Detention and Demurrage: New FMC Regulations and the Role of Visibility in Reducing D&D Fees
In global freight operations, detention and demurrage charges have become a persistent challenge for shippers and forwarders, often leading to substantial financial burdens. These fees accumulate when containers are held beyond the allotted free time and can rapidly escalate and drive up supply chain costs. The difficulty lies in the lack of transparency in how these charges are calculated, combined with the unpredictable nature of delays, leaving companies to contend with such unforeseen penalties.
What is a Demurrage Charge?
Shipping carriers typically allow shippers a specific number of free days to collect full containers from the port terminal. This period, known as “free time,” is already factored into the overall freight charges. However, if the container isn’t collected within the allotted time, a daily fee known as demurrage is charged. Demurrage typically ranges from US$ 50 to US$ 250 per container per day based on the container size, port terminal, carrier, and contract.
What is a Detention Charge?
Shippers are also provided with a limited number of free days to pick up empty containers from the carrier’s depot, transport them for loading goods, and return the full container to the port. If the container is not returned within the designated free time, the shipper is charged detention fees for each day the container remains in its possession beyond the allowed timeframe. Detention charges typically range from US$75 to US$100 per day for both container sizes.
The Visibility Gap: A Major Reason for D&D Penalties
As mentioned earlier, a significant factor behind the high incidence of D&D charges is the lack of transparency in calculating these fees, combined with the absence of real-time shipment data needed to plan to avoid them proactively.
Despite technological advancements, many companies still face challenges in gaining complete visibility, particularly in tracking real-time cargo movements and managing delay-related costs. Detention and Demurrage charges are a prime example of how inefficiencies in cargo handling, unclear documentation, and delayed updates can lead to unnecessary costs.
For example, if a shipper or forwarder is unaware that a container has arrived at a port or is awaiting customs clearance, they may miss the crucial window to retrieve it, resulting in D&D fees. A similar situation occurs with cargo rollovers, where containers remain at the port without the company’s knowledge. While some D&D charges are unavoidable, the inability to manage these situations effectively can cause these fees to escalate, potentially costing a company millions in penalties.
Common Causes of D&D Charges
- Lack of Timely Alerts: Without timely updates on key milestones such as vessel arrival, container status, customs clearance, and other critical container events, coordinating truck operations becomes challenging, leading to delays and D&D fees.
- No Real-Time Delay Information: The absence of real-time data on vessel delays, such as rerouting or cargo rollovers, and the lack of predictive ETAs prevent logistics teams from adjusting downstream plans proactively, leading to increased demurrage and detention charges.
- Lack of Transparency: D&D charges are often not broken down on invoices, which is exacerbated by the difficulty in finding the number of free days allowed in original contracts.
- Manual, Error-Prone Auditing: Relying on manual audits to verify the accuracy of charges often leads to mistakes, making it difficult to dispute incorrect D&D penalties.
New D&D Regulations and Their Impact on the Industry
The challenges surrounding D&D charges have not gone unnoticed. Regulatory bodies, including the Federal Maritime Commission (FMC), are introducing new rules to mitigate these issues. In February 2024, the FMC announced new regulations for demurrage and detention billing requirements, with the majority taking effect from May 28, 2024 onwards. The key rules are as follows:
Billing Eligibility: Demurrage and detention invoices can only be issued to the person contracting for the cargo transportation or storage, or to the consignee, but not to multiple parties at once.
Billing Timeframe: Vessel-operating common carriers (VOCCs) and marine terminal operators (MTOs) must issue invoices within 30 days, while non-vessel-operating common carriers (NVOCCs) must issue demurrage and detention invoices within 30 calendar days from the date they received the original invoice.
Dispute Process: Billed parties have a minimum of 30 days from receiving the invoice to request fee mitigation, refunds, or waivers, and the billing party must attempt to resolve disputes within 30 days unless both parties agree to extend the timeline.
