Key takeaways:
- Globalization has led to an increasingly complicated network of supply chains stretching all over the world.
- The average demurrage and detention fees at the world’s top 20 container ports increased 104% between March 2020 and March 2021.
- Improving transparency through integrated IoT technology is the most effective way of avoiding unnecessary costs.
- Nexxiot’s Globehopper smart hardware device is a solar-powered, maintenance-free sensor node that gives you the power to monitor any asset in near real-time via our Connect Intelligent Cloud.
Globalization has delivered a multitude of benefits, from exotic produce on our dinner tables to new revenue streams for developing countries. However, it has also led to an increasingly complicated network of supply chains stretching all over the world and involving a huge number of different suppliers and logistics providers. Unsurprisingly, this high level of complexity means that things won’t always go exactly to plan.
When cargo arrives at a terminal, it receives a certain amount of free time – sometimes referred to as “laytime” – where it can remain in situ free of charge. After that time has elapsed, the cargo is subject to what is known as a “demurrage cost”. This fee can be imposed for a variety of different reasons, including delays due to incorrect documentation, the time it takes for cargo inspections to be carried out, or difficulties in contacting the cargo receiver. Whatever the specific reason, demurrage is certainly best avoided, as costs can really begin to build up over time.
Another cost that could make your shipments unnecessarily expensive is a container detention charge. Although detention charges and demurrage fees are sometimes conflated, they are actually two distinct costs – both of which should be planned for before your containers leave port. While demurrage costs are based on the amount of time a container is stored at a terminal, detention costs relate to how long container equipment is allowed to be away from a terminal, with fees also applied after an allotted number of free days have passed.
How demurrage and detention charges are calculated?
Demurrage and detention charges will be determined by the shipping line or terminal owner and imposed upon the importer in the event that they exceed the agreed-upon number of free days. The exact number of free days varies, but importers are typically allowed to store their containers for somewhere in the region of three to five days at the port before demurrage fees start to be applied. Importers generally have between seven and 10 days before detention charges are levied. Both fees are usually calculated on a per-day basis.
Each port will set its own demurrage and detention rates but regardless of how reasonable these may appear initially, they can quickly add up. If, for example, a shipping terminal charges $75 per container, per day, an importer with 10 containers stranded in port for a week could easily end up paying thousands of dollars in avoidable fees. What’s more, for particularly long delays, daily fees are likely to increase. As a result, it is essential that businesses do everything possible to ensure that the cargo shipping process goes as smoothly as possible.
How to keep costs down?
In some ways, the costs of shipping goods all over the world have decreased over time. The adoption of ISO tanks, which can easily be stacked and hold more than transporting cargo in drums, has led to a reduction in handling costs. They also have the benefit of being transportable via several transport methods, such as rail, shipping or airline. In many areas, however, the logistics of cargo transportation have witnessed rising costs as supply chains have become more and more congested. In fact, average demurrage and detention fees at the world’s top 20 container ports increased 104% between March 2020 and March 2021. Fortunately, there are effective ways of reducing the magnitude of these charges:
- Analyze your process
You should not go into the shipping process blind. Examine the kind of delays that could occur and think about ways to mitigate them in advance. If possible, leave yourself some sort of buffer so you can avoid fees and don’t underestimate the time loading and unloading can take. - Come up with a Plan B
Sometimes delays are unavoidable. To avoid demurrage and detention costs, look into possible contingency plans that would allow you to avoid fees. This could involve finding new shipping routes or the use of an alternative terminal. - Negotiate
Instead of just accepting the number of free days offered before demurrage and detention charges start to be applied, ask whether you can be granted some extra flexibility ahead of time. For larger shippers, in particular, this can be a fruitful approach. - Look into the customs process
Make sure you know all about port regulations and the customs process ahead of time, as incorrect documentation around this can be a major cause of delay. Similarly, take care to read the terms of your contract with the terminal carefully before your shipment heads off. - Adopt technology
Improving transparency around your logistics is the most effective way of streamlining the process and avoiding unnecessary costs – and this is where technology becomes key. Smart containers with integrated Internet of Things (IoT) technology and other bespoke ISO container tracking platforms can collect huge quantities of data, providing better visibility of cargo conditions, streamlining the customs process, and adding value along the whole logistics chain.
How Nexxiot can reduce your demurrage and detention costs?
At Nexxiot, we understand the importance of managing mobile assets. Our track and trace solutions enable you to manage your cargo fleet anywhere, any time. Our Globehopper smart hardware device is a solar-powered, maintenance-free sensor node and gateway that gives you the power to track and monitor any asset in near real-time via our purpose-built Nexxiot Connect Intelligent Cloud.
Don’t leave your shipping costs to chance. Reduce the likelihood of facing preventable demurrage and detention costs by collecting and learning from the data generated throughout your shipping process. Find out how our technology is boosting the efficiency and affordability of supply chains all over the world. Get in touch with us today.