What is Demurrage? Learn How to Avoid Charges and Costly Delays
Imagine you’re about to ship a high-tech product or valuable equipment globally. Everything seems set, but then you hit an unexpected roadblock: demurrage charges. Suddenly, your carefully planned budget takes a hit, and your goods are stuck at the port. This is just one of the many challenges businesses face when navigating international shipping, especially when you are dealing with IOR and EOR.
Shipping internationally involves more than moving goods from one location to another. It also involves managing customs clearance, adhering to Incoterms, and navigating tariffs, all while avoiding extra fees.
In this guide, we’ll simplify the demurrage definition, explain how to avoid it, and show how Egypt IOR can help you streamline your international logistics.
What is Demurrage?
Demurrage is a fee charged when you fail to pick up a shipping container from a port or terminal within the allowed free days, known as the “last free day.” If you take longer, you’ll be charged a daily fee for each container until it’s picked up. These charges are usually the consignee’s responsibility and must be paid before the goods can be collected.
Why are There Demurrage Charges?
Demurrage charges are implemented to maintain efficiency at ports and terminals, which have limited space. These fees discourage shippers from leaving containers for extended periods, ensuring smooth operations and faster cargo movement. They also apply to shipments delayed due to unforeseen circumstances such as port congestion, bad weather, or customs clearance issues, which can prevent the timely pick-up of containers.
How Do Demurrage Charges Work?
When a container is unloaded from a vessel, the consignee is given some free time to remove and transport it from the port. If the container is not picked up within the agreed period, demurrage charges are applied. Each port has different free time allowances, so it’s important to check these details when planning container logistics.
Containers are often stored in a warehouse during their free time. After this period ends, daily charges, typically calculated per container, apply until the goods are collected.
Unfortunately, demurrage charges are common and sometimes unavoidable. The daily fees can vary depending on the port, carrier, or agreement, and they typically range from $70 to $300 per container. While this might seem reasonable at first, if a container is left for a week, the charges can easily add up to 2000 per container.
What is an Example of Demurrage?
Sarah is a business owner who imports electronics from Asia to sell in her retail stores across Egypt. She arranges for shipments of laptops, smartphones, and accessories to be transported by sea, and these shipments often take several weeks to arrive at the port.
When her shipment arrives at the port, Sarah has five free days to pick up the containers before demurrage charges begin. However, due to an unexpected customs inspection and delays in paperwork processing, she cannot pick up the containers on time.
After the five free days pass, the port starts charging her $100 per container per day for demurrage. Since her containers are delayed for another 7 days due to ongoing issues, she faces an additional charge of $700 for each delayed container, which adds up quickly and cuts into her profit margins.
Who pays Demurrage in Shipping?
Demurrage charges can be incurred when goods remain at a port or terminal beyond the allowed free storage time. The responsibility for paying these charges typically falls on the party responsible for the delay.
Here are the key parties who may be liable for these fees:
- Consignee – The person or company receiving the goods. They are generally responsible for paying them if they don’t pick up the container within the allotted free time.
- Importer of Record (IOR) – The party that assumes legal responsibility for the importation of goods into a country. If the IOR is managing the customs clearance or handling the logistics, they may be responsible for these charges due to delays in customs or documentation.
- Shipper—The person or company sending the goods. If the shipping contract specifies that the shipper is responsible for delays, the shipper may be held liable for demurrage charges.
- Freight Forwarder—In some cases, if the freight forwarder manages the shipment and its logistics, they may be responsible for these charges if the delay is due to their actions or mismanagement.
- Customs Broker – If the customs broker causes delays in processing, clearing goods through customs, or completing necessary paperwork, they may be held responsible for any resulting charges.
- Carrier – In some cases, if delays are caused by the carrier (e.g., shipping line or airline), they might bear the cost, although this is usually outlined in the shipping contract.
- Port Operator or Terminal Operator—If the delays are due to port congestion or inefficiencies on the part of the port or terminal operator, they may also be responsible for paying them. However, this would depend on specific terms or force majeure situations.
