The Difference Between Demurrage and Per Diem
If you are an importer, one of the most important ways to keep your costs down is by managing your shipping containers correctly to avoid unnecessary handling fees. And two of the fees associated with proper shipping container management that can be avoided are demurrage and per diem.
What is the difference between demurrage and per diem?
Both terms are used in the transportation and logistics industry to refer to charges for exceeding the agreed-upon time limits for using specific equipment or facilities. There are time limits to how long a shipping container can dwell in a particular location or be in your possession. Demurrage and per diem (also known as detention) are independent charges.
Demurrage
Demurrage is a charge imposed for exceeding the allotted free time once your shipping container arrives at port. Importers are allowed a certain number of agreed-upon, contracted “free days” to clear their shipping container from the port. The port will begin assessing demurrage fees if they remain beyond the “last free day” or LFD.
Demurrage fees are assessed to discourage importers from keeping their equipment at the port. Fees will vary and depend on such factors as the type of container, port regulations, and the specific terms of the shipping contract. Generally, demurrage charges are calculated on a per-day basis.
Every importer is responsible for monitoring their risk of demurrage and coordinating the timely clearance of the cargo. This will include obtaining necessary documentation, paying customs duties and fees, and arranging for the transportation of the container from the port.
Per Diem
Per Diem is a charge for keeping a shipping container beyond the allotted contracted period. All shipping containers must be returned to their owners or depot within an agreed-upon number of days. If someone keeps the container beyond the last free day, “per diem” charges are calculated based on each day of delay beyond the free time. These charges often increase progressively over time to incentivize prompt return or release of container.
Reconciling Charges
Recently, after a thorough investigation and interviews with industry experts, the Federal Maritime Commission made a recommendation to restrict per diem and demurrage billing to contracted parties only. That means charges will be no longer be shared with third-parties but only between the shipping line and the party responsible for the shipping containers. The FMC is expected to make the rule final in Summer 2023.
Shippers, 3PLs, and steamship lines (SSLs) will need to adjust to the new rule. For 3PLs like AV Logistics who specialize in per diem management, we can now reconcile per diem charges as the contracted party responsible for the transportation and/or storage of the shipping containers. The ruling enhances AV Logistics’ ability to directly streamline the reconciliation of per diem charges for our partner carriers who transport containers. It will also indirectly help our customers, who count on us to manage their containers as efficiently as possible.
In anticipation, we have developed and introduced a new per diem reconciliation tool. The tool will reduce the time it takes us to internally reconcile per diem, remit payment, and/or dispute charges on behalf of our customers. It will also simplify operations for our partner carriers, who submit per diem and demurrage invoices to us. We look forward to helping our customers and partner carriers incorporate this tool into their daily operations.
It’s important to note that the specific rules, policies, and practices regarding demurrage at the port and per diem can vary among different supply chain parties. Consult the applicable contracts, agreements, or port authorities for precise information and guidelines about these charges.
In the meantime, AV Logistics can help you prepare for the new FMC guidelines and help avoid demurrage and per diem charges on your shipping containers with our technology and expert drayage management. Contact us today at 888-209-3524 or email sales@av-logistics.com.