consignees “demand” additional free days.. Sometimes 14 free days at Origin and 21 free days at Destination for the same shipment so around 35 free days in total per container per shipment.

As we all know, not all the containers operated by the shipping lines are owned by them and they lease containers at a cost. For each day the line uses the container, they pay the leaseco. Whether they offer those days as “free” to the customer or not, it is not the leaseco’s concern and they have to be paid by the line..

In addition, the line must also consider the carriage time which in many deep sea routes could be between 21-35 days. So for one shipment the customer could be using a container for between 56-70 days which means that container is not available to the shipping line and thereby is not generating revenue.

Wait, there is more.. Depending on the trade, there are several combinations of freight offerings including containers moving at freight levels of $0-5 per container, freight rates including THCs on both ends etc etc.

So if you look at it from the shipping line’s perspective there may be a case why the lines may be reducing the free days and increasing the demurrage and detention charges.

Lines consider demurrage and detention charges to be a valid charge and a tool for them to ensure that the containers are being turned around in the quickest possible time and firmly believe that users who exceed the agreed free time for the usage of the container should be charged, a fact that FIATA also acknowledges."

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