In this article, we will dive into the difference between Free Time, Demurrage vs Detention. These are the must-know Ocean and Air shipments 101 - Demurrage Vs Detention.
When transporting by FCL, we often care about Free Time, which refers to the length of the time a container can be stored free of charge at the port. You can store a container for an agreed length of free time for example 7 days to 14 days. There are additional terms to remember in combination with free time, these are demurrage and detention.
Let’s take a closer look after we explain free time. Free time refers to the length of time a container can be stored free of charge at the port. It is generally a period of 7 to 14 days for dry container. The length of the time can be extended upon request from a freight forwarder. ForwarderOne can extend for a period of up to 21 days of free time for China main ports.
The length of free time varies depending on the shipping lines. You need to confirm the length of free time available to you when booking your cargo. The length of free time is shorter usually less than 7 days for reefer container, open-top container and flat rack container. Please remember to check this in advance.
You might think you should collect a container as soon as it arrives at the port. However free time is used for the following situations:
- Time taken to clear customs;
- When there is no space available to store the cargo at the factory;
- The time taken to arrange drayage;
The port is not a warehouse. Therefore cargo should be collected immediately when there is no issue. However, in general, free time is used when there is an issue.
Demurrage(demurrage vs detention)
Demurrage is a storage fee that occurs after the length of free time has been exceeded.
As previously mentioned, the port is not a warehouse and the container yard has limited space. Demurrage is used to prevent containers being stored at the port for a long time. Actually demurrage is not cheap.
Here is an example of how demurrage cost can increase in Japan.
- Day 1 to day 3, 13,000 yen (~130 USD) for one 40 feet container daily.
- Day 4 to day 6, increased to 25,000 yen (~250 USD) per container daily.
- From day 7, cost increases to 40,000 yen (~400 USD) per container daily.
The longer the containers are stored at the port after free time, the higher that demurrage cost will be. Understandably as shipment of 10 containers will cost you a lot of money.
Detention(demurrage vs detention)
Detention is a length of the time allocated for collecting a container from a port unloading the cargo and returning the empty container to the port.
You will incur additional cost if you exceed this time. Containers belong to shipping lines. The system requires all containers to be returned correctly once finished delivering the cargo.
Here is an example of free time and detention calculation method. Free time is 14 days and detention is 7 days.
- May 1st – Estimated time of arrival (ETA) for the vessel to arrive at the port;
- May 3rd – Container is lift off from the vessel and loaded into the container yard.
In this case, free time covers until May 17th (May 3rd + 14 days). Some countries count free time based on ETA whilst others start after the vessel arrival which you should confirm in advance. If you collect the container on May 17th, the last day of free time, detention is counted the day you collect the container, meaning May 24th is the last day. We usually do not have the case that the customer use full detention period, but I hope the description enable you to understand.
Common problems with free time, demurrage and detention (demurrage vs detention)
Finally, let’s take a look at some of the common problems with free time. Customs may be unable to complete their checks during free time, especially when importing new products of which you do not have past import experience. There is a potential for essential documentation to be missed. Certain food and chemical products cannot be imported without a specific import permission or license. This can take time to register. Also if there are any mistakes on the B/L, it can take time to amend and demurrage costs may occur.
Before exporting a new product, you need to discuss and make arrangements with a freight forwarder to avoid these problems. Don’t forget to pay attention to document mistakes such as B/L.
By now you understand the terms free time, detention and demurrage. The most important thing is to utilize “free time” and prevent the “demurrage” occurring. ForwarderOne has been working as a freight forwarder for a long time and has seen cases which incurred demurrage because of the problems on product register and documentation. Payment issues between the buyer and a seller, congestion at a port after a long holiday season.
Free time is very important factor within international logistics. Please ensure you check details in advance and are prepared.
Here I explained about the technical term in logistics. If you are interested in logistics work or operate an importing business such as a global Amazon FBA business, I believe ForwarderOne will be a good support for your job.