Demurrage and detention

The global crisis in logistics and supply chains is now making daily headlines, with reports of clogged shipping terminals, shortage of HGV drivers, lack of warehouse capacity etc.

Inevitably, delays lead to extra costs, which come under headings such as

• demurrage, charges for containers kept in a terminal for longer than the allowed number of free days
  
• detention, charges for containers, once outside the terminal, that have not been returned within the allowed time
  

These charges can mount up very quickly, sometimes exceeding the value of the goods themselves.

They are often an unwelcome surprise, and will lead to the question of whether the buyer or the seller is responsible for paying them

Let’s look at an example that was discussed recently on an Incoterms forum

A container was shipped from South America to Massachusetts, USA via New York Port – Incoterms rule DAP {buyer’s premises}.

The terminal operator claimed a demurrage charge from the buyer of more than US $20,000, on account of failure to collect the container from the New York container yard within the allotted timeframe.

Investigation revealed that the customs broker appointed by the buyer had only been notified of the arrival of the container towards the end of the free period, and it appeared that a notification had been sent to the wrong email address.

Questions arising from this scenario:

1. Who was responsible for paying this charge?

The Incoterms rules for Delivered At Place are clear here – the seller is responsible for all costs arising up to the point of delivery, which was the buyer’s depot in Massachusetts

2. Was the terminal operator correct in claiming this amount from the buyer, and not the seller?

Yes, the Incoterms rule is part of the contract between the buyer and the seller – the carrier and other service providers have separate contracts with either the buyer or the seller

Demurrage and detention charges will always be addressed to the consignee in the first instance. It will then be up to the consignee to argue the matter with their counterparty

3. Should the terminal operator or carrier have contacted the “notify party” that was specified on the bill of lading?

This is clearly good practice, but carriers are not obliged to do this.

4. Was the seller at fault here?

Perhaps not technically, but exporters who agree to any of the “D” rules should be aware of the financial consequences of delays and/or breakdowns in communication, and should have processes in place for tracking consignments once they are out of their hands, and for progress chasing where necessary.