The Simple Strategy To Control Detention and Demurrage: Know Your Free Time

There are multiple reasons why demurrage and detention charges have become so common, but of course your feelings may depend on your perspective. Shippers argue it’s about revenue protection for terminals and ocean cargo companies in a struggling industry where everyone is trying to scrape by. The counter argument is that it is infrastructure limitations and regulations that are the reason these cost are necessary.

Key Takeaways

• There’s a disconnect between shippers and carriers when it comes to demurrage and detention fair play.
• Better visibility and rate management can play an important role in controlling excessive free time charges.
• Considering free time allows the number of days the companies has to pick up and return the chassis to be included in routing decisions – just like the freight rate and transit time, making rate forecasting more accurate.

Shippers and Logistics Providers Seek Relief From Free Time Charges

JOC.com recently published an article, “US shipper, trucker petition could trigger detention and demurrage relief”.

The article discusses a petition gathered by a group of US-based shippers and service providers to create a rule preventing ports and carriers from charging detention and demurrage when “uncontrollable” circumstances make it impossible to pick up or return a chassis according to their contracted free time.

From the article, “Shippers, consignees and drayage providers do not create and cannot avoid these events,” the coalition said. “They cannot control the weather. They do not choose the terminals that carriers use. They are not parties to port labor collective bargaining agreements.”

“Shippers have grumbled for years that demurrage and detention fees are being used to generate revenue, rather than to clear out containers to improve terminal fluidity or to incentivize prompt return of equipment. Although a lack of financing from coalition members for the legal push has prevented shippers from filing a formal regulatory request — until now.”

With time, this will play out. But shippers and forwarders are probably better served in the short term to focus on what they can control now that influences detention and demurrage – free time.

Visibility Plays a Vital Role in Controlling Free Time Charges

Our perspective is that this problem is primarily an issue of rate and cost visibility. The reason is all shipments have a contracted free time in the rate or contract. Yet, few forwarders or shippers take the time to consider this constraint when they are routing a shipment.

Considering free time allows the number of days the companies has to pick up and return the chassis to be included in the routing decision – just like the freight rate and transit time.

The reason this happens is free time is a line item buried in most contracts. It is different based on the port and carrier, and other shipment details. Most companies do not have an efficient way to find their free time on an individual shipment basis. Lacking this, they’ll use an average or estimated amount of free time when planning and quoting a shipment.

Knowing and using contracted free time allows freight forwarders to not only quote shipments more accurately, but develop routings that ensure charges at the ports don’t pile up. A modern rate management solution like Magaya Rate Management will help you keep contracts organized and provide the visibility needed to consider all charges when selecting a route. 

Hopefully, the challenges at the ports for all parties will lessen with time. Until then, taking the necessary steps to include free time in each routing decision is the best thing forwarders and shippers can do to reduce the additional costs from detention and demurrage.