With lockdowns continuing to hinder international trade flow, overcoming COVID-19 remains the biggest challenge for ocean shipping.
Demurrage and detention are among the most immediate issues faced by shippers, freight forwarders, and carriers, with minimal mitigating strategies.
We at BlueX understand how vital it is to ensure freight fluidity for carriers, and also the need to prevent mounting charges for shippers.
Demurrage and detention charges are often loosely understood terms. Although they are quite similar, they are two distinct charges that need to be understood.
Demurrage - a charge paid to carriers for the failure to load or discharge shipments within an agreed-upon free time period
Detention - a charge paid to carriers if consigners fail to return containers within an agreed-upon free time period
Demurrage, for example, could occur when chassis is delayed or not organized. In contrast, detention could occur when manufacturers are unable to ship products, causing containers to fall outside of their allowed free time period.
This “free time,” according to UNCTAD, refers to the obligation of carriers to give enough time in which both demurrage and detention charges won’t be issued while allowing a reasonable time to:
- Load and deliver containers for export
- Pick-up, unload, and return empty containers
Shippers are often given between 3-5 days to perform the above activities before demurrage and detention charges can be applied. In the past, these resulting charges were often the result of bad planning, but COVID-19 has changed that reality.
Example 1: Detention and COVID-19
A freight forwarder may discover that a shipper’s manufacturer is unable to process an order and deliver it for export for eight days. The unavailability of chassis causes this or it could be because the manufacturer doesn’t have enough raw materials to produce the goods due to COVID-19.
With free time of up to five days, the freight forwarder will be subject to detention charges each day the container used for export is not returned. If the container was held for eight days, and the detention charges were $100 a day per container, then the charge would be $300 once the container has been returned.
Example 2: Demurrage and COVID-19
Once the container is returned for export, the freight forwarder may discover, due to the lack of labor from COVID-19 lockdowns, the port of departure is unable to load their container, and their shipment is delayed.
As the issue of labor is not the freight forwarder’s fault, they will not be subject to demurrage charges in the port of departure.
However, the worry is that if their container isn’t loaded soon, they might be charged for demurrage in their port of arrival as their container’s spot is being held and reserved.
Let’s say the container arrives one day late over the allocated free time, but to add insult to injury, their trucking company is unable to provide chassis due to fewer drivers being available. After four days, they pay $100 for each day they go past their free time and finally move their cargo with a total bill of $400 in demurrage charges.
COVID-19 disrupted world trade, but ocean shipments continue. Demurrage and detention are no longer the results of bad planning, but a logistical reality of lockdowns limiting the movement of shipments, containers, and equipment, with blank sailings only further exacerbating the issue.
Blank Sailings and Container and Equipment Shortages
With lower demand leading to a potential loss of 17 million carrier TEU, blank sailings have become a necessity for shipping lines to mitigate losses.
Blank sailings refer to canceled shipments by carriers. With lower demand for shipping, it was only natural that carriers would blank certain routes and ports.
As a result, equipment and container imbalances are occurring globally.
With annual losses of $20 billion attributed to shortages in containers and equipment in the pre-COVID-19 world, it’s safe to say losses this year could be more substantial.
Shippers, freight forwarders, and ocean carriers are all feeling the weight of these charges differently. However, the issue is still equally worrying for everyone involved.
While COVID-19 is restricting economic activity and the operational efficiency of carriers to prevent container imbalances and blank sailings, the post-COVID-19 reality is concerning.
Without adequate access to containers and equipment, the rebound in shipping demand might be lost.
Consequences for Ocean Shippers, Freight Forwarders, and Carriers
So what does this all mean for players in ocean shipping?
For freight forwarders and shippers, it means extra charges on their shipments as issues continue to delay the moveability of containers.
For carriers, freight fluidity is eroding their ability to effectively operate, with global container and equipment imbalances reducing their scalability to ramp up operations when the post-COVID-19 boom arrives.
FMC Ruling on Demurrage and Detention Charges
The Federal Maritime Commission issued guidance on April 28th regarding the ‘reasonableness of ocean carrier regulations on detention and demurrage.’
The FMC determined that the main purpose of demurrage and detention charges was to ‘incentivize the movement of cargo and thus, promoting greater freight fluidity.
With COVID-19 affecting all sectors, demurrage and detention charges may not be promoting freight fluidity as freight forwarders and shippers may simply not have access to the same level of services and support to move cargo as before.
There hasn’t been a ruling on this issue yet, but it could set a precedent that might mitigate worries for shippers and freight forwarders while adding more pressure on ocean carriers.
Solutions For Shippers and Freight Forwarders
Unfortunately, there aren’t many options for shippers and freight forwarders when it comes to demurrage and detention. It’s vital for freight forwarders and shippers to mitigate demurrage and detention, but we at BlueX offer the following advice to help alleviate or offset some of your issues:
- Get access to secured space to prevent being rolled over.
- Digitalize your contract rates with up-to-date information directly from carriers
- Make bookings online to save time and track shipment effectively
- Automate your contract rates through EDI/API integrations
The BlueX Rate Management System During COVID-19
We at BlueX have been hard at work creating the world’s first Freight Commerce Platform that digitally connects shippers, freight forwarders, 3PL service providers, and carriers on one platform space.
Gain pricing transparency, up-to-date spot and contract rate prices, space, and schedules on the BlueX RMS with real-time API integrations.
You can also gain access to secured space by booking your next shipment on Evergreen Line’s online booking platform, GreenX.