What is Demurrage? What is Demurrage Charge? How is the Cost Calculated?

There are certain rules in place for the regulation of container traffic. In the event of non-compliance with these rules, importing and exporting companies apply various sanctions/penalties.

Demurrage is at the forefront of these penalties, potentially generating serious costs. So, what is demurrage and how is it calculated? We have covered all the details for you.

What is Demurrage?

Demurrage is the fee paid to the owner of a chartered ship if loading or unloading is not completed within an agreed period of time.

There are a specific number of 'free' days for importers' and exporters' goods to enter and exit ports, and for the logistics operations involved in this. If this period is exceeded, additional payments arise.

In addition to increasing freight costs, these extra charges can impact the profitability of your trade. Therefore, it is important to understand what the concept is to help preserve profitability in your commercial transactions.

What Does Demurrage Mean for Importers?

For importers, demurrage is the period from the container's arrival at the port terminal from the vessel until its release. Demurrage charges occur if the container remains at the port after the free days have expired.

What Does Demurrage Mean for Exporters?

For exporters, it is the time when the container arrives at the port for export until the container is loaded onto the vessel. Demurrage charges will occur if the container remains at the port terminal after the free days.

Demurrage charges are applied to encourage importers to move goods out of the port sooner and collect their goods, and to encourage exporters not to bring goods to the port too early.

Keeping goods in containers means that the containers cannot be used by the shipping line, so ocean carriers lose out on potential revenue streams.

It is important to remember that shippers derive most of their revenue from the cargo carried, not from these charges.

What is a Demurrage Fee?

Demurrage is the fee paid by the merchant for the use of the container inside the terminal after the free time period has expired.

The cost of detention/demurrage fees varies depending on carriers, terminals, and contract agreements. However, it can range between 75 USD and 300 USD per container/day. After a few days, the costs can escalate into more serious expenses. 

For example, if you are shipping 10 containers and you are late in taking delivery of them for 10 days, with a demurrage fee of 75 USD per container per day, you will be charged a late fee of 7,500 USD. Therefore, your costs can increase considerably.

What are Demurrage Costs?

Demurrage cost, in foreign trade transactions, is the additional late payment paid by the buyer per container if the period determined by the agreement between the buyer (importer) and the seller (exporter) for unloading the cargo in the container is exceeded, and it is a payment outside the freight. The period starts from the date of the special declaration.

According to the Turkish Commercial Code; the buyer and the seller must determine the loading and unloading duration of the goods at the port from the very beginning, and the demurrage amount is specified in the contract of carriage.

How Do Demurrage Costs Arise?

There are some situations that cause the importer to have to pay demurrage. Due to the nature of the business, you may pay costs due to the following reasons:

• Incomplete shipping documents, resulting in the inability to perform customs clearance,

• Short transit time between the port of loading and port of discharge, and the ship arriving at the port before the documents,

• Prolonged unloading of goods in the container,

• Loss of export documents,

• Delays caused by the documents not arriving from banks on time.

Who Determines Demurrage Fees?

Depending on the type and location of the container, ocean carriers decide when the demurrage period actually expires.

How is Demurrage Calculated?

Demurrage calculation is a process carried out by the carrier company. Costs vary depending on container type and size, port, country, and carrier company. It is not possible to talk about a single cost for every country.

Demurrage calculations can be made manually. For this, you need to know details such as:

• Free time,

• Number of containers,

• Container type,

• Waiting time

Once these factors are known, you can calculate the fee by learning the carrier's tariff.

When calculating demurrage, the number of days delayed is looked at first. The calculation starts on the first day the ship's discharge arrives and ends on the day the empty container is delivered to the depot or terminal.

Carrier companies generally charge on a weekly basis. As the number of days increases, the cost per day also increases.

In order to avoid additional costs like demurrage, importing and exporting companies should work with more professional carrier companies, and shipping procedures must be determined by making clear decisions before the shipment.

When Does the Demurrage Period Start?

In the import phase, it begins when the ship arrives at the port or after the container is discharged.

What is Free Time in Demurrage?

After the container is unloaded from the vessel, it can wait at the port for a certain period of time without paying any fee to the carrier company. This period is called free time. Free time generally begins when the container is discharged from the vessel.

For exact information on the starting time, clear information should be obtained from the carrier company before the shipment. Free time is generally determined as seven days, and 5 days for refrigerated containers. Different periods can be set depending on the type of equipment and the tariff applied by the transport company.

Importers must complete customs clearance, move goods to the warehouse, and return containers within this free time. Or, they must take their goods to a warehouse/bonded warehouse to carry out customs clearance later and return the container. If the importing company cannot perform these actions within this free time and cannot return the container, it must pay demurrage costs.

What are the Differences Between Demurrage and Port Storage?

You can clearly see the differences between demurrage and port storage (ardiye) by examining the table below.