How to Reduce Demurrage and Detention Charges for Exporters
Demurrage and detention have been grabbing headlines over the last couple of years since the start of the COVID-19 pandemic. It's caught the attention of journalists, politicians, CEOs, and the general public, with regulators proposing new rules around demurrage and detention billing practices, but nearly all those headlines have been focused on the challenges of importers.
But what about exporters?
The truth is, demurrage and detention are an even bigger challenge for exporters, and historically, and much more so recently, export dwell times have been higher than import dwell.
What is Demurrage and Detention for Exporters?
By now you're probably familiar with how demurrage and detention work for importers. Demurrage is charged when a container hasn't been picked up from the terminal in time and is past its Last Free Day, while detention is charged when the empty container hasn't been returned to the terminal before its free time runs out. Think of demurrage as a real estate fee for taking up space at the port, while detention is like an equipment rental fee.
For exporters, demurrage and detention are the same concepts, but reversed. For exporters, demurrage charges apply when a full container is in-gated at the terminal prior to the Earliest Receiving Date ("ERD") and sits at the port longer than allowed, again basically a real estate fee.
Detention charges for exporters are then charged if the loaded container is not brought back to the terminal in time and misses its cut-off date. In this case, it won't be accepted at the terminal and the container is out until a new booking is made and it can be dropped off at the terminal, again an equipment rental fee.
The Challenge for Exporters
While challenging for importers, they have an advantage. They can react to what's happening.
For importers container tracking is based on Vessel ETAs and the berthing schedule at the terminal. The container is discharged, and they have maybe a four-day window to pick it up, and a week to 10 days to get the container unloaded at their warehouse and returned empty to the terminal.
If the ETA changes, so does the discharge date (which starts the demurrage clock) and the importer acts accordingly. Pretty straightforward, not taking into consideration a number of other factors.
Exports are a bit more complicated because when an exporter makes a booking, the ocean carrier or terminal gives them a window in which they’re supposed to deliver all their shipping containers related to that booking to the terminal. That window consists of the ERD (the first day you can drop it off) and cut-off date (the last day they can drop it off) which is typically a 6 to 7-day window.
Seems easy enough, but what happens when the vessel's ETA to port changes by 8 days? The drop-off window shifts by 8 days as well, and the ETA might change several times on its journey.
It's a moving target.
The hard part is that the exporter has started to coordinate the entire process several weeks in advance to get those containers delivered to the terminal within the original window they were provided. They've scheduled drayage to pick up the empty containers and bring them to the warehouse, they've scheduled labor to load the empty containers, and scheduled drayage to pick up the loaded containers and deliver them back to the terminal.
So, say the ERD was October 15th and the Cut-off Date was October 22nd. Two weeks ago, everything was scheduled for the containers to be in-gated (dropped off) at the terminal on October 18th, right in the middle of that window. Then at some point, the Vessel ETA is pushed by six days which moves the drop-off window six days, and the new ERD is October 21st.
When this window changes the exporter may or may not get a notification or email from the ocean carrier or terminal informing them of the change.
Often, they only find out about the change if they are regularly checking the terminal websites on their own. Even if they do notice the change in time, everything has already been scheduled and it's too late to adjust. So the container either gets delivered early on the 18th and they pay for 3 days of demurrage, or their drayage company holds the container and charges them a daily storage fee until they can deliver it.
This scheduling becomes even more challenging as you add distance and additional modes of transportation.
For example, what if they are a Nebraska-based company exporting out of New York? Not only do they have to get the container to the Port of NY/NJ in this small window that is likely going to change, but they also have another window to drop the containers off at the rail terminal in Chicago for a two-day train ride.
So, in our previous example, the exporter has probably planned to drop off the containers at the rail terminal in Chicago on October 12th. Now that the drop-off window has changed it either sits at the rail terminal accumulating demurrage, or it makes its way to the Port of NY/NJ and accrues demurrage charges there.
Now imagine trying to coordinate this for 1,000 containers per month!
Who’s Responsible for Demurrage and Detention Charges on Exports?
A great question, with a lot of gray area.
The ocean carrier gives a specific delivery window but that window changes. The exporter may or may not be notified, may or may not see the changes, and then delivers the container within that original window.
As far as the exporter is concerned, they did what they were told. As far as the ocean carrier is concerned the exporter didn't deliver the container within the appropriate window.
Neither wants to pay the fee to the terminal and they argue about it, sometimes for months. Either way, someone pays the terminal, and those charges eventually make their way to the exporter in one way or another.
It's really a problem for both parties.
What's Needed to Overcome these Challenges?
The simple answer is more accurate vessel ETAs.
But it's not just about providing more accurate vessel ETAs, it's about providing more accurate vessel ETAs much earlier because exporters must plan this entire process weeks in advance. Their whole planning process is based on when a vessel will berth at the terminal and be unloaded.
How do you get more accurate ETAs earlier?
Gnosis Freight's Container Lifecycle Management platform now supports both Container Import Management and Container Export Management for better export tracking and visibility.
With Gnosis’ new Container Export Management modules, exporters get data points such as Earliest Receiving Date, Cut-off Dates, Vessel Arrival and Vessel Departure Dates related to their bookings. These data points are updated on a regular basis with notifications automatically sent whenever there is a change. Gnosis also provides an auditable trail of when a container was in-gated and what the ERD and cut-off dates were.
Additionally, thanks to Marlo, Gnosis' proprietary global freight tracking engine, exporters receive predictive vessel berthing dates and more accurate predicted drop-off windows based on how efficiently port and terminal operations are working, how vessels are moving, etc. regardless of what the ocean carrier or terminal shows.
The key to all of this is Gnosis’ deep port and terminal visibility because everything that happens prior to the container being in-gated at the terminal is based on the booking number and is being coordinated by the terminal. In most cases the ocean carriers aren’t able to provide up-to-date information on these important data points and may not even have it themselves.
If you’d like to learn more about how Gnosis’ Container Export Management can help improve your supply chain visibility and reduce unnecessary demurrage and detention charges, click to schedule a demo.