Remember when container buildup at ports and airports was all over the news last year? It’s not every day that an aspect of the supply chain makes it into mainstream headlines, but we hit that dubious milestone after the backlog of ships on the West Coast hit three digits.
One detail that didn’t make it into most stories was the accompanying rise in detention and demurrage fees. According to reports, these charges doubled in 2021.
The reasons for this increase make sense — as PPE and consumer goods imports swelled, they overwhelmed the supply chain’s ability to process them. Supply chain labor shrank, and trucking capacity was stretched thin, but even at normal levels, it would have been difficult to transport the sheer number of imports flowing in.
But what do you do when it’s your freight that’s stuck in a holding pattern? Can you avoid costly free time detention fees, or do you just have to accept them as the cost of doing business?
As it turns out, shippers don’t have to be stuck with these fees. With the right technology and partnerships, moving freight within the allotted free time for shipping is still possible. Read on to learn how.
What is Free Time?
Free time refers to a set amount of time shippers are permitted to use containers before they incur additional fees. When cargo arrives at a port, shippers generally have a few days before they must haul it away. Once that time expires, a container must be picked up or the shipper will start to accrue fees, like a publicly parked car might incur parking fees after the meter runs out.
There are two types of charges that shippers could incur. These are called detention and demurrage fees.
The Difference Between Detention and Demurrage
Detention and demurrage mean slightly different things. Detention charges occur when a shipper retrieves a container but does not return it within the allotted number of free days. The charge is for the use of equipment.
To further complicate matters, there are two categories of detention: per diem and driver detention. Ocean carriers charge per diem fees at a fixed rate each day that a shipper hasn’t returned a container. The second type of fee is for driver detention. This fee is charged for each hour a driver must wait to load or unload a truck.
On the other hand, demurrage charges are levied when a shipper leaves a laden container at a port beyond the number of free days permitted. It’s easy to envision a situation where shippers incur detention and demurrage charges simultaneously.
Why Does “Free Time” Exist in Shipping?
There are several reasons that shippers need free time. Here are a few:.
- It takes time to clear customs.
- There may not be space available to store cargo at a factory.
- It may take time to arrange drayage.
It’s important to remember that a port is not a warehouse. Ideally, cargo is hauled out immediately. When an issue does arise, free time offers a grace period for shippers to find a solution.
How to Calculate Free Time and Detention
As mentioned above, detention fees are typically calculated on a per-day or per-hour basis. Per diem fees typically start seven to ten days after a container leaves a port or terminal, and add up until the equipment gets returned.
Driver detention fees are slightly different. Once a period of driver dwell time ends (often after two hours), the clock starts, and shippers are charged for each hour that a driver has to wait for a container.
General Tips for Reducing Detention, Demurrage, and Per Diem Fees By Not Going Over Free Time
If thinking about detention and demurrage charges makes you sweat, bear in mind that there are strategies shippers can use to reduce these fees. Shippers can make a proactive point to avoid exceeding their free time shipping allotment.
- Negotiate your free time and schedule devanning and transportation within that time. Free time isn’t set in stone. It can’t hurt to ask for a few extra days. Regardless of the outcome, shippers should plan to unload cargo (called “devanning”) early in the free window. For LCL shipments, this process will take place in a container freight station. Full containers get unloaded at a warehouse.
- Submit shipping documents correctly, promptly, and ahead of time. Although promptness is important in shipping, this is not the time to cut corners. A few of the documents you’ll need to move a shipment inland include the following:
- A bill of lading or a document issued by a carrier acknowledging the receipt of your freight.
- A packing list that details the dimensions of your freight and informs customs officers of the goods you are importing.
- A certificate of origin to identify an import’s country of origin and determine the tariff rate that must be paid.
- A commercial invoice, which acts as a proof of sale between the exporter and the importer.
- A letter of credit or a binding agreement of payment between the exporter and the importer.
- A dangerous goods form if your cargo is classified as such by the International Air Transport Association or the International Maritime Organization.
These documents must be accurate and submitted promptly. Otherwise your freight could get held up in customs.
- Use your forwarders’ shipping and cargo visibility tools to track shipments. Visibility allows shippers to forecast their cargo’s ETA and notify carriers of when it will arrive. Using this technology can stave off driver detention fees, if the driver can arrive around the same time the shipment does, and per diem and demurrage charges by ensuring that containers are removed and returned promptly.
- See your product before shipping and verify what you ordered is what you will receive. If a shipment seems different than what its documents indicate (for example, if it’s heavier than indicated), that could trigger what’s known as a statistical validation hold. When that happens, customs officials detain a shipment until they can examine it, which can take 30–45 days or longer.
- Ensure you have the finances set aside to cover the costs associated with the shipment. Failure to pay duties on time can result in shipments getting held up in customs proceedings. And if a shipment is selected for additional customs screening, that could add additional charges too. These fees range from a couple hundred to thousands of dollars, and a shipment won’t leave the facility until all of it is paid.
- Consider whether consolidation — LCL or FCL — freight is a better fit. A benefit of full container load (FCL) shipping is that it tends to get processed faster. It moves through customs more efficiently and won’t have to be destuffed at a container freight station. The downside is that FCL shipping costs more than reserving part of a container (less than container load shipping). In deciding between the two, shippers have to weigh the pros and cons of each. If a shipment is large enough or of high enough value, it may be worth it reserving the whole container.
Role of An Airfreight Service Provider for Expedited Freight to Reduce Freight Fees
As we’ve explained previously, the rapid explosion of goods purchases in 2021 led to a dramatic rise in imports. The vast amount of imports generated by e-commerce last year overwhelmed ports’ and airports’ ability to process them efficiently. This, coupled with consumer demand for ever-faster delivery, amplified the need for expedited services at terminals.
The trouble was that no national carriers could recover and expedite cargo within hours, which is why Port X Logistics created Carrier 911. The expedited services that Carrier 911 provides enable shippers to move freight efficiently and avoid going over their free time.
The Role of the Freight Forwarder
Freight forwarders have a huge role in keeping shippers within their free-time shipping limits. In recent years, both shippers and forwarders have benefited from improvements in transportation technology. Visibility, automated services, artificial intelligence, and machine learning have all enabled forwarders to track shipments, book capacity, and learn about emergencies as they happen.
But being aware of chokepoints isn’t the same as addressing them directly. And many carriers aren’t equipped to haul a shipment at a moment’s notice. Again, this is where Carrier911’s offerings fill the gap.
As explained in this article, there are steps that shippers can take to maximize their free time and avoid detention and demurrage fees. They can use visibility tools to predict their cargo ETA and have their documents ready to reduce the likelihood of a lengthy customs clearance process. They can attempt to negotiate additional free time.
But planning ahead and filling out the correct forms won’t always get the job done. Sometimes, shippers need cargo hauled away when there’s a time crunch. Air cargo free time at the airline/GHA facilities is a very short window and can lead to costly storage charges. P:ort X Logistics’ sister company, Carrier 911, can recover air freight directly from these facilities usually within 1 hour 24/7 365 anywhere in the US or Canada.For all of your drayage, transloading, and supply chain solutions, reach out to Port X Logistics.