What is Demurrage?
Demurrage refers to the charges that are incurred when cargo or freight is not moved off a ship or out of a port within the allotted free time. It acts as a penalty for using the space beyond the agreed-upon period.
Understanding Demurrage Charges:
The specific period during which cargo can be stored at the port or terminal without incurring charges.
Any time beyond this free period results in demurrage charges.
Implications for Businesses:
- Cost Increase: Demurrage can significantly increase the overall cost of shipped goods.
- Operational Disruptions: Can lead to delays in the supply chain and inventory shortages.
- Efficient Logistics Planning: Coordinating with shipping lines, port authorities, and transportation companies to move goods promptly.
- Documentation Accuracy: Ensuring all customs and importation paperwork is complete and accurate to avoid delays.
What are Demurrage Rates and Charges?
Demurrage rates refer to the charges incurred when cargo remains at a shipping terminal or a port beyond the allotted free time. Demurrage rates are typically structured as follows:
1. Daily Charges:
Demurrage is often charged on a per-day basis. The rate usually increases progressively the longer the cargo stays beyond the free period.
2. Free Time
This is the grace period allowed for cargo unloading without incurring any charges. The duration of free time can vary depending on the carrier, the type of cargo, and the specific terms of the shipping contract.
3. Rate Variation
Rates can vary significantly based on factors such as the port, carrier, type of cargo, and even the time of year. Some ports or carriers may have higher demurrage rates than others.
4. Contractual Dependence
The specific terms of demurrage charges, including the rate and free time, are typically outlined in the shipping contract or the carrier’s tariff.
The purpose of demurrage charges is to incentivize shippers and consignees to move their cargo efficiently, helping to prevent bottlenecks and optimize terminal operations.
Who has to pay Demurrage?
Demurrage charges are typically the responsibility of the consignee, which is the party receiving the cargo. The specific details, however, can depend on the terms of the sale and the agreed Incoterms (International Commercial Terms) in the contract between the seller (shipper) and the buyer (consignee).