Houthi rebel attacks in the Red Sea, inflation, ongoing geopolitical conflict, consumer demand trends, Panama Canal disruptions, container ship overcapacity, and slow steaming—all factor into the rates charged for ocean transport. On top of these issues, shippers have less negotiating power on the base shipping rates for ocean freight compared with over-the-road modes of transport. Consequently, when ocean rates increase, shippers have even fewer options to reduce the impact of higher rates.
In the face of the volatility surrounding ocean shipping rates, there are actions that companies can take now within their own supply chain operations that can significantly reduce their total ocean shipping costs. One way that shippers can save money on ocean freight is to minimize ancillary charges, primarily demurrage and detention fees. Although both charges are commonplace in the maritime shipping business, employing technology for advanced, real-time ocean visibility can help to minimize these added expenses.
What are demurrage and detention fees?
Demurrage refers to the time a container sits inside the port or terminal, waiting to be loaded on the vessel or picked up outside of the free time allowed in the contract with the carrier. Each container is allowed a specified amount of free time for loading or unloading at the port or terminal (usually three to seven days). After free time elapses, demurrage fees are charged for each day the container is delayed. Delays can be precipitated by a variety of problems including improper scheduling or planning; miscommunication of arrival time; incomplete or erroneous customs paperwork or other required documentation; shortage of labor; late transport; port congestion; payment issues; and even bad weather.
Demurrage amounts vary widely depending on multiple factors, including the type of cargo, the port, the shipping line, and the contract terms. Typically, fees range from $50 to $300 for each day beyond the free time allowance per container. Just a few days of demurrage can easily add 50% to the cost of shipping a container, and the charges increase over time if the cargo remains in the terminal.
Detention fees are charged when a container is delayed outside the port or terminal past the free time allotted by the carrier (typically at the destination facility). Detention fees are anywhere from $25 to $100 for every extra day until the empty container is returned to the port or terminal. Detention is typically caused by misalignment of the container’s arrival time with downstream supply chain processes. Shippers may not have space in the warehouse to unload the cargo, or their manufacturing lines may not be ready to accept the materials on arrival. In these cases, it’s common for containers to sit beyond free time allowances. It’s also not uncommon for companies to lose track of which containers are short on free time in their yard—and simply miss opportunities to return containers before penalties ensue.
From the carrier’s perspective, these fees are necessary in order to keep containers and vessels moving—and reduce port congestion. For the unprepared shipper, however, demurrage and detention fees can add up fast, compounding the cost of a shipment. In fact, a study by the Federal Maritime Commission found that nine carriers collected roughly $13.4 billion in demurrage and detention charges between April 2020 and June 2023.
Reducing demurrage and detention charges
Shippers can take several different actions to reduce demurrage and detention fees, including:
- Negotiation: Shippers can negotiate with a carrier for extended free time, as well as for reduced demurrage and detention fees. It should be noted, however, that this tactic is typically more successful for large volume shippers.
- Dispute incorrect fees: If a shipper believes fees have been charged in error, the charges can be disputed per the carrier’s dispute resolution policy.
- Dispatch in advance: Schedule container pickup and delivery as far in advance as possible to ensure available capacity.
- Prepare for customs clearance: Obtaining customs clearance prior to container arrival at the port and paying duties in advance can help shippers avoid customs delays and related fees.
- Communicate across the supply chain: Inadequate communication between ocean carriers, forwarders, shippers, and trucking/dray operators can cause delays that lead to demurrage and detention fees. With this in mind, timely and effective communication with inland carriers and other supply chain stakeholders can help to keep containers moving and minimize unnecessary penalties.
- Establish a backup plan: Make sure a backup is in place in case issues arise with the primary dray or inland transport provider.
- Track carrier performance: Monitoring service levels of carriers and service providers helps shippers choose reliable partners who are less likely to cause delays that lead to penalties.
Optimizing the supply chain with ocean visibility
In the end, this issue is not just about fees. While the penalties for demurrage and detention are costly, it is also important to realize that the associated delays can disrupt the supply chain and impact the ability to conduct business. Consequently, it is vital for shippers to have accurate and timely information on the location and status of their ocean freight to support several of the strategies outlined above—and real-time ocean visibility technology enables this access to information.
Real-time visibility into the exact location and status of ocean cargo—including customs clearance—can help shippers accurately predict estimated time of arrival (ETA) and avert the freight delays and supply chain disruptions that result in demurrage and detention charges. Greater visibility supports effective decision-making, allowing companies to make effective choices about carriers and transport, route optimization, storage, and resource allocation. Having a visibility platform provides a greater amount of data about carrier performance, such as on-time percentage, and insights into which carriers are better at capturing requested shipment data, such as temperature. Technology-enabled visibility also provides more reliable data on transportation lead times, so companies can make more informed decisions on whether to continue moving cargo on a certain path or change routes. With disruptions like the rerouting of freight around the Cape of Good Hope and the mixed impact on U.S. container import volumes due to the Panama Canal drought, improving operational efficiency with real-time visibility can help abate demurrage and detention costs. For example, companies could more intelligently assess whether they should continue to move freight through the Panama Canal to East Coast ports or land at West Coast ports and ship freight via road or rail to the East Coast.
The ideal ocean visibility platform provides continuous updates and sends automatic alerts when a shipment is at risk of exceeding free time. This valuable early warning allows shippers to take proactive measures, such as rescheduling appointments and re-prioritizing transport, to reduce the risk of demurrage and detention fees. For example, imagine you receive an alert that a time-sensitive load going to a high priority customer will be late by a day. You may have another load for the same product that is not as time-sensitive, or is allotted to a lower priority customer, which you could reroute to the high-priority customer.
Advanced ocean visibility platforms incorporate predictive analytics, as well. By analyzing historical data and current conditions, these tools can not only provide more accurate estimated arrival times for shipments but also more accurate estimated times when containers are available for pickup. This improves planning and coordination, increases supply chain efficiency, and reduces the likelihood of cargo sitting idle and incurring penalties.
Perhaps the most important benefit of ocean visibility is enhancing communication. A visibility platform enables data sharing with shipping and receiving locations, manufacturing plants, inland transportation providers, and the end customer. With the right information, decision-makers across the extended supply chain can take appropriate actions to keep shipments moving and reduce unforeseen and unnecessary costs.
