In the dynamic realm of global commerce, supply chain, and logistics, delays can become a significant obstacle for both shippers and logistics providers. Among the noteworthy hurdles encountered in the shipping sector, the specter of detention and demurrage (D&D) fees looms large. These fees have been a persistent source of concern for importers, exporters, and transportation companies, and their impact continues to intensify. In this article, BlueCargo undertakes an in-depth study into the realm of D&D, probing its underlying causes and illuminating its extensive ramifications throughout the supply chain.
The Persistent Issue of Detention and Demurrage
First things first: D&D is not a new problem. In fact, it's a global trend that has been plaguing the shipping industry for quite some time. Back in 2015, the Federal Maritime Commission (FMC) expressed concerns about the escalating D&D charges imposed by MTOs and vessel-operating common carriers (VOCCs) at major US gateway ports. These charges often resulted from terminal delays that were beyond the control of importers, exporters, and transportation companies.
The Conundrum of Capacity and Increasing Ship Sizes
Container terminals rely heavily on their storage space to maintain efficiency and profitability. When congestion becomes a problem, it can lead to decreased productivity and higher handling costs. Over the past decade, container ships have doubled in size, a quest for economies of scale. These mega-ships have a significant impact on port infrastructure and operational practices. The unloading process alone can take days due to labor shifts, weekends, and holidays.
The growing ship sizes create three peak periods at terminals: ship-to-shore handling, yard operations, and yard-to-hinterland transport handling. This results in more container crane moves, higher yard occupancy, and greater difficulty accessing containers. All of these factors contribute to increased labor costs and operational challenges.
The Trouble with Terminal Congestion
Terminal congestion is a direct consequence of larger container ships. As terminals are forced to stack containers higher and tighter due to space constraints, accessing containers becomes more challenging. This leads to additional moves to retrieve the desired container, further driving up costs and impacting productivity.
Information Sharing Woes
Effective communication is crucial in the shipping industry, but it doesn't always happen as it should. A lack of information sharing among the involved parties can lead to D&D charges. Parties need timely information about container arrival and return times, but this data isn't always readily available or communicated in a timely manner.
The Dilemma of Reusing Containers
Detention fees, as outlined in the 2019 study by Legros, serve as an impediment to the practice of street turns, a process where consignees encounter challenges in identifying suitable export matches within the allotted free detention period. Shipping lines, reluctant to permit street turns, are wary of relinquishing control over their equipment for extended durations, which could ultimately result in missed opportunities.
Common Causes of D&D
Container xChange has identified several common causes of D&D, including
- Documentation discrepancies or errors
- Late or lost documentation
- Customs clearance or cargo inspection issues
- Port congestion
- Labor strikes or shortages
- Cargo delay or abandonment by consignees
- Unpaid freight charges
- Inclement weather
- Container rollovers
In their annual benchmark report for 2023, Container xChange conducted an analysis, comparing these charges across 60 global ports and 8 shipping lines from 2020 to 2022. Their findings revealed a sharp rise in demurrage and detention charges, increasing from US $586 in 2020 to US $664 in 2022, marking a significant 12% increase.
The Wider Impact of D&D on the Supply Chain
Analyzing the broader impact of D&D on the supply chain, beyond its effects on our customers, reveals a multifaceted challenge with significant consequences. Here's an overview of how D&D impacts various facets of the supply chain:
1. Capacity Concerns:
Demurrage and detention fees have the potential to exacerbate capacity issues at terminals and ports, potentially disrupting the overall supply of containers. In response, shipping companies may opt to raise freight rates to maintain service levels and balance demand.
2. Shipping Operational Efficiency: When containers are not returned on time, the turnaround time of vessels is negatively affected. This can lead to service interruptions and financial losses for shipping companies. In response, these companies may adjust their freight rates to offset the increased costs resulting from delays
3. Financial Risks: Importers, exporters, drayage carriers, logistics providers, and shipping companies face significant financial risks due to demurrage and detention fees. These organizations must strive to maintain the viability and reliability of their services despite the financial burdens imposed by D&D charges.
4. Freight Rates: The operational effectiveness and expenses of shipping companies are directly tied to demurrage and detention fees, inevitably influencing freight rates. It's crucial for all stakeholders to recognize the importance of prompt cargo clearance and container return to ensure the smooth and cost-effective flow of international trade.
According to research from the National Institutes of Health, D&D fees have a tangible impact on decision-makers responsible for container pick-ups and returns. This, in turn, affects the velocity of containers, potentially leading to bottlenecks and other issues that could impact turnaround times. In essence, D&D fees contribute to the true cost of container shipping.
Additionally, according to findings from ResearchGate, the influence of detention and demurrage extends to container transport planning and may incite behaviors that are not aligned with sustainability or the enhancement of overall supply chain efficiency.
The study highlights that the presence of D&D has a negative impact on transport costs, with comparisons against scenarios without D&D revealing increases ranging from 0.1% (Evergreen) to a substantial 13% (Maersk). These fees can force the premature return of empty containers before identifying potential loads, leading to increased transportation costs. This is due to the inherent difficulties in achieving economies of scale, as indicated in Table 8 of the study.
Furthermore, D&D fees are shown to generate additional administrative work, which is generally received negatively by clients of shipping lines. Additionally, they often result in legal disputes when determining responsibility for delays, whether it's the client or the transport provider. The research also highlights that D&D fees do not incentivize shippers to promptly move containers out of seaports and can limit the utilization of barge transport.
In summary, the challenges posed by detention and demurrage (D&D) fees are intricate, spanning across the shipping industry and echoing throughout the wider supply chain. To navigate these complexities and proactively address D&D-related concerns, we encourage readers to engage with our experts at BlueCargo. As the market-leading solution dedicated to avoiding and mitigating D&D fees, BlueCargo is committed to helping stakeholders collaboratively tackle this issue. Together, we can work towards a future of international trade that is not only more efficient but also economically sustainable.
Glossary index and sources of reference:
- Administrative Work: Additional tasks and paperwork required to manage and address detention and demurrage (D&D) issues, often seen negatively by clients of shipping lines.
- BlueCargo: Market-leading solution dedicated to avoiding and mitigating D&D fees. (BlueCargo Website)
- Capacity Issues: Challenges arising from congestion and limited storage space at terminals and ports.
- Congestion: Overcrowding and excessive traffic of containers at ports, resulting in slower operations.
- Consignee: The recipient or receiver of goods.
- Customs Clearance: The process of obtaining the necessary customs approval for importing or exporting goods.
- Demurrage and Detention (D&D) Fees: Charges imposed on shippers for the use of containers beyond the allotted free time.
- Empty Return: The process of returning an empty container to the designated location.
- Financial Risks: Potential monetary losses faced by various stakeholders in the supply chain due to D&D fees.
- Freight Rates: Charges imposed by shipping companies for the transportation of cargo.
- Steamship Lines: Companies that operate ships for the transportation of cargo by sea.
- Terminal: A facility where cargo is loaded and unloaded from ships.
- Transport Provider: Organizations responsible for moving goods within a supply chain
Sources of Reference
- Journal of Shipping and Trade in March 2023: Read the Article
- Container xChange: Container xChange Blog
- National Institutes of Health: Read the Article