Demurrage, Detention and Per Diem – What is the Difference Among Them?
Breaking down the differences among these various terms in logistics
Importers and Exporters can get confused by the often interchangeably used terms demurrage, detention, per diem and storage. These terms don’t all necessary mean “storage”; such as per diem, as mentioned below. Storage charges accumulate at ports, inland rail ramps and rail yards, airline terminals, and bonded warehouses when import or export cargo or containers remains at the site beyond the allowed free time provided by the shipping line, airline or warehouse.
The fee is intended to compensate the facility for the use of their space and/or their equipment. All carriers and warehouses grant different amounts of free days and storage charges per day will vary from one facility to another. Depending on the carrier or warehouse and your volume with them, you can get more beneficial free time for these various charges. If the service is through your freight forwarder, then it depends on what volume they have with the carrier or warehouse. Many times, especially during times of congestion where pulling out import containers becomes difficult, importers have to pay demurrage charges even though it is out of their hands. This is an unfortunate and frustrating part of international trade.
Demurrage is charged by steamship lines and airlines for the use of their shipping containers (some air freight is containerized). A limited number of free days, which varies depending on the carrier and location is granted, after which demurrage charges will be incurred for each additional day. This fee is intended to discourage the use of the carrier’s equipment for storage purposes and to compensate the carrier for the use of their equipment. Demurrage charges generally increase per day after a certain amount of days. As an example, after 5 free days, you may get charged $150/day, from 5-10 days you get billed $225/day and from 10+ days you get billed at $300/day. The actual charges vary considerably from carrier to carrier and from port to port. Demurrage charges must be paid in full before you can pick up your container.
Detention has two definitions – 1) In domestic trucking, detention is a charge invoiced by a drayman/trucker for excess use of their time for loading or unloading cargo. It is billed hourly by the trucker or sometimes pro-rated, depending on the trucker. Normal detention free time is 1-2 hours for loading or unloading a container (depending on if it is a domestic, import or export shipment). Truckers also charge detention while waiting to pick up an import container at a port or when delivering an export container back to the port, this is usually enforced during times of extreme port congestion. 2) When you store the container at the terminal beyond the set amount of free time, carriers can call this charge “detention” charge – but it is more often known as per diem which is described below.
Per Diem is charged by the steamship lines and airlines for use of their equipment, whether ocean containers, chassis or air unit load devices (ULD’s). Carriers grant a certain amount of free days with their equipment before charging per diem. Per diem applies to cargo that leaves the arriving terminal (on an import) or leaves the departing terminal (on an export) for loading and is charged until the equipment is returned to the terminal (whether it is a port, rail yard or airline). Many people use per diem interchangeable with detention and demurrage which can confuse the billed party.
Tips on How to Avoid Demurrage Charges
- Know in advance how many free days your freight forwarder has been granted.
- Make sure to pre-clear your cargo as soon as possible. AEL can clear your cargo at the earliest possible time so long as all documents are received in a timely manner.
- If you have volume shipments, request extended free time from your freight forwarder and/or carrier. Volumes need to be close to a 1,000 containers/year to warrant extended free time.
- Make sure your trucker can pick up the cargo within the allotted free time and that a trucker has been assigned to your shipment. Have a backup or alternate trucker in case your initial trucker cannot pickup your cargo in time.
Tips on How to Avoid Detention and Per Diem Charges
- Make sure your facility is prepared to load/unload cargo. This allows the trucker to arrive and depart in a timely manner and puts you in a good light so they provide you service in the future. Truckers don’t like waiting!
- Setup the delivery schedule well in advance with your trucker or freight forwarder. That way you aren’t scrambling last minute to setup the trucker and not have your facility ready to load or unload the cargo.