Detention Charges in Freight Shipping: A Quick Guide for Shippers
Does your business send or receive ocean freight in shipping containers as part of its trading operations? If so, you'll know that the process involves a multitude of possible fees. It can be tricky to understand the various charges and distinguish avoidable costs from those that are inevitable.
The detention charge is one example of an unwanted but, fortunately, avoidable freight cost.
But what is detention, and why might it show up on your shipping invoice as a less-than-pleasant surprise? You’ll find the answers to those two questions in this quick guide for shippers.
You'll also find another sometimes mystifying question answered—the difference, and the relationship, between detention and demurrage charges.
What is a Detention Charge?
A detention charge is a fee that your carrier will levy against your business for keeping its shipping container longer than the period agreed in your freight contract.
Before detailing the charge and its application further, it's important to state that while the detention concept is simple enough, charging practices differ from country to country and carrier to carrier.
There are no formal rules for the setting of detention charges. However, the International Federation of Freight Forwarders Associations (FIATA) offers some published best practices for applying them fairly and reasonably. Ultimately though, shipping lines are free to set detention/demurrage charges at any level they wish.
Therefore it’s advisable to take the following explanations as broad, generic guidelines to detention-charging practices. With that caveat out of the way, let's get down to a more detailed analysis of detention charges and when your carrier might apply them.
When Are Detention Charges Applied?
When you use a shipping line’s container to move your goods, you take temporary possession of a valuable asset. It is in the carrier’s interest to get that asset back as quickly as possible to press into service for another shipper.
For that reason, a shipping line will only permit you a certain number of days’ use of its container under the shipping agreement that you sign up to and for which you pay.
Carriers apply these free days to the export and import ends of the entire shipping process. For example, you might have five free days on the export side and five free days on the import side. A basic example of each scenario should help to clarify the application of export and import detention charges.
Export Detention Example
On export, we’ll assume that you have five free days. That’s five days allowed for you to collect the empty container from the shipping line’s terminal, load it with your goods, and return it full to the terminal.
What happens if the container does not make it back to the terminal within those five days?
At that point, the carrier has the right, under your shipping contract, to charge you a detention fee for each additional day that the container is in your (business’) possession.
The shipping line will calculate the charge according to the total number of days you detained the container. For instance, if you have five free days and the shipping line receives your container back in its terminal after seven days, it will charge you for two days of detention.
Import Detention Example
Using the example of five free days, the consignee of the goods has five days to pick up the full container from the import terminal, unload it, and return it as an empty. After those five days are up, daily detention fees become payable.
In other words, the detention charge is payable for each day that a shipping line’s container is in your use and outside of a terminal, beyond the number of free days provided.
Hopefully, the above examples and explanations highlight why detention charges are avoidable. Essentially, you need to manage your logistics in a way that ensures you don’t keep a container beyond the number of free days that the carrier grants you.
The Difference Between Detention and Demurrage
Confusion surrounds the differences between detention and demurrage charges for several reasons. One reason is that the terms are often (mistakenly) used interchangeably. Another is because of simple ignorance as to the distinction between them.
To help you avoid being a victim of the latter, here comes an explanation of the differences between detention and demurrage.
1) Detention charges apply to the use of a shipping line’s container outside of the terminal, regardless of whether the container is full or empty.
2) Demurrage applies to the time that a full container spends between its arrival in a terminal, and subsequent movement onto a ship (in the case of export) or overland conveyance (for imports).
Like detention, carriers allow several free days before demurrage charges apply, typically between three and five. If your container ends up stuck in port for more than the permitted number of free days, the demurrage charges will start to stack up.
Some countries, and some shipping lines, treat detention and demurrage as separate issues. In contrast, others combine them in a rolled-up assignment of free days and fee tariffs. It always makes sense to check with your freight forwarder or shipping line how the system will work for your export/import scenario.
Who is Liable for Detention and Demurrage Charges?
As a general rule, carriers apply export detention and demurrage charges to the shipper. At the same time, those on the import side are payable by the consignee. Of course, the question of liability for the cost is often less clear-cut, particularly with demurrage. That’s because there are many possible reasons why a full container’s departure from a terminal might be delayed.
For instance, take a situation where documentation problems delay the container’s movement on the import side. The holdup might arise from an issue under the exporter’s control. In such a case, it would be questionable whether the consignee should foot the demurrage bill.
It’s beyond this article’s scope to explore all potential demurrage scenarios and the liabilities relating to them, as there are so many. Suffice to say that you should seek clarification before committing to any international trade transaction and shipping contract.
Causes of Demurrage Charges
While avoiding detention charges is all about efficient scheduling of container loading, transportation, and unloading, sparing your business from demurrage fees is a little less straightforward. That’s due to the broader range of factors resulting in containers being held up in a terminal.
Common causes of demurrage include:
- Incomplete or incorrect customs clearance documentation
- Port congestion
- Late provision of shipping documents
- Weather-related issues
- Delays to cargo inspections
- Transportation delays
- Industrial action at ports
As you might notice, some of the issues listed above are not necessarily the exporter’s fault or that of the importer. Nevertheless, they can result in your container being stuck at a terminal, entitling the shipping line to levy demurrage charges.
How High are Detention and Demurrage Fees?
It’s with good reason that every shipper should make a meaningful effort to keep detention and demurrage charges to a minimum—the amount to which those costs can add up.
Detention fees can range anywhere between $50 and $400 per day, per container, with demurrage attracting penalties at a similar range of price points.
Moreover, the charges can vary according to the type of container and the overall length of the detention period. Indeed, shipping lines' tariffs for detention and demurrage can be complicated and tricky to understand. Fees can also fluctuate depending on the season and other conditions affecting container availability.
Even without any further detail, it's easy to see how these charges can soon mount up to sums that wipe out profit margins. It’s not uncommon for consignments to be abandoned by their owners due to the accumulation of detention and demurrage.
There’s Usually Room for Negotiation
As mentioned earlier in this article, sound planning and transportation scheduling can go a long way toward preventing detention charges. Effective communication between the consignor, consignee, and other parties involved in the shipping process is also essential.
Negotiation with your carrier is another possibility to help minimize the costs of detention. It’s sometimes possible to negotiate lower charges than a shipping line might set as standard. You may also be able to secure additional free line days to reduce the risk of being charged.
Remember to address these options with your chosen carrier before agreeing to a shipping contract, or better still, engage a freight forwarder like Shipa Freight to manage the shipping process for you.
Our shipping specialists will work with you to find the most economical international shipping rates available. In doing so, they’ll consider the potential costs of detention and help you plan your shipment to avoid them.
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