This is a guest contribution by Barbadian supply chain professional Wanda Downes. It is an independent piece and is not reflective of the views, thoughts or opinions of the author’s employer.
5 min read
I wish my understanding of demurrage charges was as clear as the sunshine that inhabits my island. Unfortunately, not just me, but many others are hazy about the imposition and the resultant escalation of costs. One thing is common among those who have deconstructed this issue—there is something deeply unreasonable about it.
It would be amazing if importers/exporters and shipping carriers lived under sunny skies of understanding and reasonableness when it comes to punitive charges. It should be relatively clear cut… How could business-minded importers/exporters not understand the necessity of sanctioning for holding up the lifeline of someone else’s business? And how could carriers not understand the numerous occurrences completely outside the control of importers/exporters that cause delays? There should be a level of reasonableness and common ground. ‘Reasonable’ however, is rather subjective.
Consider this scenario. Your container arrives in port on a Thursday with a demurrage-free period of 10 days. It is offloaded from the vessel the same day however, on the Friday the port closes early. The early closure is to accommodate important updates to the port’s IT system, which truthfully will benefit both you the importer and the shipping company in the long run. It’s now Monday and you have already lost 4 free days because of the weekend. To make matters worse, it is December so there is increased traffic at the port, and this slows the clearance process by another day or two. Your broker clears your container but there are no available customs bookings to get it opened—again, the result of a very congested port. The earliest opening date you are able to book causes you to incur 2 days of demurrage fees.
Should punitive charges be applied here? I’m sure shipping carriers see it one way and the importer/exporter see it another. So, let’s lay down some considerations as we hopefully develop a common understanding.
Demurrage commonly refers to charges for use of a container beyond the free days given by a carrier inside and outside the port. If we want to be specific—charges for extra use inside the port or while the container contains cargo is called demurrage and extra use outside the port or while it’s empty is called detention. We’ll just call it all demurrage as is commonly done.
I believe demurrage is a right of carriers and perhaps necessary to reign in inefficient behaviours—the downfall of any supply chain. Shipping carriers are oftentimes leasing containers from a container-leasing company, so they need to recoup that cost. Likewise, those carriers that own containers would experience a loss of revenue from a diminished stock and would need to put sanctions in place. However, with demurrage-free days decreasing and charges increasing over the last few years, I see demurrage as having moved from an indirect form of revenue and a business protector, to a direct revenue-generating machine, which can be gravely injurious to importers/exporters.
Increased port congestion—which negatively impacts both importers/exporters and carriers—trucking issues, clearance issues, acts of God and so on and so on, cause delays. Of course, carriers can bluntly point out that such things are no fault of theirs. However, dismissing these occurrences is harmful to the very clients that they serve as well as the people of the countries in which they operate. Annual demurrage charges can for some companies run into the hundreds of thousands of dollars, causing profit-protecting methods to be put in place which in turn impact consumers; most commonly surges in the cost of goods and services.
Here are my thoughts on developing a level of reasonableness in the context of demurrage.
Search for and remove inefficiencies in your own system—both importers/exporters and carriers.
Various inefficiencies and mistakes are the start of the need for demurrage—correct what you have control over. An unchecked, unmeasured supply chain cannot improve.
Have all your documents ready before your shipment arrives in Port.
This could be considered an extension of the point above but needs to be pulled out as it is an immediate way to see improvements. Documents must be ready for sailing, so pass them on to your broker ahead of time so the process commences early.
7-10 demurrage-free days starting after clearance.
This is mainly for local operations but I’m sure it may apply elsewhere. No need for 20 free days, for those who have it, if they start at clearance. This leaves both parties with some responsibilities and room to grow. Acts of God can happen inside and outside the port along with human and system inefficiencies. We each will take responsibility for parts of the process.
Implement a maximum demurrage.
The point of demurrage was to recoup lost of use of unavailable containers. Consider that a spanking new seaworthy 40FT container can be purchased for around $2,500 USD. Why should demurrage then exceed the cost of a new container (FIATA, 2018)?
Policy makers need to be aware and facilitate changes.
Policy makers must get involved as demurrage significantly impacts our precious foreign exchange reserves. In addition, Government entities play a pivotal role in the rate of efficiencies of container clearance—a major demurrage-inducing factor that is out of the hands of both carriers and importers/exporters.
No demurrage charges on weekends.
Continuing on from policy makers but worthy of its own point, locally (and I’m sure elsewhere) the port does not open on weekends, but this is counted as part of the demurrage-free period. Policy can be considered to allow weekend openings but until then why are weekends considered as free days when neither carriers nor importers/exporters can put forth any action?
Build relationships, build contracts.
Growth for importers and exporters is growth for carriers. Negotiations are best when you take time to know the business of those you seek to negotiate with so you can better determine the give and take.
This list is by no means exhaustive but it’s a start. What other methods can we employ to help develop a level of reasonableness for all?
WRITTEN BY WANDA DOWNES
Wanda Downes is a believer that companies and individuals that do not have an understanding of supply chain management are missing out on great potential for growth. It’s not just purchasing or logistics!
Ella también está tratando muy duro de aprender español.
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