Demurrage

What is Demurrage?

Demurrage

To understand demurrage, it is first important to understand the background and rationale for it. The world of shipping works on the basis of strict rules and resultant penalties for failure to abide by such defined parameters.

What is demurrage?

Demurrage is a result of a failure to abide by the rules agreed to in a charter agreement. Specifically, it is when a charge is payable to the owner of a chartered ship on the failure to load or discharge the ship within an agreed time period.

When a ship is chartered, there is usually an allotted time for delivery to be taken and for receipt by the warehouse. This time specified is usually no longer than 3 days.

To understand who is responsible for delay; a penalty is assessed against a consignor, consignee, or other party who is deemed to be responsible for any delay in loading or unloading a shipping vessel. Delays may also stem from any undue detention (usually over 48 hours) of the transportation equipment. This is also called a detention charge.

demurrage

Demurrage charges are effectively penalty charges. They are applied to all types of vessel whether it be in a port, feeder terminal or container yard. The charges are applied after the free allotted time has run out.

It is also necessary to know when the free time starts; this may be prior to or at a specific time during the day; which may change as to which port the vessel is travelling to.

Demurrage free time

It is important to know what the free time or available time (prior to demurrage charges) is possible for different cargo types. As an example, different charges will apply for dry cargo or reefer cargo.

Demurrage Charges – When does import demurrage finish?

This very much depends on the arrangements for haulage. As an example, carrier haulage will end on the day of delivery and not when the container is removed from the terminal. The opposite is true for merchant haulage; as it is the day that the container is removed from the terminal. Both of the above days are billable.

Where do we see demurrage?

We most often see demurrage where a charterer pays the shipowner for extra or unforeseen use of the vessel. The main reason for demurrage is to have a type of liquidated damages which amounts to a penalty payment when specified terms are breached under the charter party agreement (overarching contract between parties).

What is Laytime?

We see the word laytime used a lot in the shipping market and it means the amount of time that is permitted in a voyage charter for any loading and unloading of cargo. In the event that the time exceeds the allotted laytime, demurrage is incurred. The concept of laydays has the aim of setting out when a vessel is required to present itself to the charterer and the timing requirements.

Is demurrage the same as dispatch?

Despatch is the complete opposite to demurrage. It is the fees which are paid by the owner of a vessel to the charterer. The costs are specified in the voyage charter and these costs are payable when the ship is loaded or unloaded in a time which is less than permitted in the charter party.

Why is demurrage important?

In short, vessel chartering is fundamental to the shipping market. This is the time that a charterer holds a vessel in possession after the point that they are permitted to load or unload cargo; being known as the laytime. The charterer pays penalty (demurrage) charges for any extra period.

Testimonials

An example of this is when a charter agreement specifies that the time for loading is a 24 hour specific time slot. However, due to the ship being understaffed and loading being delayed by weather and other unforeseen events it means that the loading takes 40 hours. This would mean that the shipper is liable to pay penalty costs in relation to the shipment.
John B, Metals Trader.

Case Study

Metals Distributor

We were new to the import and export trade; especially trade finance. However, we had substantial orders and were importing machinery to Vietnam from Turkey. Trade Finance Global along with their partners helped us to understand when goods could be financed; what purchase orders were viable, the delivery mechanisms along with any demurrage penalties or other potential unforeseen costs.

demurrage


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