Demurrage

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The term demurrage originated in vessel chartering and referred to the period when the charterer remained in possession of the vessel after the period normally allowed to load and unload cargo (laytime). By extension, demurrage refers to the charges that the charterer pays to the shipowner for its extra use of the vessel.[1] Officially, demurrage is a form of liquidated damages for breaching the laytime as it is stated in the governing contract (the charter party). The demurrage sometimes causes a loss to the seller as it increases cost of the total freight.[2]

Today, however, demurrage has a slightly different meaning. The term "demurrage" is used by freight forwarding companies to refer to the cost inccurred to trucking companies (from the port) for taking a container later than five days, that is, once it has been off-loaded from a ship it must be taken within five days in order for there to be no demurrage incurred. Furthermore, trucking companies are responsible for delivering the goods contained therein and must return the container within another five days (or the alotted time given to them by a vessel). If they do not, they will incur charges for overuse of the container, referred to as "per dium." Vessels require their containters to be returned within this alotted time for business purposes, and therefore when a container is returned late, they charge a per dium for extended use. In essence,really then, both demurrage and per dium are, to some extent, fines administered by both the ports and vessels to trucking companies for either 1) not removing a container from a port container yard within a reasonable amount of time, or 2) for not returning the same container back to the vessel's port within a reasonable time.

The reverse of demurrage is despatch. If the charterer requires the use of the vessel for less time than the laytime allowed, the charter party may require the shipowner to pay despatch for the time saved.

The term demurrage has been incorrectly extended to use in the hire or rental of assets other than ships. Loss of use resulting in additional hire is not demurrage.

Shipping[edit]

In commercial ship chartering, demurrage is an ancillary cost that represents liquidated damages for delays. It occurs when the vessel is prevented from loading or discharging cargo within the stipulated laytime (see Affreightment: under Charter-parties). In the oil industry, it refers to the excess time taken to discharge or load what the case may be in excess of the allowed laytime. Laytime is the term used to quantify the time allowed within which an operation is allowed to be made. Demurrage is laytime consumed less laytime allocated (if any). The master of the ship must give a Notice of Readiness (NOR) to the charterer when the ship has arrived at the port of loading or discharge. The NOR informs the charterer that the ship is ready to load or discharge. The date and time of the NOR determines when laytime is to commence.[3]

At the end of the stay in port, the port agent draws up a Statement of Facts, setting out a log of events during the ship's stay in port. The Statement of Facts enables a time sheet to be drawn up and signed by the master and the shipper or receiver of the cargo. The time sheet enables laytime and therefore demurrage or despatch to be calculated.[4]

Container haulage[edit]

Because the supply of a shipping container to a merchant has a similar nature to the contract of a supply of a vessel to a voyage charter, the industry refers to this container usage beyond the time allowed as Container Demurrage. This extra usage usually entitles the container supplier (usually the shipping carrier) to require a payment from the merchant.

In principle, it can be considered that the similarity between vessel demurrage and container demurrage is correct since both refer to the same concept, which is the late return of equipment supplied by one party to another for the purpose of carrying a cargo. However, the actual regime of container demurrage is still to be determined precisely.

In container haulage, customers are given a set period in their contract to tip (unload) their container delivery. Acceptable times for tipping are usually between 3 and 4 hours; time spent on site after that is considered "demurrage". Haulers will usually charge an hourly rate for each hour after the allowed time.

Demurrage can also refer to the cost levied by shipping lines to cover redecoration of the container after use by the merchant, but it could also be the charges by the shipping line to customers for not returning the container in a reasonable time.

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