Demurrage charges are can be applicable for both, containers as well as vessel. Let us have a look at the definitions for both the cases.
Demurrage charges for containers:
1. Demurrage charges are the penalty paid by
importer for not taking out the containers out of the port or terminal within
allotted free time.
2. Demurrage charges are the penalty paid by
exporter for failing to load the containers (which are already sent inside the
port or terminal) into the vessel within allotted free time.
Normally shipping lines provide 3-5 demurrage
free days. This free time needs to be negotiated at the time of container
booking.
Demurrage charges are levied by the shipping
line to the importer or exporter.
Let us understand the container demurrage with
the help of an example:
In case of Import:
Let's assume an exporter in Shanghai, China
needs to ship five 20 feet containers (5X20") loaded with electric
inverters to Mundra port, India, the importer is from Bhuj, India. The incoterm
is CIF and the payment term is CAD
As per CIF incoterm exporter in Shanghai books
the container with 5 days demurrage and 14 days detention free time at
destination with 23 days transit time.
Vessel sailed as per scheduled and all documents
are issued and sent to the importer through bank as per CAD payment term within
5 days of vessel sailing. Importer sends original documents to their CHA upon
receipt so that CHA can be ready with all the documents.
Days passes and vessel arrives at Mundra port,
importer's CHA has already filed bill of entry and they are ready with all
documents. Containers are offloaded from the vessel on the same day and kept at
the terminal. But due to shortage of trailers demand of trailers increased
suddenly, despite trying hard importer and their CHA failed to arrange vehicles
(trailer), because of this containers could not be moved to CFS, they kept
trying but failed every time. Finally, they got vehicles on 7th day of vessel
arrival.
So total two days demurrage occurred for all
five containers.
Containers sent to CFS of 7th day where CHA was
ready with all the documents but Delivery order was not received by that time.
CHA on behalf of importer approached to liner's office and requests for the
invoices for THC, BL fees and demurrage charges.
Calculation of demurrage charges (for import):
50$
per 20' container per day for the slab of 6-10 days.
80$ per 20' container per day for the slab of
11-15 days.
110$ per 20' container per day for the slab of
more than 10 days.
Here containers were moved on 7th day so
demurrage charges will be applicable for 2 days, which falls under 1st slab.
2 days demurrage for 1x 20': 50$x2 = 100$
2 days demurrage for 05x 20': 100$x5 = 500$
Shipping line raises all invoices on the same
day and issues delivery order once importer pays all the charges (importer paid
all the charges on same day) CHA completes the clearance within 3 days of
delivery order receipt and returns the empty containers (after de-stuffing) to
the yard on next day.
So empty containers are returned to the yard on
11th day of and there are 14 days detention free time allotted for this
booking, so detention charges not occurred for these 5 containers.
In case of Export:
Let's assume an exporter in Raipur, India signs a CIF contract with a buyer in
Cotonou, Benin for export of 20 containers of Parboiled rice.
Rice is packed in bags and ready at exporter’s
mill in Raipur, so they decides to ship the cargo from Visakhapatnam port. They
appoint a CHA and send the packed rice by trucks to the CFS at Visakhapatnam.
The exporter meanwhile places booking for 20X20'
containers. At the time of booking, they negotiate with shipping line and get
confirmation for below:
7 days demurrage free time at origin
10 days detention free time at origin
5 days demurrage free time at destination
14 days detention free time at destination
Once the trucks with the rice bags arrived at CFS, the CHA requests custom officers for the permission for taking those trucks inside and for stuffing, containers are picked from empty yard and placed at loading area once stuffing permission received. CHA also apply for phytosanitary certificate online and request plant protection officer to examine the cargo, officer visits CFS and collect samples, after testing of samples if everything found satisfactory no objection certificate issued by Plant quarantine department, this process takes 3 days. Stuffing of containers take 2 days, once stuffing is done CHA requests custom officer to examine the cargo and give them clearance (Let export order). If everything found satisfactory custom issues let export order, which takes one more day. After let export order received, containers sent to the terminal.
Total 6 days (3+2+1) taken to complete whole clearance process and dispatch the containers from the CFS, 10 days detention free time is approved by shipping line, so exporter is not liable to pay detention charges here.
Containers entered into the terminal and kept for loading. Once containers are arrived at the terminal, CHA needs to send their person with relevant documents to the terminal, on duty custom officer needs to check whether containers are entered into the terminal or not, whether the documents are correct or not etc., after checking all these if everything found satisfactory, custom officer will hand over allowed for shipment (document) to the CHA representative. Vessel arrived for loading on 3rd day (from the day of container receipt at the terminal) but CHA did not submit the documents to the liner, because required document is misplaced, in this case liner will not be able to instruct their terminal operation team for loading of these 20 containers into the current vessel, so finally these 20 containers will shut out for the current vessel and these containers needs to be connected to the next vessel, the vessel details in booking needs to be revised and to be connected to the next vessel which will arrive after 7 days.
So now already 3 days passed from the containers are gated in to the terminal and it will take 7 more days to arrival of next vessel, containers will be lying inside the terminal for 10 days (7+3). Only 5 days demurrage free time is granted, which will be over on 5th day, so the exporter has to pay the demurrage charges for 5 days (10-5).
Calculation of demurrage charges (for export):
30$ per 20' container per day for the slab of
6-10 days.
50$ per 20' container per day for the slab of
11-15 days.
90$ per 20' container per day for the slab of
more than 10 days.
Here demurrage charges will be applicable for 5
days, which falls under 1st slab.
5 days demurrage for 1x 20': 30$x2 = 150$
5 days demurrage for 20x 20': 150$x5 = 3000$
Shipping line will issue a demurrage invoice to the exporter for 3000$, by
paying this amount along with other charges exporter will collect BL from the
shipping line after sailing of the vessel.
For Vessel:
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