Many exporters and importers may be familiar with the per diem fee, which is also sometimes referred to as the detention charge. In 2023, however, it is likely to back to the limelight, notably for the US freight industry but also on a worldwide scale.
Despite a significant reduction in 2022 as opposed to the peak point in 2021, both the demurrage charges and the detention fees (D&D) remained 12% higher globally in 2022 compared to the pre-pandemic period. Meanwhile, even with the overall worldwide downward trend of demurrage and detention costs in 2022, these fees continue to rise steadily in the United States. Some American ports now have the most costly demurrage and detention rates across the world, especially when compared to a number of other well-known Asian ports, such as Chinese Taiwan and Chinese Hong Kong.
In light of these mounting fee concerns, let’s learn more about per diem fees, the rationale for them, the typical per diem rates, how they differ from D&D, and ways to avoid such charges.
Table of Contents
What is a per diem fee?
Why do carriers charge per diem fees?
How much are per diem charges?
What is the difference between detention, demurrage & per diem fees?
Tips to avoid per diem fees
Summary
What is a per diem fee?
In order to discourage importers from keeping their containers in storage for extended periods of time, the carriers levy a per diem cost, sometimes known as detention, for every single additional day a container is outside of port after the specified “free” days, until the containers are returned to the container depot or yard.
The word “per diem” is actually a Latin phrase with the meaning “by day” and that is why it is used to describe the daily rate nature of the per diem charge for the containers stored beyond their allowable/complementary timeframe.
Why do carriers charge per diem fees?
Much like other charges levied by carriers, there are certain pressing needs behind such fees:
- Avoiding delays: Shippers may cause congestion issues at the terminal or port if they take longer time to load and unload their containers. Such delays not only increase the total wait time of all shippers but also hinder the carriers from more prospective new cargo shipment opportunities.
- Preventing losses: Carriers may face additional storage fees, losses from possible new shipment revenue, or, in the worst cases, extra costs related to expanding their fleet or chassis pool as a result of delays in the loading or unloading of the container.
- Promoting efficiency: The overarching purpose of the per diem charge is to deter shippers from keeping their containers in storage. In other words, the per diem fee is meant to minimize delay or congestion issues by motivating shippers to move their containers more quickly, thereby promoting port or terminal efficiency.
How much are per diem charges?
Since the per diem fee is charged after certain pre-allocated “free” days, which typically range from 1 day up to 10 days, it is important for shippers to identify the free duration permitted for their containers. And the carriers typically price per diem fees according to the average daily operating cost of their containers, such as the maintenance and insurance fees, as well as the costs of the containers and fuel costs.
This means that the per diem charges can be varied depending on the port and carriers. They are also different according to the size and types of containers being utilized as well as the overall total number of days charged. For example, the typical daily rate of per diem fee for a 40-foot dry container may cost around $130 per day for the first 11-15 days but rise to $220 per day from 15 days onwards. Meanwhile, the daily per diem rate for a 40-foot reefer container over the same timeframe may cost twice as much or more.
As there is no fixed price or flat rate for per diem fees, yet the charges increase incrementally as the number of days exceed a certain amount, it is imperative for the shippers to obtain a full updated price list on such fees from their carriers for better budget planning or at least to gain some insights from their carriers listed charges, for example, a standard online price list such as this.
What is the difference between detention, demurrage & per diem fees?
In essence, detention, demurrage, and per diem fees are all ways of defining expenses associated with “delay,” “late charges,” or even “penalties” for exceeding the allowed number of free days. That’s also why these terms are often easily misunderstood as the same or used interchangeably with each other. However, there are indeed some subtle differences between them. Let’s explore their distinctiveness in relation to per diem costs to better understand the differences.
Detention fees vs Per diem fees
Detention and per diem fees are frequently used synonymously although there are actually two types of detention charges in the freight industry. The first type of detention fee applies to the trucking process and is charged hourly. Such fees are normally incurred during port congestion season when a trucker needs to spend excessive loading or unloading time including pick-up and delivery waiting time.
The second type of detention, meanwhile, is also commonly referred to as per diem fee. It is chargeable on any containers that remain outside of ports/ depots beyond the allowed free days. It is important to note that both detention fees and per diem charges may sometimes cover not only the containers but also various types of carriers’ equipment such as chassis, trailers, and flatbeds, depending on the actual equipment involved and the policies of the carriers.
Demurrage charges vs Per diem fees
Demurrage charges, on the other hand, although also referring to rates chargeable on delayed containers exceeding the allotted free days within the terminals or ports, are only applicable on containers but not others.
As such, there is a clear distinction between demurrage fees and per diem fees in terms of storage location; demurrage fees are assessed for containers that remain in terminals after their allotted time has passed, whereas per diem fees are assessed for containers that remain outside of depots as well as chargeable types of equipment.
Tips to avoid per diem charge
- Understand the shipment terms: Shippers should carefully review the terms of the contract with the carrier to confirm the allotted free time for unloading or loading a container. This will assist them in making proper advance planning.
- Plan ahead: Shippers can then avoid per diem charges by planning their shipments in advance, gaining the necessary resources to move containers in and out of ports or terminals quickly. This involves having the necessary equipment and staff available so that the containers may be loaded or unloaded within the specific required time or better still, as early as possible.
- Proper communication: Shippers should ensure regular, efficient communication with the carrier to avoid any misunderstandings regarding the free time for unloading or loading a container. In the event of any potential delays or changes in their shipping schedule that may affect the pre-agreed free allotted time, shippers should inform the carrier in advance and hence take the opportunity to negotiate for any new arrangements.
- Engage reputable carriers: Shippers should make use of renowned ocean carriers with solid track records for punctual delivery and effective support. This should minimize the possibility of delays and daily fees.
- Other modes of transportation: Depending on the type of shipments, other transportation options such as rail or trucks could be more affordable and flexible compared to sea freight. Shippers may consider these transport modes instead to avoid per diem charges.
Summary
Despite a global decline in demurrage and detention rates, since 2022, these rates have been rising consistently in the US. It is therefore important for the exporters and importers to fully comprehend the meaning of detention fees or per diem rates, how much they are charged, the differences between demurrage, detention, and per diem fees, and the tips to prevent or reduce such charges as much as feasible. Alibaba Reads contains further tips and ideas for the supply chain field and business sourcing; visit the site today to find out more.
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