There are certain rules in place for the regulation of container traffic. If these rules are not complied with, importing and exporting companies impose various sanctions.
Demurrage is at the forefront of those sanctions that can generate serious costs. So, what is demurrage and how is it calculated? We have addressed it for you with all its details.
What is Demurrage?
Demurrage is the name given to the fee paid to the owner of a chartered ship in the event that loading or unloading is not completed within an agreed period of time.
There are a certain number of "free" days for importers' and exporters' goods to enter and exit ports, and for the logistics operations involved in this. If this period is exceeded, additional payments arise.
In addition to rising freight costs, these extra charges can impact the profitability of your trade. Therefore, it is important to understand what the concept is to help maintain profitability in your commercial transaction.
What Does Demurrage Do for Importers?
For importers, demurrage is the time from the arrival of the container from the vessel to the port terminal until its release. The demurrage fee occurs when the container remains at the port after the free days.
What Does Demurrage Do for Exporters?
For exporters, it will be the time the container arrives at the port for export until the container is loaded onto the vessel. The demurrage fee will occur when the container remains at the port terminal after the free days.
Demurrage fees are applied to encourage importers to move goods out of the port sooner and collect the goods from the port, and to encourage exporters not to bring goods to the port too early.
Keeping goods in containers means that the containers cannot be used by the shipping company, so shippers lose potential revenue streams.
It is important to remember that shippers derive most of their revenue from the cargo carried, not from these fees.
What is the Demurrage Fee?
Demurrage is the fee paid by the merchant for the use of the container inside the terminal after the free time period.
The cost of demurrage fees varies depending on carriers, terminals, and contract agreements. However, it can range between 75 to 300 USD per container/day. After a few days, the costs can increase, turning into more serious expenses.
For example, if you are shipping 10 containers and you are late in picking them up for 10 days, with a demurrage fee of 75 USD per container per day, you will be charged a late fee of 7,500 USD. Therefore, your cost can increase significantly.
What are Demurrage Expenses?
The demurrage expense is an additional delay fee paid per container by the buyer in foreign trade transactions, in case the period determined by the agreement made between the buyer (importer) and seller (exporter) for unloading the cargo in the container is exceeded, and it is a payment separate from the freight. The period starts from the date the special declaration is submitted.
According to the Turkish Commercial Code; the buyer and seller must determine the loading and unloading time of the goods at the port at the very beginning, and the demurrage amount is specified in the contract of carriage.
How Do Demurrage Expenses Occur?
There are some situations that cause the importer to have to pay a demurrage fee. Due to the nature of the business, you may pay expenses because of the following reasons:
• Incomplete shipping documents and consequently the inability to perform customs procedures,
• Short transit time between the port of loading and the port of discharge, and the ship arriving at the port before the documents,
• The unloading of the goods in the container taking a long time,
• The loss of export documents,
• Delays caused by documents not coming from banks on time.
Who Determines Demurrage Expenses?
Depending on the type and location of the container, ocean carriers decide when the demurrage period actually ends.
How is Demurrage Fee Calculated?
Demurrage calculation is a process carried out by the carrier company. Expenses vary according to the type and size of the container, port, country, and carrier company. It is not possible to speak of a single expense for every country.
Demurrage calculation can be made manually. For this, you need to know details such as;
• Free time,
• Number of containers,
• Container type,
• Waiting time
When these factors are known, you can calculate the fee by also learning the carrier's tariff.
When calculating demurrage, the number of delay days is looked at first. The calculation starts on the first day of the vessel's discharge and ends on the day the empty container is delivered to the depot or terminal.
Carrier companies usually charge on a weekly basis. As the number of days increases, the cost per day also increases.
In order to prevent additional expenses such as demurrage from occurring, importing and exporting companies need to work with more professional carrier companies, and transport procedures need to be determined by taking clear decisions before the transport.
When Does the Demurrage Period Start?
At the import stage, it starts when the vessel arrives at the port or after the container is unloaded.
What is Free Time in Demurrage?
After the container is unloaded from the vessel, it can wait at the port for a certain period of time without paying any fee to the carrier company. This period is called free time. Free time usually begins when the container is discharged from the vessel.
For precise information regarding the start time, clear information should be obtained from the carrier company prior to transport. The free time is generally determined as seven days, and 5 days for refrigerated containers. It may be determined with different periods depending on the type of equipment and the tariff applied by the shipping company.
Importers must complete customs clearance, move the goods to the warehouse, and return the containers within this free time. Or they must move their goods to a warehouse/bonded warehouse to perform customs procedures later and return the container. If the importing company cannot perform these transactions and deliver the container within this free time, it has to pay demurrage expenses.
What are the Differences Between Demurrage and Detention/Storage?
You can clearly see the differences between demurrage and storage by examining the table below.
DemurrageStorageCharged by shipping lines in case free days are exceededThe terminal charges storage fees when the container exceeds the allowed free days.Carriers agree on free days for containers either to be moved out of the terminal for unpackaging or for the container to be loaded onto the vessel.When a container is loaded, ports offer a specific number of free days for the box to remain at the port or terminal facilities.If the container is static at the port or terminal and an error is made on your behalf, you are charged a demurrage fee.When the box is static at the port or terminal and you exceed the free days, you are charged a storage fee.
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