Invoice Clarity: Invoices must include specific identifiable information, and failure to do so voids the obligation to pay. If all required details are included and accurate, billed parties must pay the charges.
Such regulations ensure quicker resolution times and give companies more structure and predictability in managing fees. While helpful, these updates underscore the need for logistics teams to have instant access to accurate and reliable data to meet these deadlines and manage disputes efficiently.
How Shippers and Forwarders Can Leverage Visibility to Eliminate D&D Charges
Visibility is a key factor in eliminating unnecessary detention and demurrage (D&D) costs and enhancing supply chain operations. Access to real-time data on container movement through a comprehensive Transportation Management System (TMS) can significantly reduce the risk of these fees, helping companies streamline their logistics processes.
1. Real-Time Tracking
One of the most effective ways to mitigate D&D charges is through real-time container tracking. Access to accurate, up-to-the-minute information on a container’s location allows the logistics teams to anticipate delays and take immediate action to avoid costly fees. Real-time tracking empowers companies to monitor critical milestones, such as vessel arrival, container unloading, and customs clearance, helping them to retrieve cargo before the free time expires.
2. Proactive Planning
Visibility solutions also enable better planning by providing insights into port congestion, transhipment delays, weather-related events, and other potential risks. Proactive planning involves understanding the available buffer time for each stage of the supply chain and adjusting schedules accordingly. For example, if a shipper knows a port is experiencing congestion, they can take preemptive steps, such as arranging earlier pickups or rerouting shipments. This strategic approach minimizes the risk of unplanned demurrage or detention.
3. Data-Driven Decision Making
With better visibility, companies can analyze historical trends and identify recurring patterns that lead to D&D charges. This information can help optimize shipping routes, select more reliable carriers, or adjust contracts to reduce vulnerability to such charges. By relying on data rather than assumptions, companies can make more informed choices that reduce costs and improve efficiency.
4. Automated Freight Audits
With instant access to real-time shipping data and automated freight invoice reconciliation, businesses can cross-check actual vessel movements, free days, and contract terms against the carrier’s billing. This transparency enables quick identification of discrepancies, allowing for timely and effective dispute resolution to maximize savings and margins.
What Type of Data Is Required to Handle D&D Charges Effectively?
Managing Detention and Demurrage charges requires access to specific data points that allow companies to monitor, dispute, and mitigate D&D charges effectively. Some of this data is publicly available, and others are available proprietarily.
Timeline Data
The operations team need detailed data on container timelines, including when a container is expected to arrive at the port, when it is unloaded, and when customs clear it. These timestamps of events at ports and terminals help ensure that cargo is picked up promptly.
Process Data
Understanding the port processes is vital, especially when delays occur. This includes knowledge of average wait times for customs clearance, port congestion levels, and historical data on carrier reliability and better routes. This process data allows for better contingency planning and helps identify when D&D fees result from inefficiencies beyond the shipper’s control. By understanding the net effect of idiosyncratic factors such as specific ports, ships and carriers, decision-making becomes easy.
Dispute Mechanism Data
Visibility tools enable the automation of freight invoice processing. By integrating OCR (Optical Character Recognition) technology with accurate data, you can instantly access the documentation required to dispute invoice charges. This data includes records of free time start, delays due to port or customs, and proof of retrieval attempts. With this information, you establish a solid foundation for challenging unfair fees, providing clear evidence to the billing party or regulatory bodies.
Final Thoughts
As new regulations bring more structure to the process of charging detention and demurrage fees, the need for real-time data to navigate and leverage these changes has become increasingly important. In an era when supply chain resilience and cost efficiency are essential, failing to manage D&D charges effectively can significantly undermine a company’s competitive position. Forward-thinking businesses must tackle this challenge to stay agile and responsive in their supply chains.
Investing in a reliable real-time container tracking solution enables companies to stay ahead of these challenges and maintain a competitive edge in today’s rapidly evolving logistics environment.
This guest blog was written in collaboration with the Portcast team.