What is the difference between demurrage and detention?
After understanding demurrage’s meaning, explaining the difference between demurrage and detention is essential. While both terms are related to delays in the shipping process, they apply in different situations and involve distinct charges. Understanding these differences helps clarify when each fee is applicable and how they affect the logistics and overall costs of shipping.
Here’s a breakdown of the key differences between them:
Factor | Demurrage | Detention |
Definition | Charges for keeping a container at the port or terminal beyond the allowed free time. | Charges for not returning an empty or recently loaded container to the port or yard within the agreed timeframe. |
When it Applies | When the container is left at the port/terminal after unloading. | When an empty or loaded container is not returned to the port or yard after being picked up. |
Purpose | To reduce congestion at ports by encouraging prompt pickup of containers. | To ensure containers are returned on time and available for future use. |
Fees | Applied per container, per day for each day the container remains at the port/terminal. | Applied per container, per day for each day, the container is not returned. |
Common Causes | Delays in customs, paperwork issues, or operational delays at the port. | Delays in unloading or reloading, or inefficiencies in transporting the container back. |
Can They Apply Simultaneously? | Yes, both charges can apply to the same container if there are delays in both unloading and returning. | Yes, both charges can apply to the same container if there are delays in both unloading and returning. |
How Can I Avoid Demurrage Charges?
To avoid excessive demurrage fees, it’s important to take proactive steps to manage your logistics effectively. While some delays are inevitable, planning and making informed decisions can help minimize these charges.
Here are a few strategies to help you avoid these costs:
Research and Plan Ahead
Ports and yards charge different rates for demurrage and have different lengths of “free days” for container pickup. It’s important to research and compare these rates before selecting a port. If one port offers more free days, it may be better to choose that one over a port with shorter free days or higher charges.
Understand Your Responsibilities as a Supplier or Buyer
Make sure your shipping and transportation contracts are clear and meet your needs. It’s important to ensure that delivery schedules are realistic and that enough time is allocated for transporters to reach the port and load or unload containers. Failing to account for these times can result in delays, which will lead to demurrage charges.
Choose Reliable Transportation, Logistics, and Distribution Services
Working with a trustworthy logistics company, like Egypt IOR, can help you avoid demurrage fees. We provide comprehensive international shipping, logistics, IOR service, and compliance solutions, ensuring that all necessary processes are handled, including handling all charges. This helps you avoid additional costs and keeps your shipments running smoothly.
How long before Demurrage kicks in?
The amount of free storage time before demurrage charges apply varies depending on the mode of transport and the port or terminal. Generally, shipments arriving by air or rail are given 48 hours of free storage time. Ports typically allow four to seven days of free storage. However, each port or entry point has its specific policies, so it’s important to familiarize yourself with the regulations for each location along your container’s route to avoid unnecessary fees.
What is free time?
Free time, or standard free time, refers to the period during which a carrier allows its customers to store a container at the port or terminal without incurring demurrage or detention charges. It is a grace period provided by the carrier free of charge before any fees are applied for delays in picking up, returning, or unloading the container. The length of free time varies depending on the shipping company, port, or terminal.
How Egypt IOR Can Help?
Egypt IOR specializes in providing reliable and efficient logistics services for various industries, including Tech hardware compliance services, telecom devices compliance services, medical devices compliance services, data storage and center compliance services, and e-commerce products compliance services. We work with businesses of all sizes to ensure their shipments are transported safely and securely.
Our team leverages extensive expertise in import compliance to navigate the complexities of global shipping. We ensure that all shipments, including sensitive or regulated goods like medical devices and telecom equipment, comply with local regulations, avoiding delays and excess fees.
At Egypt IOR, we understand the unique challenges involved in importing and exporting valuable and sensitive goods. Whether you’re an established business or a new venture, we provide the support and expertise you need to ensure smooth shipping and compliance.
Fill out the form now, and Let us handle the complexities of shipping into Egypt so you can focus on growing your business.