Tue. May 28th, 2024

Among the many challenges of shipping, per diem and demurrage are two terms that often arise regarding the expenses related to cargo storage and movement. Although both terms are interconnected with these costs, they have distinct differences that shippers and carriers should know. This article will delve into the disparities between per diem and demurrage and highlight their significance to both parties.

Per Diem – An Overview

In the shipping industry, per diem refers to the detention fee that ocean carriers charge for every day that a container remains outside the port beyond the “free” days. This fixed rate is applicable for each container per day until the equipment is returned to the port. 

Advantages

Here’re a few advantages of using per diem in shipping:

  • Encourages timely return of equipment – The imposition of per diem charges is an effective way to encourage shippers to promptly return containers, consequently minimizing the probability of equipment shortages and supply chain delays.
  • Helps cover costs – Per diem charges play a vital role in enabling carriers to cover the expenses incurred due to the prolonged holding of containers beyond the specified “free” days. 
  • Improves accuracy of shipment details – To evade per diem charges, shippers should prioritize accuracy and timeliness when providing shipment details. This approach facilitates effective inventory management by carriers, reduces the risk of errors during delivery and storage, and promotes the prompt delivery of goods. 

Disadvantages

Here are a few disadvantages of per diem in shipping:

  • Can be costly for shippers – For shippers, per diem charges can quickly become a significant expense, particularly if delays or other related problems lead to prolonged container storage. 
  • May lead to disputes – In some cases, disputes may arise concerning per diem charges if shippers believe that the charges are unwarranted or if there is a disagreement over the number of days a container was held outside the port. 
  • Can impact supply chain efficiency – The imposition of per diem charges can result in supply chain delays when shippers are unable to return containers promptly.

Factors Affecting Per Diem Calculations

Several factors can affect per diem payments in shipping, including:

  1. Free days – The duration of the free period may differ based on various factors, including the carrier, the destination, and other relevant considerations.
  2. Container size and type – The size and type of container can also influence the calculation of per diem charges. Larger containers, for instance, may be subject to higher charges.
  3. Carrier policies – The policies concerning per diem charges may differ among carriers and may encompass the amount charged per day, as well as any exemptions or discounts that may apply. 

Demurrage – An Overview

Consignment delay can lead to additional charges imposed by shipping lines, known as demurrage. This charge is incurred when containers are not cleared and returned to a designated empty depot within the specified number of free days. 

Advantages

Here are some advantages of demurrage in shipping:

  • Encourages Efficiency – Demurrage fees serve as an incentive for shippers and receivers to operate more efficiently by loading and unloading cargo quickly. This can help reduce congestion at ports and transportation hubs, improving the shipping industry’s overall efficiency.
  • Revenue Source – Demurrage can be a source of revenue for transportation companies as they charge cargo fees that have overstayed their time at a terminal or port. This helps them to offset costs associated with delays and inefficiencies.
  • Fairness – Demurrage charges are calculated based on the time that cargo or equipment has spent beyond the allowed time for loading or unloading. This means that all shippers and receivers are subject to the same charges, ensuring fairness in the transportation industry.

Disadvantages

Here are a few disadvantages of demurrage in shipping:

  • Additional Costs – Demurrage charges can impose a significant financial burden on shippers and receivers. Even if the delay is caused by circumstances beyond their control, such as adverse weather or port congestion, they may still be liable for demurrage fees.
  • Disputes – Demurrage charges can create conflicts between shippers, receivers, and transportation companies. Disagreements may arise if there is a dispute over the time spent on loading or unloading cargo or if there are unforeseen circumstances that cause delays.

Factors Affecting Demurrage Calculations

Here are some factors affecting the demurrage calculations:

  • Mode of Transportation – Demurrage charges can differ based on the mode of transportation used to transport the cargo. The charges for a vessel may be different from those for a truck, for example.
  • Allotted Time – The demurrage charges can be affected by the amount of time allocated for loading and unloading cargo. If the allotted time is longer, the charges may be lower, but if the allotted time is shorter, the charges may be higher.
  • Availability of Infrastructure – The presence or absence of infrastructure, such as ports and transportation hubs, can affect demurrage charges. If there are limited options for shipping or receiving cargo, there may be more competition for the available infrastructure, leading to higher charges.

Key Differences Between Per Diem and Demurrage

Understanding per diem vs demurrage is important to avoid additional transportation expenses. To give you a better perspective, here are some of the key differences between these two charges:

1. Purpose 

Per diem, charges are fees that carriers charge shippers or consignees for the use of equipment, such as containers or chassis, beyond the agreed-upon free time. Demurrage charges, on the other hand, are fees that consignees or receivers are charged for the delay in unloading or returning equipment beyond the agreed-upon free time.

2. Applicability 

Per diem charges are incurred when equipment is kept beyond the agreed-upon free time for its use, while demurrage charges are incurred when the equipment is not returned or unloaded within the agreed-upon free time.

3. Calculation

Per diem charges are typically calculated as a daily rate for equipment usage beyond the free time, while demurrage charges are calculated as a daily rate for the delay in returning or unloading equipment beyond the free time.

4. Responsibility

Per diem, charges are incurred by the shipper or consignee for using equipment beyond the agreed-upon free time, while demurrage charges are incurred by the consignee or receiver for delaying the return or unloading of the equipment beyond the agreed-upon free time. 

Therefore, per diem charges are the responsibility of the party using the equipment, while demurrage charges are the responsibility of the party causing the delay.

Conclusion

Carriers in the transportation industry impose two distinct charges: per diem and demurrage. Per Diem charges come into play when equipment is used beyond the allotted free time, whereas demurrage charges are applicable when equipment is not returned or unloaded within the specified free time. Shippers, consignees, and receivers must comprehend the disparities between these charges to sidestep any possible disagreements with carriers.

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