Logistics Glossary

Demurrage Cost

What Is Demurrage?

In the finance world, demurrage could refer to the storage costs for holding or owning currencies, whether paper currency or gold. If you’re a currency holder, your demurrage cost would be the account fees. If you own gold or silver, these charges could be in the form of insurance and/or storage fees.

In business, demurrage refers to the cost of holding a shipment of goods. This is an additional cost, a penalty, paid by the charter company to the shipowners for failing to unload the goods or discharge the shipment by the agreed date and time.

Normally, the charter companies have three to four days, as stated in their contract in the holding facility, before they are held liable for the demurrage amount. Air or rail shipments are generally allowed 48 hours of storage, and ports store from three to seven days. It’s your responsibility to know the demurrage policies for your case in advance.

How Are Demurrage Costs Calculated?

The demurrage costs are due to the liquidated damages, and they depend on the carriers, ports of entry, terminals, and the agreements between the parties. The cost per day is agreed upon in advance between the shipowners and the charterers. Normally, they can be anywhere between $75 and $300 per cargo for a day. These charges can accumulate over several days if the shipment isn’t picked up on time.

Who Pays the Demurrage Charges?

Suppose you’re a charterer having your goods in a storage facility upon shipment. In that case, you can be liable to pay the demurrage charges once you’ve extended your shipment storage beyond the time/date allowed in the agreement.

Sometimes the demurrage costs are not in the shipper’s control. For example, the consignee who was supposed to pick up the cargo by a certain date/time was unaware of its arrival and therefore failed to do the customs clearance.

There’s also a possibility of delayed paperwork preventing the consignee from receiving the documents in time. Sometimes the cargo and its contents don’t match the sales order. This could result in a dispute between the consignee and the shipper, further delaying the pickup. Another reason could be the delays in the customs exam.

You should plan and arrange the pickup in advance to avoid these problems. Always have a plan B and arrange for another trucker in case of delays. Also, please stay informed and up to date on the customs procedures and port regulations and share the instructions with the parties. In case of food or animal transport, seek special permission for some extra days in advance as a precautionary measure.