Stop the Free-Flowing Expenses of Demurrage and Detention
Q: What are the concealed costs of demurrage and detention?
A: High demurrage and detention costs are rampant as ports are becoming increasingly congested and disruptive events such as labor disputes are occurring more frequently. Worse still, these fees accrue on a daily basis, so there’s little room for negotiating the final bill.
"Hidden" free time is another issue that plagues transportation managers. Free time is a line item in most contracts, but businesses rarely consider it when making routing decisions. Free time is often overlooked because there are other more notable "issues" grabbing attention, like carrier surcharges and GRIs.
As a result, free time is seldom top-of-mind when calculating ocean rates and booking shipments, yet it can add up to 11 percent to a shipment’s daily cost, according to global NVOCCs.
Q: What are other challenges of demurrage and detention and why are they often missed?
A: Incurring demurrage and detention fees results in more than just increased transportation cost. They can also attribute to delayed deliveries, lack of product availability (or excess safety stock), and potential loss of sales—all of which impact cash flow, profitability, and brand reputation.
Demurrage and detention are often the result of poor supply chain visibility and lack of timely notifications from service providers when goods are available to be picked up and equipment returned. Poor data quality can lead to these costly fees with damaging ramifications.
Q: How can companies save costs, sales, and their overall business when it comes to demurrage and detention?
A: You can effectively mitigate demurrage and detention fees by taking an integrated approach to logistics, contract management, and supply chain visibility using a global trade management (GTM) system.
A robust GTM system allows companies to manage multiple carrier contracts to identify the optimal routing for shipments and proactively monitor the movement of goods at the shipment, order, SKU, and container level.This platform can help manage fees, gain better visibility, and reduce overall costs. An integrated system also offers access to historical shipment and transportation data, enabling companies to identify supply chain bottlenecks and mitigate recurrences.
According to Aberdeen Group, GTM solutions can reduce demurrage and detention fees by 25 to 50 percent on average. As an example, one new Amber Road GTM software customer expects to save over $260,000 annually in demurrage fees over the next five years through better real-time visibility.