Causes of Demurrage and Detention
In one my previous articles (which is also the MOST READ article on this site) I explained the Difference between Demurrage and Detention..
After reading this, a few of my readers have asked me to explain the causes of demurrage and detention..
So here goes..
There are several reasons a container(s) can incur demurrage and/or detention or combined demurrage and detention..
Here are some of the major reasons..
Delays due to incorrect documentation
Delays due to late receipt of documents
Delays due to loss of documents
Delays due to customs clearance or cargo inspection
Delays due to release of cargo at destination
Delays due to receiver being unreachable
1. Delays due to incorrect documentation
Let’s say for example the bill of lading reaches the receiver or their bank and there are discrepancies in the address details, voyage details, cargo particulars, or freight particulars..
Or for example the trade documents submitted to customs at destination such as Commercial Invoice, Certificate of Origin are incorrect and customs requires the document(s) to be amended before they allow the cargo to be cleared..
There could be some delays in rectifying this situation with the shipping line or with customs..
By this time the container could have arrived at the destination port and lying uncleared.. As the receiver cannot get the delivery order till this incorrect documentation issue has been sorted, the container could start incurring demurrage/detention and maybe even port storage..
2. Delays due to late receipt of documents
There may also be cases wherein the documents required for the clearance of the goods such as bill of lading, certificate of origin, packing list etc may not reach the receiver in time.. These issues normally happens due to
Shipper not planning the documentary processes at origin in advance and waiting till the last minute to gather all their documents
Delays from the shipping line in issuing the bill of lading to the shipper due to various reasons.. It could be due to
customs cleared export documents or port documents not received from the shipper at origin
container load confirmations not received from port
freight monies paid by the customer has not yet been received by the shipping line
Delays at the nominated bank (seller’s bank) if a Letter of Credit is involved and the documents do not reach the issuing bank (buyer’s bank) in time
Issues with delayed receipt of documents often affects shipments with a short sea transit (say Oslo to Aarhus) much more than deep sea shipments..
3. Delays due to loss of documents
A very common problem.. There are several cases where the documents may go missing during transit by courier.. Most problematic could be when an original bill of lading is lost.. There are several steps to be taken when an original bill of lading is lost..
Some of these steps may take days to sort out especially if there are bank guarantees to be given.. Sometimes the customer may not have the 200% or 300% of the value of the goods that are required by the shipping line as part of the guarantee..
Live comment received from a reader :
Our original Bl is lost by FedEx courier to Russia. Shipping line is asking for 200-300% BG. Value of goods is around USD 50,000. We are not in position to give any BG as bank will treat as full deposit which will incur a cost of 15% per annum accounting to 2 times invoice value loss in interest only in period asked by them for 6 years. What should we do in this case. my goods are already in demurrage in Russia for last 15 days.
In such cases, the receiver faces a real tough time as they cannot get release without the documents and the container(s) might end up incurring heavy demurrage, detention and storage..
4. Delays due to customs clearance or cargo inspection
Let’s say for example, the documents are all in order, the container reaches the destination and the receiver approaches customs to clear the goods.. In all countries, the receivers are expected to file documents with customs providing details of the cargo being imported..
The details on the customs documents needs to match with the details on the commercial invoice submitted along with the customs clearance documents..
One of the key items that customs checks is the HS Code to ensure that the goods have been properly classified and declared.. Different HS codes attract different levels of Customs Duty and it is the receiver’s responsibility to ensure that they declare these details correctly..
Misdeclaration of HS code could lead not only to penalties but also suspicion surrounding the activities of the receiver.. In any case, in most parts of the world already customs are especially vigilant regarding the imports of retail goods such as garments, shoes, accessories, electronic goods etc as part of the Anti-Dumping measures of the WTO..
It is not uncommon for these commodities to be pulled over and inspected by customs..
Delays due to customs inspection in such cases are very common and there is no fixed time frame as to how long such inspections may take.. Different countries experience delays at different levels when it comes to customs inspections and all the while the container(s) could be incurring demurrage, detention and storage..
5. Delays due to release of cargo at destination
Release of cargo at destination could also be delayed due to shipping line receiving original bills of lading without proper endorsements on the bill of lading.. This is a very common occurrence..
For example, lets say a bill is consigned “To Order of Shipper” and the shipper has not endorsed the original bill of lading and this is only noticed at the time of original bill being surrendered at destination.. This then means that the original bill of lading must be sent back to the shipper in order for them to endorse it and send it back..
Another common reason for delay in release of cargo at destination is due to the shipping line not receiving their monies from the receiver at destination..
This usually stems from a lack of understanding of the Incoterms used for the shipment by the receiver who assumes that some or all of the local charges needs to be paid by the shipper..
Here again, the container(s) could be sitting at the port/terminal awaiting clearance while the meter is running on the demurrage, detention and/or port storage.. Tick Tock Tick Tock……………….
6. Delays due to receiver being unreachable
Last, but not the least, there are also problems whereby the shipping line maybe unable to get hold of the consignee or notify party mentioned on the bill of lading.. In most cases it may be that the cargo has been abandoned by the shipper, receiver or both but the shipping line has not been told or notified of this..
The shipping line is still under the impression that someone will come to collect the release of the goods based on the cargo arrival notification that has been sent to the notify party..
Does the “notify party” have any legal obligation/liability for payment of ocean freight, storage, etc if the consignee or the shipper does not pay the shipping line? We are Customs brokers. The foreign shipper listed us as the Notify Party. Now MSC wants to hold us liable for payment because the shipper abandoned the cargo, didn’t pay ocean freight, storage charges, etc. Are we legally liable?
In a lot of such cases where no one comes to claim the cargo at destination, it is not uncommon for the shipping line to hold the freight forwarder liable for uncleared, unclaimed and/or abandoned cargo and all charges including demurrage, detention and/or port storage incurred due to this..
Regarding to abandonment cargoes while we are middle man ( Forwarding agents for shipper), we are also claimed by the shipping line due to overdue charges that the cargoes have been long staying. How to void such liabilities and void payment of charges since we cant trace shipper anymore.
Also read a recent live case study on this blog about a freight forwarder’s liability on uncleared cargo..
As you can see, there are several causes of demurrage and detention but almost all of them are avoidable and preventable if all parties involved in the shipment follow the proper documentary processes required..
If you are unclear on certain processes that needs to be followed for import containers, this Beginner’s Guide to Importing may help you whether you are a Beginner or a regular importer.. It is always good to refresh one’s mind and identify any gaps in the processes..
Are there any other causes of demurrage and detention that you would like to add to the above list..??