Detention and demurrage: Two words with the potential to add significant costs to the bills of both importers and exporters. For some, it’s big business. Maersk brought in almost US$1 billion in detention and demurrage charges in 2018, against total revenues of just over $28 billion. Our own data suggests that container detention and demurrage can cost anywhere from US$45 to US$200 per container. That’s the cash cargo owners are having to pay. It has to come out of any potential profit, directly impacting bottom lines.
What is demurrage and detention?
But just what is this tariff that’s costing so much? Put simply, detention charges are applied for the use of the container outside the port, terminal or depot, beyond the free time period (the amount of time, usually negotiated as part of the rate, the cargo owner or shipper has to use the container for free). Demurrage charges are the same principle, but applied when the container is in the port, terminal or depot.
So, in effect, cargo owners get charged when they use the container for too long. The solution, surely, is not to stray outside the free time period. That’s easier said than done. Organizing a collection of a container is complex, requiring coordination of truck or rail suppliers, customs clearance and, of course, ships, and that’s before reliability and congestion come into play. Just recently, a senior executive at global forwarder Kuehne + Nagel told at industry conference that “only 75%-80% of containerships arrived at their destination ports on time and it now takes longer to move a box through a North American terminal e.g on average, four to five days.” It’s no better on the landside, either; the same executive said, “Truck wait times at ramps and marine terminals are longer, chassis issues around ports are causing further delays and train speeds are also getting slower – intermodal services are around 12% slower than in 2016.” This is a global issue – the Ports of Los Angeles and Long Beach in US, Felixstowe in the UK and Rotterdam in the Netherlands have all had to contend with congestion challenges in the past couple of years. From a business planning perspective, it is a nightmare, with demurrage and detention a significant cost amongst that. In some ways, it’s adding insult to injury – not only are cargo owners unable to always guarantee cargo will be where they need it to be when they want it but, thanks to demurrage and detention tariffs, they can end up paying for the uncertainty.
Better visibility is the answer to spiralling detention and demurrage charges
With so many potential issues, cargo owners need to act if they are to manage their demurrage and detention costs. Having clearer visibility of their containers is a step towards analysing the costs. Currently, many cargo owners rely on a combination of updates from shipping lines and port operators. These updates only tell them where the ship itself is and is often delayed. By implementing shipping container monitoring, cargo owners can have a more precise understanding of where their shipment is and in what condition. What does this mean? A lot Actually…
- It gives the cargo owners the data to optimize their collections process. A vessel schedule may change in transit; with real-time updates on the progress of their container, cargo owners can notify trucks and warehouses, or find alternative solutions. Reviewed in line with other information, such as port congestion and storage space, schedules can then be revised accordingly. In doing so, significant potential charges could be avoided.
- By not just relying on general updates from shipping lines and port operators, cargo owners can interpret the data in line with their own requirements, and plan, or amend, appropriately.
- Using historical data, cargo owners can start to improve their strategic planning – if, for example, a specific route is always delayed, or customs checks at a particular terminal take longer (or quicker) than elsewhere, that can be factored into negotiations.
- Armed with that information, cargo owners can arrange to have more, or less, free time, and renegotiate their rates accordingly. While it may mean a slightly higher upfront cost (if more container free time is required), it avoids unknown charges in the future.
- The data can even be used to calculate how much demurrage or detention may be ex-pected (something 3PLs and forwarders may not always be clear about), again limiting the unknown and providing clearer guidance to cargo owners on what they need to pay.
How can Arviem help you achieve the reduced detention and demurrage charges?
Arviem uses Internet of Things-enabled sensors and monitoring services to provide exactly the level of visibility needed and data to both exporters and importers. Connecting containers, cargo, vessels and trailers to enterprise IT systems via sensors, GPS, mobile networks and a cloud-based platform, it gives cargo owners, shippers, forwarders and other logistics operators the data they need to make accurate, fast decisions. That might be to better plan collections and renegotiate rates to minimise detention and demurrage; it might be to have a clear understanding of the state of the cargo and act accordingly – whatever it is, Arviem’s shipping container monitoring solution lets its customers know exactly where their shipments are, and plan appropriately with manifold benefits:
- You can make one more, data-driven decision ever day.
- Instead of waiting for updates from shipping lines, you can manage your shipments pro-actively.
- Don’t wait until updates from service providers come in. You can put a handle on your pickups by using quick, dynamic, data-driven ETA calculations.
- Don’t get fooled again. You can use data to calculate the actual demurrage costs you have to pay to your service provider.
- You can benefit from improved strategic planning by using historical data
- You can use the same historical data to negotiate and renegotiate your agreements with SLAs.
As an example, one of our customers was regularly negotiating 20 days free time at a port in Angola, Africa. Using our shipping container monitoring technology, the customer realized that their containers were being collected well within the pre-negotiated free time. That meant they could re-negotiate and reduce the amount they paid for, saving themselves around €100,000. Although there are fundamental issues and unavoidable situations in the complex, sprawling shipping sector which will always change shipping schedules, lead times and the expected time for container collection, supply chain business professionals are always expected to make the right decisions for their businesses. They have to ensure they are not exposed to additional and unnecessary costs, such as the detention and demurrage. Having real-time, accurate, and actionable data on the location and condition of their cargo is an important step to avoid these charges.