How to Control Rising Demurrage Costs at U.S. Ports

Posted by Dean Rosenberg


*This article first appeared in the May 2015 edition of World Port Development

A recent report by the Journal of Commerce focused on the growing congestion at US ports and how it has increased demurrage expense. Now, the industry is seeing demurrage claims rising with both container ships and tankers, as ever larger ships are pressing ports to deal with volumes of cargo not seen in the past.

Gridlocked marine terminals are struggling to move trucks in and out more quickly. An October 2014 hearing by the Federal Maritime Commission cited many examples of shippers who were ready to transport their containers, but the terminal was not able to oblige; thus, shippers incurred demurrage penalties. Items of concern at the hearing included truck wait times, ocean carrier arrival bunching impact on ports, and infrastructure.

Shippers and trucking companies are liable for demurrage if they exceed the “free days” allowed after cargo is unloaded. Terminals have limited storage capacity and use these charges to discourage extended storage and dock utilization. Disagreements develop when shippers blame truckers for missing a deadline for pickup and truckers cannot access their loads in a timely manner. The Journal of Commerce estimates that during the past two years, tens of millions of dollars in demurrage charges and late fees for container returns have been assessed.

Terminals will waive fees for a limited time but they, too, struggle with a balance between expected revenue for their space and a need to be flexible due to port congestion. The Los Angeles-Long Beach Port is experiencing particular difficulties with hundreds of containers stuck in ports accumulating demurrage penalties. Typical tariffs being charged: In Los Angeles, demurrage on a 40-foot container is $43.60 a day for the first five days after “free days” have expired and $87.32 per day beginning on the sixth day. New York-New Jersey fees are $145 a day for the first four days, $195 for the fifth through ninth days, and $355 for the tenth day and thereafter.

Some truckers believe that terminals view demurrage and late return fees as a profit center. Trucker protests have become more common as port congestion grows.  Recently, New York-New Jersey and Virginia terminals have refused the return of empty containers due to congestion, asking truckers to return those containers to off-dock sites. Los Angeles is considering using vacant lots near the port for off-dock storage. Truckers are asking for compensation for this extra activity.

Complicating matters is a growing number of labor disputes between port management and dock workers. Dock workers deny that they are using “slow down” tactics to make a point; they insist that port congestion has led to deficits of truck chassis (needed to pick up containers) and rail cars, and increasing cargo volume combined with a shortage of truck drivers has slowed transportation activity. All of this adds to the amount of demurrage penalties being assessed at every port.

Maritime Demurrage Management

Effective demurrage management has always been important in the maritime industry, and even more so in the U.S., now, given the scarcity of Jones Act vessels available to ship oil and refined products between the nation’s ports.  In December 2013, news broke that ExxonMobil had paid a record $110,000 per day for a Jones Act tanker.  In May 2014, Arctic Securities analyst Erik Nikolai Stavseth was quoted saying that the firm’s freight rate estimate in the period 2014-2020 “ranges between $75,000 and $100,000 per day.”  Tanker rates have continued to soar, and there is an increased focus on minimizing demurrage costs for Jones Act vessels, which is significantly easier to accomplish with the advent of AIS-based vessel-monitoring services and tools with a proven track record in this application.    

With AIS-based solutions, it is possible to reference broadcast and GPS information from a vessel captured as much as five years prior, and replay events that actually occurred in the waterway. This ability to play back an incident or vessel route can help validate or contest the story of a particular vessel after an incident or demurrage claim.  By comparing things such as speed, transit and headings, it is possible to get a better idea of what a particular vessel was doing and if the story is validated. This can improve supply chain management and marine terminal efficiency, and reduce demurrage by improving transparency of marine operations to all stakeholders.  

For example, if a vessel tendered a notice of readiness prior to arrival at a sea buoy, AIS-based vessel tracking systems can identify the exact time of arrival at the sea buoy, providing valuable supporting data to minimize commercial disputes surrounding demurrage.  In the case of weather-related events or waterway incidents that impede traffic, AIS data review can provide detailed information about who was impacted, and what actual delays and transit times occurred for waterway and port users.   This type of information can be crucial to proving or disproving the validity of the demurrage claim.

Demurrage validation can be particularly challenging in the aftermath of major incidents that can delay reporting for months. When too much time elapses between the voyage and a disputed claim, it can often be difficult to generate the necessary level of detailed documentation with which to prove what happened.  With AIS data, however, information can be referenced back for several years.

This was particularly beneficial to one of the world’s largest integrated international oil and gas companies after a significant weather system roared through Port Arthur, Texas, in 2009. Six months after the hurricane, the company received a $400,000 demurrage claim from one of its charter vessel owners. The owner claimed that its vessel had arrived at the sea buoy as scheduled, tendered its notice of readiness (NOR), and then departed when the approaching weather made conditions unsafe to remain. The oil company believed this claim was invalid, and needed data to prove its case.

The oil company was already using PortVision’s TerminalSmart AIS tracking capabilities to provide real-time and historical visibility to all vessels of interest in selected monitoring zones. This visibility yields a number of benefits, including the ability to hold vendors, service providers and other waterway users accountable for their actions, and to support activities related to financial negotiations, staff training, policy enforcement, litigation, and demurrage validation.  TerminalSmart enabled the oil company to demonstrate that two other tankers arrived after the vessel in question had departed, and had also taken pilots on board, pulled into port, and then departed well ahead of the storm. The claim was rescinded.

Demurrage claims will likely continue to rise, especially within the maritime domain.  AIS-based vessel tracking provides a powerful tool for improving the transparency of the demurrage process and validating or contesting specific claims.

PortVision 360 AIS Vessel Tracking

Posted on Apr 7, 2016, 6:07:00 AM

Topics: Tips, Blog, Tankers, AIS, containers, TerminalSmart, Demurrage