Shippers far and wide are looking for ways to reduce demurrage and detention costs. U.S. maritime regulators are being urged to reduce the fees that shippers are being forced to pay as a result of congestion. This has been long overdue, as shippers are the ones being forced to pay for things that are out of their control. Terminals did not agree and voted against any investigation for reducing costs. And these fees are having a detrimental impact on company bottom lines. What is worse is that these costs don’t just happen once, but instead encourage a ripple effect that causes serious problems across the entire supply chain flow.
So, it is now up to shippers to find ways they can reduce unfair assessments, particularly for time-related fees. Some companies in commodities and food industries might end up passing those extra costs along to their customers, but in the meantime, there need to be other opportunities to save money. It is possible to mitigate these costs by using a comprehensive, digitized and streamlined solution to improve your communication, manage the data to respond to potential risks, and overall prevent manageable costs like demurrage charges.
What Are Demurrage Charges?
First of all, demurrage charges are the charges place on any cargo left in the terminal beyond the amount of free time allotted. It is tantamount to being given 4-5 days to park for free in a parking lot, and then having to pay for each extra day. The difference is that in some situations today, you have no control over the congestion, which would mean no control over how long that cargo (car) gets parked.
The daily rate shippers are charged for any day beyond the standard 4-5 day allotment which is called the demurrage. The amount for each day is based on carrier and terminal. Typically the amount will increase after increments of time. The rate can range between $75 and $150 per container, per day but after the first extra week or so, it goes up.
Why does this matter?
Firstly, incurring these costs increases your transportation costs. Secondly, it attributes to delays all the way down the line for deliveries, stocking, and this can all degrade sales, cash flow, profits, and eventually brand reputation.
For better or for worse, these demurrage costs are often the result of untimely notifications and unclear supply chains which means steps can be taken to remediate.
Analyze your process
Analyze the overall process you are using to minimize fees. Doing this will effectively provide you with a sort of “plan B” or backup. If you complete analyses on your forecasts and projections, you can prepare your business to calculate the rates and the free time properly, then project potential costs/losses/and solutions in the event that something goes wrong. If you have backup plans in place, you can offset the cost of demurrage and detention. Being able to track things like carrier KPI’s will allow you to analyze the routes you are currently taking and routes you might take in future to guarantee regular freight lane optimization. Having such information on hand makes it possible for you to improve communication at every point, report events that might cause risk financially when they happen and uncover ideal resolutions therein. Have a backup plan. If you know that you will be handling a congested port, find alternatives if possible for truckers just in case the scheduling becomes tight. This will give you a bit of leeway should you need it.
Define responsibilities and relationships
With better visibility over the supply chain and a streamlined process, you can better define the responsibilities and relationships with all parties involved in the shipping process. Make sure people know what their tasks are when they might be needed for a backup plan, or how they can improve in the future. Clarify any relationships and responsibilities so that every part of your network is optimized. With a properly automated process and good clarification, you can enable stakeholders to receive notifications at any time that a deadline might be missed or cargo left beyond the allotted free time.
Automate as much as possible
Automate your process so that each part of your supply chain functions as smoothly and rapidly as possible. With a digitized supply chain, you can ensure everyone is notified of everything when and where they need it. This ties into the clarification mentioned above. Automation also enables you to access data regularly for real-time decision making as it applies to different contracts concurrently or individually. Moreover, such a move will allow you to monitor the progress your goods are making, the carrier level, order, etc…pre-clear the cargo you ship and make sure to provide delivery instructions for any inland carriers well in advance. If you do that you can make sure everything is coordinated long before the cargo arrives in port, protecting you against an extension of that “free time”.
Streamline your processes
Streamline your shipping process so that you can refine it regularly and add cost savings time and time again. Streamlining with a digital solution will allow for the aforementioned and more. Consider that with a streamlined, digitized process you can set up alerts to enable your logistics team to proactively collaborate with on the ground transportation providers so that they can swap out your containers in a timely fashion and reduce the charges you face. With this level of visibility on a grander scale, in conjunction with historical data about demurrage charges with certain lines or carriers or locations, you can improve the contract charges you face in the future.
How Shippers Can Get Started
Overall, there is no need to keep suffering the financial pain of demurrage costs. Instead, recognize that legislation won’t be passed to ease the suffering, but you can still take steps to do so presently. Use accurate analytics, define responsibilities, automate where possible, streamline your process, and avoid these fees well ahead of time.