Importers, exporters, and transportation logistics providers are intimately familiar with port fees, shipping costs, and other expenses that can come up on a whim while trying to get your precious cargo to its destination.
Regarding detention and demurrage charges, these unexpected fees can stop your shipments dead in their tracks, resulting in delays and schedule shifts that can impact your operations. If your cargo is left at a port too long or delays prevent returning equipment on time, these unanticipated fees can severely dent your bottom line.
This guide dives into detention and demurrage charges in-depth and explores how accurate geofencing data can help you reduce these fees. You’ll learn how to minimize container detention and demurrage costs, the ideal use cases for polygon geofencing technology when importing or exporting, and precisely how geofencing data can significantly boost your organization’s bottom line. Let’s dive right in!
What are Detention and Demurrage?
Through importing and exporting, every container has a preset amount of “free time” or a grace period where the carrier’s equipment can be used without additional costs or charges.
After this grace period expires, detention and demurrage charges can accrue.
Demurrage refers to fees and costs incurred by a customer when their cargo containers remain in a port terminal for longer than their allotted free time. These charges typically occur while containers are still full and controlled by the shipping line before being picked up by a consignee or cleared through customs.
Detention fees are costs incurred by a customer when port equipment is used outside the terminal and beyond their allocated “free time.” Whether a container is empty or full, if a consignee or shipper uses a carrier’s equipment beyond their last free day (LFD), they will accrue detention fees.
The simplest way to tell demurrage costs from detention fees is to remember that:
- Demurrage fees get assessed on containers inside a port that are laden.
- Detention fees get assessed on containers outside a port, whether empty or laden.
Why Do Detention and Demurrage Rise in Volatile Markets?
In volatile markets, such as turmoil surrounding 2020 to 2021 with COVID-19 shutdowns and a sudden demand boom, detention and demurrage costs can rise dramatically.
As shipping port congestion increases and empty containers are slower to return, shippers increase detention and demurrage charges to incentivize their customers to move faster and unload their cargo quicker in a volatile game of supply and demand. If crews are sluggish to empty and return containers, customers can experience rapidly accruing charges that can set them back significantly in terms of profitability and business cash flow.
What Causes the Accrual of Detention and Demurrage Fees?
Detention and demurrage fees often accrue due to sudden unexpected factors that arise during shipping but can also result from poor planning or improper scheduling. Some of the most common situations for accruing demurrage and detention charges include:
- Lack of proper planning and scheduling by importers and exporters.
- Port congestion resulting from labor strikes, weather, or other unforeseen circumstances.
- Lack of availability of trucks, drivers, or chassis by the LFD.
- Payment delays that are attributable to held cargo at the port.
- Containers stopped by police, customers, or other authorities for inspection; frequently, this can take longer than anticipated.
Whether a customer experiences delays due to one of these factors or a combination of multiple factors at once, delays that extend past the LFD will begin accruing demurrage and detention fees.
Tips to Reduce Container Detention and Demurrage
If you’re looking to reduce your container detention and demurrage charges, you can use several tips, tricks, and techniques to lower your costs and increase your bottom line. We will explore how negotiating your contract terms, maintaining schedule efficiency, and utilizing global visibility software solutions can help you immediately reduce fees.
As a bonus, the following section will show you how polygon geofencing can dramatically reduce demurrage and detention costs without compromising other aspects of your shipping business.
Always Negotiate Your Contract Terms
Reading through every contract before you sign and taking note of per diem charges, fees, and additional costs will allow you to always be a step ahead and understand what your approximate charges will be throughout your transportation contract.
Implement standard procedures and best practices for negotiating every one of your transportation contracts, especially when it comes to sea freight. It’s best to negotiate before your vessel leaves port rather than when you’re already stuck at a destination terminal.
Maintain Schedule Efficiency
Dispatching cargo in advance and ensuring your schedule is operating as efficiently as possible is key to avoiding demurrage and detention charges. Even though there will always be unexpected delays, you can increase your time flexibility if any backlogs or weather challenges occur. Giving yourself a time buffer is something you’ll never regret.
Invest In an International Visibility Solution
Supply chain visibility software is a must if your organization frequently ships freight overseas or internationally.
Rather than managing your long-range shipment logistics through email, phone calls, and multiple spreadsheets, freight visibility software will allow you to track your shipments more accurately and adapt based on actual data and analytics.
How can Polygon Geofencing Affect Detention and Demurrage?
Geofences are virtual boundaries that can be drawn to maintain control of your shipping vessels, vehicles, employees, and other goods, alerting you to schedule changes or delays as they occur.
Polygon geofencing allows your organization to draw flexible polygons around certain map areas or shipping routes to more effectively manage and track your import, export, and international freight shipments and use solid, reliable data to make business decisions.
How Manually Drawing Geofences Can Perpetuate Detention & Demurrage Fees
When polygon geofences first emerged in the logistics and shipping industry, they were manually drawn and updated as required. As you can imagine, manually updating geofences, especially if a particular freight carrier is redirected or has to adjust its route, can be an arduous task. You need an available employee trained in geofences who has the time to make immediate updates to ensure tracking accuracy.
Availability isn’t always an option. If one of your team members juggles multiple tasks, a geofence boundary might not receive the timely updates required to keep your tracking intact. Additionally, manually drawing geofences introduces the possibility of human error, technical difficulties, and other issues that can occur during the updating process.
Any errors in geofence manual updates can perpetuate detention and demurrage fees. You’ll no longer receive accurate updates about your containers or how long they’ve been in a particular port. Your organization can incur significant demurrage and detention charges if this isn’t spotted immediately.
The solution to manually drawing geofences is to use automated geofence software solutions, such as those provided by Kestrel Insights. This will help your business avoid any demurrage fee or demurrage cost that arises.
Using Polygon Geofences to Reduce Detention and Demurrage Costs
One of the best ways to reduce detention and demurrage costs is to implement automated polygon geofence solutions into your importing, exporting, international shipping, or freight business.
With automated polygon geofencing, your organization can accurately track your shipments, how long they’ve been in port, whether they’ve been loaded or unloaded, and much more. Configurable alerts inform you immediately when you’re approaching an LFD deadline. You can then adjust your container schedules or prioritize specific tasks according to the fees you can incur.
The hyper-accurate tracking made possible by polygon geofencing will allow your business to avoid detention and demurrage charges and know exactly when an unforeseen event or circumstance arises. You can take action before anyone else in your surrounding port, area, or location.
The competitive advantage offered by polygon geofencing is second to none, and when used correctly, it can save your business significant time and money in the long run. Avoiding demurrage freight charges altogether is a win-win situation.
Avoiding Fees & Charges by Implementing Automated Polygon Geofencing Solutions from Kestrel Insights
Is your business ready to step into the future and take advantage of next-generation automated polygon geofencing technology? Kestrel Insights has developed a precise, robust, and automated geofencing solution that’ll allow you to track all of your shipping routes and avoid demurrage and detention costs whenever possible.
If you want to learn more about geofencing and receive a demo from Kestrel, reach out to our team today, and we’ll be more than happy to show you what automated geofencing can do for your business.