How to Use Free Time to Reduce Detention and Demurrage
Free time is the most important cost factor in ocean shipping that most companies ignore.
How so? Not considering free time contributes to unnecessary detention and demurrage costs on up to 25% of ocean freight shipments, according to one of the world’s largest NVOCCs.
This growing issue affects logistics services providers and shippers alike, and is exasperated by the current state of the ocean cargo markets – specifically with regards to the ongoing problem of port congestion.
Free time is a contract line item just like any other fee or surcharge, yet it is rarely considered when making routing decisions. The reason is that it’s hidden in contracts and typically overlooked thanks to all the other everyday complexities of ocean freight rate management – like tracking updates to carrier surcharges and GRIs. Free time is seldom front of mind when ocean rates get calculated and shipments are booked. Yet few of the industry’s 1,300+ ocean surcharges that garner most of the attention can add 11% to a shipment’s cost each day.
Free time is crucial and should be considered with every routing decision, right along with a shipment’s all-in rate and transit time.
Contributing Factors to Increased Detention and Demurrage
The average free time is about five days, providing precious little time to pick up, unload or load, and return a container to the depot.
Despite our stance that shippers must take accountability for better understanding and using free time, there are legitimate market conditions that make this difficult.
Among the biggest is that vessels are getting larger and taking longer to discharge. At the same time ocean carriers, ports, and terminal operators are not providing additional free time willingly. Ports will continue to get more congested, and, unfortunately, there are no free passes when a container is late.
Adding to the challenge is chassis availability. This market has changed, and the chassis is no longer supplied by the operators. Again, no sympathy if the chassis leasing companies run out during busy periods making it impossible to move a container.
There will always be situations where shippers simply cannot access cargo or return a container, and as a result exceed free time. Still that’s no excuse for failing to take steps to address the problem.
While the issue itself is simple enough, the solution is not. Without a new approach, demurrage and detention charges will only increase.
Solutions for Preventing Unnecessary Free Time Violations
Market forces aside there are tactics for managing free time to minimize costs. Two solutions with the greatest impact include using data for better decision making, and improving communication within your operation and with carriers.
Using this information is required for good decision making, but the challenge remains in how to go about accessing it. With most shippers having multiple carrier contracts and no good way to find and compare free time, how realistic is it to expect it will be used on a consistent basis? You need to find a way. The solution starts with an organized approach to freight rate and contract management, and continues with technology that supports your current workflows for calculating rates and quotes accurately including free time.
A less obvious upside to better free time visibility is that when you have additional time, you can use it. Extra free time makes it possible to avoid expenses such as storage, handling costs, or other accessorials at the point of pick up or delivery. But you have to know your free time to take advantage.
It is important to note that application of the terms demurrage, detention, and combined demurrage/detention varies from country to country, but the concept and workings mostly remains the same.
With up to 25% of all ocean shipments incurring detention or demurrage, free time should be considered with every routing decision. Don’t allow market conditions and outside factors like port congestion be an excuse for not addressing the problem.
Knowing free time and the potential for additional charges helps shippers make the best routing decisions. It requires diligence on the part of shippers and freight forwarders to understand their free time tariffs and consider those constraints with every routing decision.