Detention pay and demurrage charges are unavoidable realities in the freight industry, but they don’t have to be unpredictable burdens on your business. As a freight agent, having a thorough understanding of these charges—when they apply, how they’re calculated, and who bears responsibility—can empower you to make informed decisions and create more accurate forecasts. In this guide, we’ll demystify these concepts and provide you with actionable insights to better manage these often misunderstood aspects of shipping logistics.
What is demurrage in shipping?
Demurrage in shipping refers to a fee charged by shipping lines or carriers when containers or vessels are held beyond the agreed-upon free time for loading, unloading, or storage.
The fee compensates the vehicle owner or shipping line for the extended use of their equipment and space. The concept operates as a financial penalty to encourage the efficient use of shipping resources and prevent delays in the supply chain.
Key aspects of demurrage include:
- Free time: The standard period allowed for loading/unloading containers without incurring fees
- Calculation: Usually charged daily or per container after free time expires
- Rates: Vary based on location, carrier, container type, and current market conditions
- Distinction from detention: While sometimes used interchangeably, demurrage specifically refers to charges for containers at ports/terminals, while detention applies to containers held outside these areas
For freight brokerage agents, understanding demurrage is necessary for protecting profit margins and client relationships. When these charges aren’t properly anticipated or communicated to clients, they often become disputed costs that may cut into your commission or damage client trust. By thoroughly understanding demurrage calculations and rates, agents can build these potential costs into their shipping strategies, provide accurate quotes, and demonstrate value to clients by helping them avoid unnecessary expenses.
What is an example of demurrage?
A trucking company delivers a trailer loaded with furniture to a retail distribution center. According to the shipping agreement, the distribution center has 48 hours (2 days) of free time to unload the trailer once it arrives.
However, the distribution center is experiencing staffing shortages and a backlog of incoming shipments. As a result, they’re unable to unload the trailer until 5 days after it arrives.
In this scenario:
- Free time: 48 hours (2 days)
- Trailer held beyond free time: 3 days
- Demurrage rate: $200 per day
- Total demurrage charge: $600 ($200 × 3 days)
The trucking company bills this demurrage fee to the retail company. This charge compensates the trucking company for the extended use of their trailer, which couldn’t be used for other shipments during that time. It also serves as an incentive for the distribution center to improve their unloading efficiency to avoid such charges in the future.
Demurrage vs. Detention Pay
While both are charges for equipment delays in shipping, they apply to different scenarios.
Demurrage refers to charges incurred when containers or equipment remain at the port or terminal beyond the allotted free time. It applies exclusively within port or terminal premises and compensates for terminal space and equipment usage. The responsibility for these charges typically falls on the consignee or receiver. For instance, demurrage would apply when a container sits at the port for 10 days after arrival when the free time was only 5 days.
Detention pay, on the other hand, involves charges when containers or equipment are kept outside the port or terminal beyond the allowed free time. It applies once equipment leaves the terminal until it’s returned empty and compensates for the use of the container or equipment itself. The responsibility usually falls on the party controlling the equipment, whether that’s the shipper or consignee.
The key differences between the two involve the location trigger, timeframe, and control. Demurrage occurs at ports or terminals, while detention occurs outside these facilities. Demurrage applies before pickup, whereas detention applies after pickup until return. Additionally, demurrage may involve factors outside customer control, such as customs delays, while detention is more directly under customer control.
Partner with First Star Logistics
Mastering detention pay and demurrage charges is just one aspect of successful freight management. To truly excel in this industry, having the right partner makes all the difference. First Star Logistics offers freight agents a unique opportunity to focus on business growth while our dedicated management team handles comprehensive back-end support across multiple departments.
Our freight brokerage agent program is built on a simple principle: we succeed when you succeed. That’s why we’ve developed a flexible training program that accommodates both newcomers and experienced brokers. We provide the right amount of training for each individual because we want you to grow with us and achieve your full potential in the freight industry.
Take the next step in your freight agent career. Contact First Star Logistics today to discover how our partnership approach can help you build a thriving business while effectively managing shipping costs like detention and demurrage.