Understanding Demurrage, Detention, and Per Diem Charges

Posted by Port City Logistics on Jul 29, 2021 8:56:00 AM

While it may seem straightforward to those outside the logistics and shipping industry, the transportation of goods is very complicated. Legal red tape and industry guidelines have to be followed. There is also a range of fees that must be dealt with, including demurrage, detention, and per diem charges. Understanding the specifics of each of these charges and how they impact day-to-day shipping and transportation management remains a critical part of any logistics team.

What Are Demurrage Charges

Demurrage is a specially defined charge applied to cargo that takes too long to get unloaded. Most ports give carriers and shippers a few hours or days of free time to unload their cargo. When the free time elapses, demurrage charges are applied. Every commercial shipper will need to plan for demurrage when considering everything from packing and loading to drayage and last-mile services.

What Are Detention Charges

Detention is another type of charge still in play in 2021. Detention occurs when the carrier's equipment is still in use by the shipper past the agreed upon time. The technical definition of a detention fee is where a fixed-rate amount is charged per container per day until the equipment gets back to the port. Shippers that use port tools such as cranes and forklifts will face detention charges until that equipment is returned.

What Are Per Diem Charges

Another fee common during port loading and unloading is the per diem charge. This is a fee applied to containers that are not delivered back to the port on time after unloading. These charges exist because for ocean carriers to stay on schedule, they have to have available containers ready to go. The per diem fee helps ensure containers are returned promptly and are often managed by freight brokers.

Why Understanding the Differences Between Port Charges is Critical to Managing Freight Spend

Knowing that demurrage, detention, and per diem charges are expected during shipping and transportation is essential. That is just the beginning. It is even more critical that managers work to reduce and avoid these fees as much as possible. Every small additional fee, even just a few cents worth, can quickly add up. Fees applied to late containers increase costs if, for example, 200 containers, with a 10-cent fee attached to them, are late by ten days, which results in a $200 payment, just for that one per diem charge. Add to it demurrage and detention fees, and it can quickly add up and cost shippers hundreds and thousands of dollars per shipload of cargo. Understanding these fees is critical to finding ways to avoid them and reduce their impact on profit margins within the supply chain network.

How to Keep Them in Check

Understanding demurrage, detention, and per diem charges can be easier with proper planning. As noted by Marine Insight, proper equipment, labor, and resource utilization can go a long way toward reducing or even avoiding these standard charges. Demurrage, detention, and per diem fees are avoidable at times, but they will occur despite all the best efforts. Of course, having a few tips for keeping these fees in check is helpful and might include:

  • Choosing the right drayage services provider to handle final mile warehouse distributions.
  • Using up-to-date technology, tools, apps, and platforms to provide accurate status updates.
  • Real-time tracking and monitoring as well as on-demand reporting of status and locations.
  • Transparent handoffs from one destination to another with real-time analysis.
  • Frequent reporting and checking of trends and rates to note changes.
  • Quick and easy communication and collaboration both inside and outside the supply chain.
  • Automated freight management and rate/load comparison in real-time with online dashboards.

Supply chains are vital to the domestic and global market and must be managed efficiently to keep them productive and profitable. 

Make Strategic Port Transportation Decisions by Partnering with the Right Partner

Transportation and shipping management are much more involved than simply getting containers onto a drayage truck or ship to move them from Point A to Point B. Aside from all the technicalities of required documentation, procedures, and expenses. There is also the matter of demurrage, detention, and per diem charges that have to be addressed. Make the best transportation decisions and reduce fees and costs significantly with the right freight management partner. Contact Port City Logistics today to get started.

 

Topics: per diem charges