Project and breakbulk shippers are feeling a whole new level of pain when it comes to detention and demurrage charges from multipurpose (MPV) carriers.
On the breakbulk side, it’s the shipper that typically names the port to be called. In container shipping, with its fixed schedules, it’s the carriers that choose the ports. This difference between the two segments leads to different approaches to detention and demurrage.
For container shippers, demurrage is a charge assessed by the carrier or terminal operator for boxes not moved off the terminal within a pre-specified number of days, while detention is charged for containers not returned in a timely manner. If boxes sit for longer than usual onboard a ship due to port congestion or other delays, however, shippers are not charged for that time.
By contrast, in the MPV segment, “detention” and “demurrage” are used synonymously to refer to the pro-rated charges a shipper pays to the vessel owner or operator for certain types of delays in loading or discharging their cargo.
According to Kai von Taube, head of global chartering with project forwarder deugro, detention for in-demand MPV ships has jumped from a relatively modest $8,000 to $12,000 per day prior to the COVID-19 pandemic to $30,000 to $50,000 per day now. In other words, a two-week delay due to congestion could conceivably cost a project shipper $420,000 to $700,000 in detention, in addition to already elevated freight rates, von Taube told JOC.com.
Breakbulk detention varies based on terms and conditions agreed to at the time of booking, von Taube said. Generally, charges are calculated according to the vessel’s statement of facts (SOF), a chronological log of all events related to its loading and unloading, and assessed pro rata based on time lost in port due to a given cargo. This could be because of time spent waiting to berth, for example, or delays caused by cargo not ready for loading or with incomplete documentation.
“The details may vary from carrier to carrier and client to client, and [may] also consider the actual port of loading and port of discharge as well as the commodity and other details,” von Taube explained.
During the depressed MPV market of 2009 to early 2020, carriers asked for detention charges that reflected far lower daily ship operating expenses. The carriers were happy with this, “because usually [they were] operating their vessels at a daily loss,” von Taube said. “The detention payments made sure that at least for the few days on detention they were not losing money.”
Today, with containerized cargo competing with traditional breakbulk for space, MPV operators have more cargo than they can carry, particularly on the main trade lanes out of Asia. As such, carriers are demanding detention fees that reflect the potential daily income lost when their ships are stuck in port, in addition to covering much higher daily charter rates and fuel costs.
According to von Taube, that’s put carriers in a position to tell shippers, “If you want me to go to that particular port to pick up your cargo, I can do that, but I want the same earnings I could have if I [loaded] another cargo from a less congested port. Hence, you have to compensate me not only for my actual daily expenses but also the profit I [would lose].”