What Is The Difference Between Demurrage And Detention? A Detailed Analysis

Importers and exporters often end up paying high logistics charges because of demurrage and detention charges. These charges are usually a late fine, and apply when you either do not return or do not collect your shipping containers. It is essential to have clarity so that you don’t end up paying a high logistics fee every month. Let’s understand both of them briefly but in detail.

Also read what marine insurance is, types and its features.

Detention And Demurrage Meaning

Before jumping straight into the differences, let's understand detention and demurrage meaning. Both of these are penalty fines that shipping companies pay when containers run out of allotted free time. This free time is generally from 2 to 7 days, depending on the shipping line and contract terms.

What Is Demurrage?

Meaning of Demurrage

Demurrage is a fine that the trader or logistics company pays to the carrier or freight provider for any additional time the containers spend at the port or terminal. Note that demurrage is paid only if the cargo owners do not move out their containers in time from the port or terminal. In simple words, demurrage acts as a parking fee for your car parked in parking zones beyond the allotted time.

Example of Demurrage

Any cargo owner or logistics company incurs a demurrage charge after the expiry of the free 7 days of storage. For example, a logistics company has the last date of removing their container from the port on 10th June, but it removes it on 27th June. The concept of demurrage and detention applies here, as the firm has to pay a demurrage charge for removing their cargo 10 days late after the last date.

What Is Detention?

Meaning of Detention

Detention is the charge applied when the logistics business does not return the shipping line's container beyond the allotted free detention time. Note that detention applies only if you do not return the container to the original port location within the free time. Many exporters and importers agree to pay detention charges to save on warehouse costs, but detention fines usually exceed warehouse costs.

Example of Detention

A logistics company had a deadline of returning the container by 15th August to Mumbai Port Trust for a consignment. The company, however, returned the container on 31st August, which imposed a detention charge of an extra 16 days on the company.

Understanding what is detention and demurrage are helps you understand the extra charges you are paying and the cost factors that are affecting your supply chain.

Difference Between Demurrage And Detention

Now that we are clear on the definition and meaning, let's clearly understand the difference between detention and demurrage.

Example To Understand Difference

Translocks Ltd. was importing a cargo of pump motors in containers from China to Mumbai Port Authority. The free time or dwell time allotted by the shipping line to Translogs was 7 days from the date of their cargo onboarding, i.e, 7 days from 4th September.

Let’s understand how detention and demurrage charges apply to Translocks Ltd.

A) How Demurrage Charges Apply Translocks would have to pay a demurrage charge if they had kept their container with the Mumbai Port Authority for each additional number of days beyond free time. For example, if Translocks had collected the container on 20th September, they would be liable to pay demurrage charges for the extra 16 days.

B) How Detention Charges Apply If Translocks did not return the shipping line container after the expiry of the free detention time, it would have to pay a detention fee. For example, if Translocks returned the container after 15 days after expiry of the free detention period, it would have to pay detention charges for the 15 days.

Demurrage and detention difference is that demurrage is paid when a container is not removed from port after the expiry of the free period. On the other hand, detention is when a container is not returned after the expiry of a free period.

How To Handle Detention And Demurrage?

Many times, businesses end up paying these charges because of being ignorant about them, which steeply increases their logistics charges. Here are some ways you can avoid detention and demurrage charges:

1. Effectively Managing Porting Time

Many times, the shipper is not ready yet, which is why the cargo stays in the port. This incurs demurrage charges as the container is kept docked even after the free period. The best way to manage this is to keep the cargo ready in time and assign a logistician to your cargo.

2. Check For Early Cargo Clearance

The best way to avoid demurrage and detention fees is to check for the early release of cargo. Most times early release of cargo helps to free the containers, which avoids paying fees.

3. Train Your Workers

Business owners, especially those who work with logistics providers, should train their workers to avoid these fines. You can create training workshops to bring in more awareness, and let your workers understand how these fines inflate logistics cost.

4. Negotiate Detention And Demurrage Time

Many times, you can extend the free demurrage time and detention time by negotiating with the shipping lines. If you are anticipating that the allotted time may fall short, or may be insufficient, always actively negotiate with the freight provider to stretch the free time.

5. Use Generative AI For Automating Documentation

The regular tasks, such as documentation, can be easily managed with automation. Utilize Generative AI tools to manage cargo documents without investing too much time in manual documenting.

6. Prepare Your Workforce For Custom Clearance

Most traders end up paying a high demurrage charge because they don’t prepare for custom clearance procedures. Sometimes delay occurs because of insufficient documentation, which is why you need to know about custom documents and regulations.

Conclusion

Every logistics partner and importer needs to have a clear understanding on the difference between demurrage and detention. While both are actually penalties, each has different purposes. Demurrage applies when containers remain at ports, while detention applies when you hold containers outside port areas. The best strategy to avoid these charges is to plan your pickups efficiently, ensure prior documentation, and negotiate for additional days.

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