Reducing Demurrage & Detention Fee’s
The 2nd Supply Chain and Logistics Leadership Forum took place in February in Dubai.
The forum is sponsored by Damco and is organized by Brian Cartwright, Founder & Managing Director of Top Management Resources (TMR) Group, with the support of
Global Supply Chain Magazine as the official media partner.
The main goal of these forums is helping organisations to improve efficiencies within their supply chains, by providing a neutral platform for Senior Executives to share ideas, best practices, and knowledge, in a relaxed, but business-focused environment.
This event was attended by Supply Chain and Logistics VP’s and Directors from several
multi-national and local organisations, which included Anixter, M.H. Alshaya, Fiat Chrysler Automobiles, Goodyear, Wrigleys, and Agthia Group.
The topic was about reducing demurrage and detention fee's for sea freight.
As a group there was discussion around the root causes for detention/demurrage and this highlighted four main areas where the potential exposure to fee’s was greatest.
From the Vendors
At order placement
At time of shipping
At arrival POD
Although many organisations are losing thousands of dollars each month in DET/DEM charges, it was agreed that much of this could be avoided with better planning and visibility and a clearer understanding of customs regulations and conformity requirements of each country for certain products.
Unfortunately, in many countries in the MEA region managing this has proven challenging for Supply Chain and Logistics professionals due in part to frequently changing customs regulations and not receiving adequate information regarding the changes-especially in markets like Saudi, Kuwait, Qatar, Egypt.
Consequently, not having all the documentation required to clear the cargo, and not knowing all the processes required was cited as one of the main reasons for delays which are generating additional fee’s.
It was also discussed that simply the changing of customs officials for example in Saudi Arabia can have a significant impact on timelines.
There were also cases where non-registration of a particular commodity with local municipal authorities had caused delays of clearance. Home furnishings, lighting, cosmetics for example are complex commodities where delays would often occur.
The shippers felt that more often than not the ability to reduce these fees is out their hands as the majority of service providers are not providing enough DET/DEM visibility. They felt it would be helpful if the service providers would give regular updates about border process changes.
Other reasons for accruing fees unnecessarily included; full warehouses and no space to offload the cargo leading to delays. No visibility of containers arriving to destination. No ASN received about cargo shipped and en-route.
Lack of visibility is compounded by everything often being managed via excel manually, through multiple sheets leading to some companies taking the decision to employ a person whose job is to specifically monitor all cargo and ensure that the focus on reducing DET/DEM fees is being managed on a daily basis.
During the discussion there were a number of excellent suggestions where Supply Chain and Logistics professionals could make an immediate positive impact to reduce DET/DEM fees.
We have listed some of these suggestions below.
Actions that can be taken to manage detention/demurrage:
1. Often country requirements are not understood properly and less detention/demurrage is negotiated in annual RFQ with carriers. This in turn leads to immediate DET/DEM payout once cargo hits the destination, to manage this better organisations are advised to do the following:
o Understand clearance timeline specific to the port/country, budget realistic timelines and negotiate with carriers accordingly
o Example: African destinations can take +20 days, be sure to negotiate these free days
o Best practice sharing: One of the attendees shared experience of collecting all destination country requirements/vetting after discussing with destination teams/distributors/consignees before the RFQ season and negotiations with carriers began. This helped them to obtain optimum DET/DEM days from carriers for current year
2. DET free days vs freight balance.
Often carriers build in DET/DEM requirements into the freight, and seeking excessive DET/DEM will affect freight negatively as taking too much DET/DEM to mask operational failures is not a good practice, Hence it is important to hit the right balance to optimize overall costs.
3. Key to reducing DET/DEM is careful planning, including planning warehouse capacity, demand planning, RM requirement planning. Also another key area is documentation planning. Talking to vendors & educating them about doc requirements can solve the majority of the issues right from the point of origin.
Different approach needs to be taken though when training or educating the smaller vendors vs larger ones. Smaller vendors may not be aware of requirements, larger vendors can be too big to bother about your specific requirements. If you utilize a good logistics service provider they will be able to help you to manage and train vendors to comply to specific requirements.
4. Standard operating procedures and service level agreements regarding documentation compliance with vendors/service providers should be agreed in advance and properly monitored.
5. Better visibility is always an enabler for better risk management. Chris Van Eijk, Damco’s Chief Information Officer for the IMEA Region mentioned that Damco have been actively addressing this by developing a detention/demurrage management app which they had released recently in the market. The app can help customers see the containers which are awaiting clearance and gives a quick indication of where any urgent action is required.
6. Management at origin is key; with all documentation + clearance in place before cargo is accepted. This is likely to fix the problem early in the chain.
7. In the GCC many companies prefer to bring all of their cargo to Jebel Ali and then re-distribute to GCC, as processes / timelines are considered to be reliable in UAE.
8. Take a pro-active instead of a reactive approach: currently most of detention/demurrage management is reactive, rather than pro-active.
9. Weekly monitoring of goods in transit & goods arrived is key to avoid spending on detention/demurrage.
10. Dig deeper into your own operations by conducting a root cause analysis on previous years detention/demurrage spend.
o Pick 80-20% causes
o Devise actions to attack the major causes
11. Role of the destination customs clearance agency in local markets is also key to ensure reduction of DET/DEM
o Penalty vs incentives after timelines are agreed in SOP
o In-house vs agent benefits
Ingo Kloepper, Damco’s CEO for the Middle East mentioned that he could recommend a number of various ways for shippers to reduce demurrage and detention fees ranging from very quick and simple to quite complex solutions.
Brief examples he gave would be to negotiate a combined detention/demurrage free time with carriers, instead of asking separate number of days for both. This may help in managing the overall spend using the combined free days given by carrier.
Or to negotiate average dwell time with carriers, instead of asking a particular number of detention/demurrage for each container, why not ask if you can negotiate on overall/average dwell time for full volume throughout the year?
"A well organized and informative forum that provided interesting case studies from different business sectors. The discussion was enjoyable and profitable and the takeaways on the subject-matter such as the "Negotiation for extended free time" and "Pre-clearance" have now become action items for my team in the Middle East".
Paolo Patti, Regional Operations Director – Anixter
Do you have any ideas or suggestions to add? Please post in the comments below.