Commentary | IT Matters

Dealing With Demurrage, the Dreaded D-Word

Tags: Supply Chain Management, Rail, Transportation

Karen Folino is a Global Commercial Leader for GE Transportation, 404-350-6472

Every industry endures a topic no one wants to discuss. It’s usually too painful or tedious to confront, although it probably will never vanish. For shippers and receivers who transport by rail, that topic is the dreaded demurrage.

Demurrage is the fee charged for the extended use of a railroad-owned or privately held railcar. When a shipper orders a railcar for placement, the demurrage clock starts. Releasing a loaded railcar or rejecting a car stops the demurrage clock. Sounds simple – though it’s anything but. The complexities of shipping or receiving multiple products for multiple customers on different railroads can become unmanageable quickly without an automated demurrage-management process.

Indeed, when shippers find an automated way to manage their demurrage process, it’s like finding hidden money. Often, such costs are unnecessary, inaccurate, or incorrect, and managing demurrage along with other operational challenges can prove daunting. The key to managing is automation.

At month’s end when it’s time to reconcile the railroad’s invoice against the shipper’s records, shippers do have options. They can pay the bill, no questions asked. But this probably isn’t the best move, although resource constraints may dictate this course.

Before paying an invoice, a shipper may attempt to painstakingly piece together the past month’s events with spreadsheets, visit various websites for information, and review bills of lading. While this can create a pretty accurate comparison of charges against actual events, it’s very time-consuming and the margin for error is high.

A third alternative involves automating management of the demurrage process. This saves considerable time and money. It is especially helpful when railcar delays cause demurrage charges that may not be the shipper’s fault. Although a shipper shouldn’t be penalized for situations such as missed switches or railcars ordered and not placed, bad data makes it difficult to defend those experiences when they occur. In these instances the only defense against bad data is the good data that documents the improper charges.

A centralized system gives logistics managers, accountants, and others involved with railcar operations a common view. It also provides the data and analytics to track demurrage and monitor costs in real time. A scalable, corporate-wide solution proves ideal.

Often, though, individual facilities operate autonomously and miss the opportunity to benefit from a shared-services model of efficiency. Still, trends continue to move away from point solutions, rail customers will gain efficiencies with a more holistic computerized solution.

As shippers evaluate automation options, they should consider the ability to:

  • Monitor railcars as they move through their facilities.
  • Ensure billing accuracy when factoring in complex demurrage tariff rules
  • Reconcile often weeks-old railcar records as shown on the railroad’s billing invoices.
  • Track railcar delays to ensure shippers don’t pay for delays they didn’t cause.

 

Without an automated system, which creates efficiencies that save money and time, managing the railcar demurrage process is extremely difficult for companies that use rail.

Shippers or receivers who use rail need an efficient way to manage and control demurrage costs. They should consider an automated system that captures all railcar demurrage events easily and accurately. Knowledge is power. And with the knowledge shippers gain from an automated demurrage management system, they actually may not shy away from that feared D-word.