Demurrage, Detention, Per Diem & Storage - Definitions & How to Avoid
Intermodal shippers often wonder what the difference is between demurrage, detention, per diem and storage charges.
The confusion of the terms brings on additional frustration and pain for shippers feel when the clock begins on the charges.
The goal of this blog is to address the terms themselves and offer tips on how to avoid and reduce the charges when they do come into play.
As the the charges accumulate, one often feels they are intended to punitive in nature. The intent, however, is to encourage the users of the asset (container or land) to turn the asset as it was intended for a fair return for the owner, therefore if the asset owner is not getting the turns needed, the charges begin to accumulate to adjust for the lost revenue on the asset.
In all cases, whether demurrage, detention, per diem or storage, there is an allotted free time before the charges begin accumulating. These charges can and will vary by provider and facilities utilized in particular freight routing.
Demurrage is a charge assessed for cargo that is left at the terminal beyond the allotted free time. It is important to know that congestion at pick-up or delivery or the location being closed is not a free pass. The clock will continue ticking, so it is imperative to address demurrage quickly.
Demurrage is billed at a daily rate, which often times escalates as the days increase.
Last but not least, demurrage needs to be paid before a container can be pulled from the yard.
Detention is a charge made on trailers/containers held by or for a consignor/consignee for loading or unloading, forwarding directions or any other purpose. Typically, there are 2 hours free time before detention becomes an issue.
Detention is billed on an hourly basis and a negotiable charge at time of contract, not at time of invoicing.
A per diem charge is a fixed rate per day that a carrier charges against another carrier or customer for use of its containers, trailers or chassis. Per diem charges accumulate until the equipment is returned to the port or rail terminal.
Storage charges are assigned to the shipper or consignee for holding containers or trailers at an intermodal terminal beyond the free time allotted to them.
Tips to Avoid Demurrage Charges
- Know the rules, meaning know the number of free days allotted within the contract.
- Large shippers can typically negotiate extending the number of free days, so negotiate well.
- Pre-clear the cargo by submitting the shipping documents as soon as possible.
- Align the business with multiple trucking options, so if one trucker falls off the load another one can be found quickly to recover and not incur charges.
- Keep track of the containers on their arrival and departure. No one will care more about the freight than you will. Demurrage charges have no mercy and missing a detail on a spreadsheet is not an excuse.
Tips to Avoid Detention Charges
- Schedule the dock, so the operations team is prepared to load / unload the day's cargo.
- Detention is negotiable at the time of contract, so work the amount of free time required into the agreement. Carriers can better manage pricing and service knowing the wait and load times they can expect.
- Dispatch the cargo well in advanced to give the trucking company plenty of time to work the shipment into their schedule.
Tips to Avoid Per Diem Charges
- Like demurrage, keep track of the equipment once pulled from the yard and when they need to be returned.
- Manage the containers at the locations in a FIFO manner, so once emptied they can be returned quickly within the allotted free time.
For a general guideline of intermodal accessories, read through the Union Pacific's door-to-door division, LOUP, accessorial schedule.
For more on accessorials in general we invite you to read Cost of Freight Accessorial Charges: Definitions & Tips on How-to Avoid and for a more comprehensive review of intermodal to understand if it would be a good fit for your company we recommend The Complete Guide to Intermodal Transportation.
As we close this article out, we invite you to learn more about about InTek Freight & Logistics through our website or follow us on our weekly blogs for weekly publications on how to improve your logistics and supply chain.
We’d love to be a part of you next conversation on challenges your company may be having with logistics and supply chains, so please keep us in mind the next time around whether it truckload, LTL, intermodal or Managed Transportation Service Solutions.