‘Storage’, ‘Demurrage’ and ‘Detention’: What’s the Difference?
There is generally a standardisation of most shipping terms globally. However, there are some terms that create some confusion because the definitions differ from country to country. There are three words specifically that are sometimes misunderstood in sea freight, and these words are ‘storage’, ‘demurrage’ and ‘detention’. These are often considered as “unexpected, non-budgeted, uncosted, unforeseen and avoidable” charges. We will look at them in this article and provide clarity on these terms so that you can know how to avoid incurring these costs.
“Free Periods” in Ports for Containers
When a container arrives at a port and is taken off a ship at the terminal, it is moved to a container yard (also known as the CY area) at the port for a limited time. This time allows the container to go through customs clearance and any other relevant formalities before it can be taken by the customer.
Each port/terminal gives a certain ‘free period’ that each shipment is given to allow for the container to go through import processes. This period of time refers to the number of days the port will keep the containers without any charge to the customer in the container yard. The duration differs from port to port, and it must be restricted in order to prevent congestion caused by the containers that arrive and stay in the port as there is limited space available.
“Storage” vs “Demurrage” vs “Detention”
After the ‘free period’ offered by the port is exhausted, the port will charge according to particular published tariffs that they will have (this also differs from port to port). This point at which a charge is added to a container after the free period is called storage or port storage. These charges will either be billed to the customer directly, or to the shipping line who is transporting on behalf of the customer who will then forward the bill to the customer.
Many shipping lines will also provide a ‘free period’ which differs from company to company in which the customer has time to process the shipment with customs in the port, then to collect the full container, take it to their warehouse, unpack it, and deliver the empty container back to the shipping company. If the customer exceeds the free period allowed by the shipping line, they will then be charged demurrage and/or detention.
Demurrage refers to a charge from the shipping company which is billed to the customer when cargo or containers stay at a terminal/port after they have exceeded their ‘free period’ for unloading or loading. This differs from storage/port storage which refers to the charges incurred by the customer that are billed by the port/terminal after the customer has exceeded their free time at the port. Detention refers to the charges given by the shipping line to the customer after they have exceeded the number of ‘free days’ in which the customer can take the container away, unpack it and have the empty container returned to the shipping company.
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See the table below for a summary of the differences between these charges:
| Term | Definition | Billed By | Location | Purpose |
|---|---|---|---|---|
| Storage | Charges incurred by the customer billed by the port/terminal for exceeding the free period allowed for the container to be in the port. | Port/Terminal | Inside the Port/Terminal | Helps to prevent congestion in the container yard at the port. |
| Demurrage | Charges incurred by the customer billed by the Shipping Line for exceeding the free period allowed for the container to be in the port. | Shipping Line | Inside the Port/Terminal | Compensates for lost revenue because the container is not ‘in use’. |
| Detention | Charges incurred by the customer billed by the Shipping Line for exceeding the free period allowed for the container to be taken by the customer, off-loaded and returned to the company. | Shipping Line | Outside the Port/Terminal | Compensates for lost revenue because the container is not ‘in use’. |
These are the most universal forms of the terms ‘storage’, ‘demurrage’ and ‘detention’. However, in some countries like Saudi Arabia, USA and Japan, demurrage is used to refer to storage in the port/terminal or shipping lines. In order to avoid any unexpected costs from misunderstandings, it would be best to check with the shipping line how these terms and free days are defined and what ‘storage’ or ‘demurrage’ mean to them and the destination country.
Why Shipping Lines Charge Demurrage and Detention
Throughout a shipping line operation of a container, the cost of the container works out to about 20% of the shipping line’s cost in maintenance, repairs and leasing. A container only makes money for the company when it is in use and not when it is idle, so demurrage and detention are charged to compensate for the time that the container is not in use and otherwise making money for the company that way.
In conclusion, there are different charges that are to do with a shipment which are ‘storage’, ‘demurrage’ and ‘detention’. These are often considered unexpected, but avoidable costs that are incurred. By knowing what these charges are, where they are incurred and how to avoid them with the different ports and shipping lines, you could save your company money by keeping within the ‘free time’ offered by both the shipping lines and the ports where your shipment lands.
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