- Allen Czermak
What Are Container Demurrage Charges?
The elementary meaning of demurrage charges is the charge when a container sits around the port or terminal beyond the allotted time period. The time given for a container to be moved or unloaded is referred to as free time and can vary depending on place and container traffic congestion. If the ports need to free up the space for new containers to be dropped, there is a chance that they will either increase the demurrage fees or lower the free time allowance. To get into more detail into how demurrage charges are incurred we must first understand shipping container economics.
Who Ever Owns The Shipping Container Pays The Demurrage Fees
Generally the shipping container is owned by a marine logistics company and usually will display its name across it. At the same time there are containers which are privately owned by big box retailers such as Amazon, Walmart, and Home Depot. Then there are those who lease shipping containers and are deemed the owners when it comes to demurrage charges. In recent years leasing shipping containers has become somewhat popular to help ward off the heavy cost of shipping goods worldwide. Regardless of who owns the container it needs to be moved prior to the expiration of allotted free time. If it passes that time the company which owns the shipping container will be charged by the port authority.
Demurrage Fees Are Cumulative
Once free time has officially expired there is a window of days for a lower fee followed by a higher fee. Each port or terminal will document in its handbook the rate according to days after free time. For example, a water port in New York will give four days of free time and begin charging $280 a day from day five to day eight, $380 a day from day nine to day thirteen, $480 a day from day fourteen to day thirty nine, and $650 a day from day thirty and on. Let’s say a container sits around for 31 days the shipping company can incur close to $12K in demurrage fees.
The port has no interest in containers sitting around as it creates a major bottleneck and makes it harder to move containers around. Just the other day I was walking on Kent Street in Williamsburg, NY and noticed containers all around a building. Seems like they were put there because they had no place to store them. Shipping companies will do whatever it takes to get these containers out of port as quickly as possible so as not to incur expensive demurrage fees, even if it means hiring a truck to pick it up and park it in a random city lot. New York is by far the most expensive when it comes to demurrage fees due the congestion and the high demand for supplies and goods.
Are There Any Other Cost Variables For Demurrage Charges?
One of the primary variables in demurrage charges is the type of container sitting at the port terminal. The more complex the container is the greater the charges as more care needs to be given to ensure that the goods inside are not spoiled. When referring to basic demurrage charges we are talking about a standard twenty foot steel container. This is the shipping container you can see at water ports, rail terminals, and resting on a truck chassis. Below we will discuss the other types of shipping containers that are subject to higher demurrage fee rates.
1 - Special Purpose Containers: Such containers are made up of a very thick steel that prevents them from being opened. Special purpose containers are kind of like a big steel vault that contains only high profile items such as weapons and dangerous items that the shipper wants no one to get their hands on. The rate for demurrage fees is usually double in comparison to a regular standard TEU container.
2 - ISO Tank Containers: If there is a need to ship liquids or gasses by ship they will be placed into ISO tanks. Once they are ready to ship they are placed into a twenty foot frame that makes it easy to load onto a ship just like any other TEU shipping container. The demurrage rate for ISO tank containers will vary depending on the water port or rail terminal. Shipping companies are subject to whatever charges the port institutes in their handbook.
3 - Temperature Controlled Containers: Within temperature controlled containers there are two types of containers. The first type is a non operational temperature controlled shipping container where the temperature is set by the shipping company or customer at the time of loading. In general these are used for a shorter journey where power is limited. The other type of temperature controlled container is where the port needs to attend to the temperature. Since the port workers will need to maintain a specific temperature the demurrage fees for such a container triples. Though it’s unlikely for temperature controlled containers to sit around the port or rail yard due to the sensitive contents inside them they still have a premium demurrage fee.
What Are The Causes For Demurrage Charges?
When someone hires a logistics partner to ensure the quick and safe delivery of goods the last thing they would want is for their container to sit idle and incur demurrage charges. Though the port or terminal will hand over those fees to the shipping company who actually owns the container, it is the shipping company that will pass on those fees to the customer. The key is to be prepared and make sure none of the scenarios below occur to avoid expensive demurrage fees.
Customs Clearance Issues: When shipping a container internationally it’s vital that the shipper has all the documents necessary to allow the smooth processing through customs. If there is even one paper missing such as an invoice, bill of lading, packing list, or notice of arrival, customs will put the container on the side and stall its movement.
Payment Not Received: Like with any product or service when payment is not received there is a freeze in logistics not from the port but from the shipping company. Even though the container was unloaded from the ship they will not allow for its release until they are paid in full. During this time demurrage fees will pass onto the customer.
Truck Shortage: In order for the container to be moved out of the port or terminal, a truck has to pick it up and have a crane drop it onto its empty chassis. Ever since the recent pandemic there has been a truck driver shortage that has limited the number of trucks available to pick up shipping containers from the port. Since the shipping company has fulfilled its obligation in transporting the goods overseas they consider this the customers’ issue and pass the demurrage fees onto them.
Importance Of a Trusted Logistic Partner
There are so many variables when it comes to shipping a container from Asia and that’s why it is so important to partner with a devoted logistics company that will take the responsibility for the container. As a customer all you should be worried about is paying this logistics partner whatever the rate that was set prior to shipping the container. A good logistics company will always keep their goods moving to avoid demurrage fees. It also takes a tremendous burden off the customer getting hit with expensive bills from the shipping company.
Demurrage fees can be incurred during both the import and export of shipping containers. These fees can vary based on city and container type. The sensitivity of the material inside the container will determine the type of container to keep the goods safe. While no one anticipates for the shipment to be delayed let alone incur extra fees, shippers can do their best to insure that the container keeps moving by having the right documents, on time payments, and partnering with a trusted logistics company. The last thing any shipper wants is for a container that already cost over $20K to ship from China to incur added demurrage expenses. It is getting really difficult for companies to keep increasing their prices on products and add other additional expenses to their price. One more price hike might just scare the customer from buying the product at all and companies are trying to avoid that at all costs.
While in the midst of a supply chain crisis where it is common to see more demurrage charges the port and rail yards are doing their best and need to have consequences in place for containers that sit around regardless of whose fault it is. If shipping containers don’t move in and out of port there will be containers piled to the sky. Once that happens it makes it really difficult to get a handle on the container traffic as the ones on top of the pile need to be moved first and the ones on bottom are not accessible. Demurrage fees are not liked at all but they are important and need to be implemented to keep things running smoothly.