Demurrage is a charge that the owner of a chartered ship imposes on the charterer (the person or company hiring the boat) for failing to load or unload the ship within the time agreed. It’s like a late fee, but for keeping a ship waiting.
Demurrage affects costs, schedules, and overall supply chain efficiency. By managing it effectively, businesses can save money and improve their shipping operations. For freight forwarders and their clients, being aware of demurrage and how to avoid it is essential for successful and cost-effective international trade.
What Demurrage Involves
- Laytime: The agreed time allowed for loading or unloading a ship without extra charges.
- Detention: The period beyond the allowed laytime when demurrage charges apply.
- Charter Party: The contract between the ship owner and the charterer that sets out the terms, including laytime and demurrage rates.
- Free Time: The period allowed for container use without charges, usually at ports or inland depots.
Why Demurrage Matters
Cost Management
Demurrage can significantly increase shipping costs if not managed properly, affecting the overall cost of goods.
Efficiency Incentive
It encourages quick loading and unloading of ships, helping to keep ports and shipping lanes efficient.
Supply Chain Planning
Helps businesses plan their supply chains better and avoid unnecessary costs.
Port Congestion
Demurrage charges can reduce port congestion by motivating faster cargo handling.
Main Aspects of Demurrage
Calculation Methods
Demurrage is usually calculated daily or hourly based on the ship’s size and the agreed rate in the charter party.
Types of Demurrage
- Vessel Demurrage: Charges for delays in loading or unloading ships.
- Container Demurrage: Fees for keeping containers beyond the free time allowed by shipping lines.
- Tank Demurrage: Applied in bulk liquid shipping when tanks are not emptied within the agreed time.
Factors Affecting Demurrage
- Weather Conditions: Bad weather can sometimes extend laytime without incurring demurrage.
- Port Congestion: Busy ports might lead to unavoidable delays and demurrage charges.
- Customs Clearance: Delays in paperwork can result in extended port stays and demurrage fees.
How to Manage Demurrage
Proper Planning
Coordinating all aspects of shipping, from documentation to cargo readiness, can help avoid
delays.
Negotiation Skills
Good relationships with shipping lines can sometimes lead to more flexible terms or reduced charges.
Technology Use
Tracking and port community systems can help monitor and manage container time more effectively.
Clear Communication
Keeping all parties informed about potential delays helps find solutions and avoid charges.