What Are Detention Fees in Supply Chain?

What are detention fees?

Detention fees in the supply chain are charges that shippers or consignees must pay when they hold onto the carrier's container beyond the allotted free time. The free time is usually specified in a shipping contract or agreement and it allows for a certain period during which the container can be used for loading, unloading, or storage without incurring extra costs. Once this period expires, detention fees start accruing.

What is the difference between detention and demurrage?

Detention and demurrage are both fees associated with the use of shipping containers, but they apply to different parts of the handling process.

Demurrage fees are charged when import containers are not moved out of the terminal or port for clearance and transportation within the allotted free time. Essentially, demurrage relates to the time a container spends at the port beyond the agreed-upon free days. This fee encourages shippers to clear their goods promptly and helps ports manage their space efficiently.

Detention fees, on the other hand, are incurred when a container has been taken out of the port but is not returned empty to the port or container yard within the allowed free time. Detention fees are thus related to the time a container is held outside the port, either loaded or empty, beyond the rental period.

How are detention charges calculated?

Detention charges are calculated based on the number of days a container is retained beyond the agreed-upon free period specified in the shipping contract. Here’s how the calculation generally works:

1. The shipping contract will define a set number of free days, during which the shipper can use the container without any charges. This period typically allows for the time needed to unload and reload the container.

2. Once the free time expires, detention charges begin to accrue. The start day is counted as the first day after the free period ends.

3. The carrier sets a daily rate for detention charges. This rate can sometimes increase incrementally after certain intervals. For example, the rate might be lower for the first few days after the free period and then increase if the container is still not returned..

4. The total detention fee is the sum of the daily rates multiplied by the number of days the container is detained beyond the free period.

Rates can vary widely depending on the carrier and the region. Some carriers may also offer different rates for different types of containers or for different services. These charges are typically billed to the shipper or consignee who is responsible for the container during the time it is detained.

What are the causes of freight detention charges?

Freight detention charges typically arise due to delays in the shipping and handling processes. Here are some common causes of these delays:

• If loading or unloading takes longer than expected, it can delay the return of the container. This could be due to inadequate staffing, equipment failures, or inefficient processes at the warehouse or distribution center.
• Delays in processing customs paperwork, inaccurate or incomplete documentation, or issues with cargo clearance can all lead to containers being held up, which triggers detention charges.
• If the dock schedules are not well-coordinated, containers might arrive when no appropriate equipment or personnel are available to unload them, or they may be picked up too late after unloading.
• Traffic congestion, long travel times, or issues with logistics providers can delay the arrival of containers to their destination or their return to the port or depot.
• Poor communication between shipping lines, truckers, warehouses, and terminals can lead to misunderstandings about scheduling and requirements, resulting in detained containers.

Pro tip: To address all these issues, use a dock scheduling software with appointment tracking, documentation features, and automated notifications. This can help reduce the risk of incurring detention charges.

Who pays detention charges?

Detention charges are typically paid by the party responsible for the container during the period it is detained. This responsibility can vary depending on the terms of the shipping contract and the specific logistics arrangements.

What is the demurrage fee?

Demurrage fees are charges levied on cargo that remains at the port or terminal longer than the allotted "free time," which is the grace period allowed for the pickup and clearance of cargo from the port or terminal facilities.

Who pays for demurrage charges?

The responsibility for paying demurrage charges typically falls on the consignee or importer. If a freight forwarder is acting on behalf of the consignee or shipper and is responsible for the logistics, they might initially pay the demurrage charges but will typically reclaim these costs from their client as per their service agreement.

10 tips and best practices to avoid detention fees in shipping

Avoiding detention fees is crucial for maintaining cost efficiency in shipping operations. Here are several tips and best practices that can help:

1. Ensure that all logistics are coordinated in advance. Arrange for labor and equipment to be available as soon as the shipment arrives to facilitate quick loading or unloading of containers.

2. Prepare all necessary documentation before the shipment arrives. This includes ensuring all customs paperwork is complete, accurate, and ready for inspection to avoid delays in cargo release.

3. Partner with experienced freight forwarders who understand local customs and practices and can navigate potential pitfalls in the shipping process, ensuring faster clearance and handling.

4. Keep track of container movements using GPS or other tracking systems to manage the return times effectively and adjust plans promptly in response to any delays.

5. Maintain clear and constant communication with shipping lines, truckers, and port authorities. Regular updates can help adjust schedules on the fly and prevent misunderstandings that could lead to delays.

6. Be well-versed in the details of your shipping contracts, including free time allowances, detention fee schedules, and responsibilities. This knowledge can help in negotiating terms and avoiding disputes.

7. Schedule transportation to and from ports carefully, considering potential delays like traffic, roadworks, or availability of drivers. Buffer times should be realistic and accommodate unexpected delays.

8. Regularly review operations and feedback loops to identify any recurrent issues that cause delays. Implementing corrective actions based on these insights can help improve efficiency and reduce the likelihood of incurring detention fees.

9. If your business regularly uses shipping services, negotiate to increase free time or lower detention rates with carriers, especially if you have a good track record of returning containers on time.

10. Use logistics management software to better plan and execute operations. These tools can provide valuable insights and real-time data to help avoid delays and optimize the entire supply chain.