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Demurrage is simply the money payable to the owner for delay for which the owner is not responsible in loading and/or discharging after the laytime has expired. As such, demurrage is an unpredictable and oftentimes expensive component of shipping costs. SingStats affirms that Cargo Handling & Freight Charges, Charter Fees and Fuels is one of the top three business costs amounting for enterprises. Volatile components of the shipping costs such as demurrage charges makes it hard for executives to budget for them accordingly and avoid demurrage costs. In this article, we would be exploring three effective strategies to avoid demurrage costs.
- Negotiate for extra free time
- Always have a back-up plan
- Be clear about the contract clauses
Negotiate for extra free time
If you are aware that loading your goods may take up more time then needed, try to negotiate with your carrier for more free time. If you are a major business partner or ship regularly with your carrier, the carrier would be more open to allowing an extended free time for demurrage purposes which would help to avoid unwanted demurrage costs.
Always have a back-up plan
It is often hard to foresee when port congestion may happen or predict when the weather may turn unfavorable for your voyage to continue leaving your ship docked for days incurring unavoidable demurrage costs. An effective way, recommended by supply chain multinational companies to manage such uncertainties is to always have a backup plan. Executives should have a backup plan that enables the cargo to be passed on to an alternative carrier or pass through other possible transport routes.
Be clear about the contract clauses
Navigating the numerous legal jargon in shipping documents to understand the various clauses of the contract such as how demurrage charges are calculated, exceptions of laytime, despatch, and the role played by damages for detention is not an easy feat. Educating yourself to understand the contract clauses can significantly help in finding any loopholes or unfair advantages in the way the contracts are formed. One can then negotiate for more balanced terms of contract or dispute any unfair occurrence of demurrage charges.
Practical A-Z Guide to Laytime and Demurrage is a 3-day training course held from 17-19 August 2020 (Kuala Lumpur), designed to provide insights on how to navigate the complexities of laytime and demurrage for maximum charter party advantage. At the end of the course, shipowners will be able to maximize their collection of demurrages, and charterers will be able to reduce their potential exposure to demurrage claims and save substantial costs.