A Comprehensive Guide to Importing Fees
There are a good amount of terms in the freight industry that you might not be familiar with. Unfortunately, the definition of these terms can often be hard to understand. To make matters worse terms like demurrage, detention and per diem are used interchangeably which adds to the confusion around their definitions.
Importing is already hard enough without worrying about all the nomenclature that goes along with it. In this article, we will give you clear and easy-to-understand definitions of these terms that you need to know.
Free Time
The first term that we will go over is called free time. This is the amount a carrier is permitted to use equipment without incurring any additional charges.
This allows a carrier to handle their shipments with a certain time frame. If the time frame ends and the carrier is still using a container then they will incur additional charges on top of the normal freight costs.
The length of free time is different amongst contracts. Before entering into a contract make sure that the free time described will be long enough for you to move your shipment.
Another term that is closely related to free time is known as “Last Free Day” or LFD. This term can be a little tricky because it applies to one of two different situations. These situations are:
- The final day of free time before the steamship charges demurrage at the port or rail ramp
- The final day of free time before the steamship charges detention on a container that was taken away from the port or rail ramp.
Demurrage
As you probably would have guessed, these terms are similar to one another and closely related. Demurrage fees are the additional costs faced by a customer when equipment is used beyond the time limit designated by free time.
Demurrage fees are incurred by the customer when a container is used longer than what is allowed. How much demurrage fees cost can vary from port to port.
Usually, imports face demurrage fees when containers are not retrieved upon their arrival. Exports face the risk of demurrage if they arrive before the agreed date of when the vessel is supposed to arrive.
The Purpose of Demurrage
While demurrage fees serve as a pesky punishment for using containers past an allowed time frame, they do serve a greater purpose. That purpose is to keep commerce flowing smoothly and to avoid port congestion. Demurrage fees give shippers more incentive to get their goods out of port as fast as possible.
Demurrage is enforced by multiple entities. This includes:
- Terminal Operator
- Steamship Line
- Railroad
- Airport
Detention
Detention is when a customer incurs fees for using containers past the allowed free time while outside the port terminal. Detention fees and demurrage fees are often both confused because of how similar they are.
The main difference is that demurrage fees apply to laden containers that are inside the port while detention fees apply to laden or empty containers that are outside the port. There are also two types of detention fees that are called per diem and driver detention
Per Diem
This type of detention fee translates to “per day.” Per diem detention fees place a fixed rate that will be charged on a container each day until the container you are using is returned.
Driver Detention
This form of detention fee is applied when a driver’s wait time goes over the allowed free time that is used for loading and unloading the truck. Usually, this type of detention fee is applied hourly but can vary.
The Purpose of Detention
Each form of detention serves its unique purpose. Per diem’s purpose is to help carriers make sure that all of their customers can use their equipment.
A few customers that use a carrier’s equipment longer than the agreed time can ruin it for all of the others. Therefore, per diem gives them an incentive to use the carrier’s equipment fast and efficiently so the next customer can have a chance as well.
Driver detention is charged because drivers rely on getting from appointment to appointment to make a living. Any delay can cause a driver to waste hours and lose income.
Per diem is enforced by the carrier company that provides the equipment. Driver detention is paid to the company that employs the driver.
How to Prevent Demurrage and Detention
Demurrage and detention might seem like something that will inevitably happen during the shipping process. However, there are ways that you can avoid incurring these fees.
Keep Track of Current Events
One of the best methods you can use to prevent demurrage and detention is to keep track of current challenges that could negatively impact shipping. For example, being aware of congestion at any ports or following trends in container costs.
Communicate With Loading and Loading Parties
You must communicate with the loading or unloading party when your shipment is expected to arrive. This allows them to be prepared to handle your shipment. The faster your driver is loaded or unloaded the faster they can get back out on the road.
Pre-Clear Cargo Through Customs Digitally
Pre-Clearing cargo digitally is another efficient method to avoid unwanted fees. It takes less time to fill out documents for your imports and exports when you complete this process online.
However, it would be wise to get a customs broker for this process. Unless you have experience filling out customs paperwork online you might get confused. A good customs broker can take care of this process for you.
Storage/Ground Rent
The last term we will cover is storage or ground rent. This type of fee is incurred by a customer when they use physical space at one of the following locations:
- Terminal
- Warehouse
- Depot
- Inland Container Yard Facilities
What makes storage unique is that it’s a fee for the storage of physical space whereas demurrage and detention are fees for the rental of actual equipment. Similar to demurrage and detention, storage fees are accumulated for cargo that sits in one of these four locations past the allowed free time.
The Purpose of Storage/Ground Rent
Storage fees are used to prevent shippers from taking advantage of the area their cargo is in. Terminals, warehouses, depots and inland container yard facilities have only so much room. Shippers that use space for a long time can cause these areas to overflow and become congested.
Conclusion
Shipping freight doesn’t have to be a hassle when you have a team of experienced professionals helping you navigate the process. Our International Account Executives are experts in imports, exports and drayage services. We can help you move your freight as fast and efficiently as possible so you’ll never have to worry about incurring any unnecessary fees.