How to avoid a demurrage disaster

A recent change to the terms and conditions typically offered by trade warehouses could put importers, exporters and shippers on the hook for thousands of dollars in additional fees. The change is de-signed to help warehouses avoid liability for demurrage, or charges for de-lays in the return of a container to its owner, which is often an ocean carrier.

Although virtually all participants in international trade eventually suffer the expense of demurrage, it is often little understood.

Shippers are normally provided a certain amount of "free rental" of a cargo container, either before or after it is loaded onto or unloaded from a vessel. Such time periods are normally fixed by contract, either in a bill of lading or otherwise. Any time in excess of the "free rental" period is charged on a daily basis to the party with a claim to the goods in the container.

This is known as a demurrage charge, and it is the equivalent of paying liquidated damages to the carrier for the delay in the return of its rented container. This is why the rate of demurrage is almost always included in a written contract, such as a bill of lading.

Demurrage is intended to serve the public interest by promoting the prompt flow of commerce through the rapid loading and unloading of cargo. Demurrage charges provide an incentive for parties to efficiently utilize the shipping containers that are critical to the movement of goods in this era of globalization.

The payment of demurrage is excused only if the delay was impossible to avoid, such as a force majeure event or the negligence of the carrier. As a result, shippers, consignees and ultimate buyers of goods may be blindsided by unexpected demurrage charges. Container delays that result in demurrage may result from port congestion, problems with Customs, detentions, intensive inspections or other delays that regularly occur in the movement of goods.

The shipper is generally responsible for demurrage charges, but the consignee also may be legally obligated to pay, depending upon who was at fault for the delay and which party was contractually responsible to pay freight or other charges. This liability is usually established by the terms and conditions of the bill of lading.

For example, a consignee receiving cargo under a bill of lading that shows demurrage charges or liens on its face is assumed to have agreed to pay demurrage, and such an agreement will be implied under the courts. However, a consignee is not liable for demurrage where it assigns the bill of lading before the cargo is delivered and delivery is actually made to the assignee.

A consignee also may be liable for demurrage when it is not a party to the contract of carriage (bill of lading) but still contractually binds itself to pay demurrage directly with the shipper as part of the sales contract.

Demurrage cannot normally be assessed against a warehouse (or any other party) that is not a consignee or other party to a transportation contract. As a result, the Inter-national Warehouse Logistics Association recently amended Section 2 of its standard terms and conditions to prevent IWLA members from being named as consignees on bills of lading, thus reducing their potential liability for demurrage.

Section 2 now stipulates that the depositor of goods in a warehouse either agrees not to name the warehouseman as a consignee or must notify the carrier in writing that the warehouseman has no interest or title in the goods. If no such notification is provided, the warehouse may refuse delivery of the goods. Section 2 also states that the depositor will indemnify the warehouse from any claims for demurrage.

Other logistics providers not normally named as parties to a transportation contract can take similar measures to protect themselves from being surprised by demurrage charges. Review the terms and conditions of your transportation, warehousing and sales contracts to ascertain the circumstances under which your company may be liable for such charges. Consult with transportation counsel if there is any confusion or misunderstanding about when demurrage will be charged and collected.

Considering that demurrage charges can run into the thousands of dollars and that failure to pay those charges can result in liens being placed on your goods, preventive action now can help you avoid a situation that could threaten the viability of your business.

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