Demurrage

Demurrage is a charge payable for keeping a ship or a cargo container longer than the free time allowed by contract. In the charter of a vessel, it is the agreed compensation paid to the shipowner when loading or discharging takes longer than the permitted laytime. In container shipping, it is the daily fee a carrier or terminal charges when a container stays at the port beyond its free days. Either way, demurrage turns delay into cost, and it often arises when cargo, documents or payment are not ready on time.

Because ships and containers are expensive assets that earn money only when moving, demurrage rates are set to discourage delay, and bills can grow quickly when a shipment is held up.

In a voyage charter, the charterparty sets a period called laytime for loading and discharging, expressed in days or hours, or as a rate of cargo handled per day. Laytime usually starts after the master gives notice of readiness, subject to the terms agreed, and the contract defines which periods count; for instance, whether weekends and holidays or bad-weather days are excluded.

When laytime is exhausted, the vessel is "on demurrage," and the charterer pays the agreed daily rate, typically pro rata for part days. A widely cited maxim, "once on demurrage, always on demurrage," means that interruptions which would have stopped laytime from running usually do not stop demurrage, unless the contract says otherwise. Many charters also provide for despatch, a payment from the owner to the charterer for finishing early, often set at half the demurrage rate.

A charterparty allows five days of laytime at the discharge port and sets demurrage at $20,000 per day pro rata. Discharge actually uses seven and a half days of counting time. The charterer owes 2.5 × $20,000 = $50,000 in demurrage. If the same contract provided despatch at half the rate and discharge had finished in four days, the owner would instead pay the charterer $10,000.

In liner container shipping, the terms are used differently. Demurrage generally refers to charges for a full container left at the terminal after the free days expire, while detention refers to charges for keeping the carrier's container outside the terminal, for example at the importer's warehouse, beyond the allowed time. Carriers use varying definitions and sometimes combine both into a single charge, so contracts and tariffs must be read carefully.

Container charges became a political issue during the port congestion of 2021 and 2022, when importers faced large bills for delays they could not control. In the United States, the Ocean Shipping Reform Act of 2022 gave the Federal Maritime Commission greater powers over these charges, including rules on what information a demurrage or detention invoice must contain.

Demurrage is closely connected to how trade is paid for. Under a letter of credit, a discrepancy in the documents can delay payment and the release of the bill of lading; without the original bill the buyer cannot collect the goods, and charges accrue. The same happens under a documentary collection if the buyer delays paying or accepting the draft. Because a bill of lading is a document of title, a carrier will generally not release cargo without it, which is why late documents lead to requests for delivery against a letter of indemnity.

The move to an electronic bill of lading (eBL) is intended partly to reduce such delays, since electronic records can be transferred in minutes rather than couriered across the world. A sea waybill, which is not a document of title, also avoids the problem where the parties do not need a negotiable document.

Who bears demurrage depends on the sale contract as well as the contract of carriage. Incoterms rules allocate delivery and cost points between seller and buyer, but they do not settle demurrage in detail, so commodity contracts usually add specific laytime and demurrage clauses that mirror the charter. Buyers on open-account terms may face charges if they have not arranged customs clearance or financing in time, while sellers paid by cash in advance may still be liable under their charter if the load port is slow.

Disruption at a maritime chokepoint, port congestion and strikes all raise demurrage exposure. For commodity traders, demurrage claims are a routine but significant item, and disputes over laytime calculations are a large part of maritime arbitration. In trade finance, lenders financing a cargo watch demurrage because it reduces the margin available to repay them, and they often prefer goods to move promptly into storage, where a warehouse receipt can stand in as their collateral.