Understanding Demurrage and Detention In 2024

Demurrage and detention are terms that play a big role in the economics and efficiency of your shipping operations. At FMI, we understand that effective management of these charges is not just about cost control—it’s about strategic logistics planning that keeps your business moving forward and your overheads down.

With recent updates to the Federal Maritime Commission (FMC) regulations, staying informed and adaptable is more crucial than ever. Let’s explore the nuances of demurrage and detention, helping you navigate your supply chain as efficiently as possible after May 28th, 2024.

What Is Demurrage and Detention?

Demurrage refers to the fees charged when cargo remains at a shipping terminal beyond the allotted free time, which is typically specified in the liner’s tariff or the contractual agreement. This fee incentivizes shippers to move their cargo quickly, helping to reduce port congestion and ensure the timely availability of containers for further shipments.

The cost of demurrage can accumulate per day and varies widely depending on the port and carrier policies.

Detention, on the other hand, is charged when a container has been taken out of the port or terminal for loading or unloading but is not returned within the designated free period. Detention fees are meant to stop you from holding on to containers for prolonged periods outside of the terminals, thus enabling a smoother flow and turnaround of shipping equipment.

Both fees play critical roles in the shipping industry by optimizing container usage and terminal operations. However, they can also be a challenge to shippers, especially when unforeseen delays occur, such as customs holds, documentation issues, or logistical setbacks.

Understanding the specific terms and conditions set by carriers and terminals regarding these charges is fundamental to managing your shipping costs effectively.

Common Challenges with Demurrage and Detention

Managing demurrage and detention is a necessary, if not slightly cumbersome, part of logistics. However, being able to navigate these charges efficiently can greatly impact the cost-effectiveness of supply chains, so it’s important to take them seriously.

Here are some of the major challenges these fees can present and why you want to avoid them.

1. High Costs and Budget Overruns

Demurrage and detention fees can quickly build up, especially during periods of high congestion at ports or unexpected delays. These costs can put a big strain on your budget, particularly if your business depends on tight margins or has not accounted for potential overages in its shipping estimates. The unpredictable nature of these fees makes financial planning challenging and can affect the overall profitability of your shipments.

2. Operational Delays

Delays in moving or returning containers can result from a variety of operational issues, such as delays in cargo preparation, labor shortages at ports, or logistical bottlenecks. Each day a container sits idle, the costs mount, potentially compounding the negative impact on shipping schedules and delaying the overall supply chain.

3. Documentation and Administrative Burdens

Proper documentation is crucial to avoid demurrage and detention charges. Any discrepancies in paperwork or delays in processing customs documents can lead to containers being held up. Managing these administrative tasks requires a lot of attention to detail and an understanding of the regulatory requirements of each destination country.

4. Lack of Transparency and Dispute Resolution

The calculation of demurrage and detention fees often lacks transparency, leading to disputes between carriers and shippers. Resolving these disputes can be time-consuming and costly, requiring detailed record-keeping and negotiation skills.

Additionally, the terms and conditions regarding these fees can vary widely between carriers and ports, further complicating the management process.

Impact of the New FMC Regulations

The freight industry is continuously evolving, and recent updates from the Federal Maritime Commission (FMC) are set to significantly change how demurrage and detention are managed.

Here’s how the new regulations will impact your operations and what you can do to stay ahead.

1. Clarity in Billing Practices

The FMC has established clearer guidelines on who can be billed for demurrage and detention. Effective May 28, 2024, these charges will only be issued to the party responsible for contracting the cargo’s transportation or storage or to the consignee. This shift aims to eliminate the confusion that previously surrounded the billing process, where multiple parties could be billed. For businesses, this means a more straightforward billing process and potentially fewer disputes over who is responsible for the fees.

2. Empowering Motor Carriers with Chassis Choice

Another significant change is the empowerment of motor carriers to choose their chassis providers. This decision prohibits steamship lines from requiring carriers to use specific chassis pools, which can often lead to increased costs and delays. For shippers and logistics providers, this means more flexibility and potentially lower costs, as they can select the most cost-effective and efficient chassis options available, reducing the overall expense and improving turnaround times.

3. Enhanced Protections and Reduced Costs

These new regulations are designed to refine billing practices, enhance protections for shippers, and reduce overall logistics costs. By clarifying and streamlining the rules around demurrage and detention, the FMC aims to make the supply chain more efficient and less susceptible to unnecessary delays and fees. This is particularly beneficial in today’s market, where margins can be thin and operational efficiency is key.