As far back as middle school, even I knew that the word detention usually was followed by painful consequences.
But when you follow the word detention with another word that also starts with the letter “d” — demurrage —we can all expect to feel some pain.
In the event these two terms, particularly as they pertain to the home furnishings sector, are unfamiliar, allow me to define them for you.
According to logistics firm project44, “Demurrage is charged by the shipping line per day per container from the date of discharge till the full container is moved out of the port or terminal for unpacking.
Detention is charged per day per container from that time till the empty container is returned to the shipping line’s nominated depot.”
So, what has this got to do with the price of tea from China, or the price of furniture and bedding from anywhere? In a word, everything!
According to a new report from Container xChange — said to be the global leading online platform for container leasing and tradin — retailers, manufacturers, importers and exporters are choking trying to assimilate all-time high shipping levies being imposed on customers of the world’s ten biggest shipping lines.
The report concluded that U.S. shippers, already plagued by two years of record-high container prices, also, unfortunately, face the highest demurrage and detention charges as well.
The study determined that New York ports pay the most, followed by the ports of Long Beach, Los Angeles, Oakland and Savannah.
To underscore the magnitude of this issue, as a result of the skyrocketing detention and demurrage costs, all of the five ports listed are between two-and-three times more costly than Hong Kong and some 20+ times higher than major Asian hubs including Dalian in China and Busan in Korea.
In a previous column I explained that in response to sustained protests from shipping companies and their lobbyists, President Biden inked the Ocean Shipping Reform Act last month.
The new law empowers the Federal Maritime Commission to aggressively investigate the rates being charged by the large shipping lines and also reallocates the burden of proof for the spiked fees to the ocean carriers instead of the shippers.
This year, while the average fees for detention and demurrage have dropped by double digits, the fees are still much higher than they were before the pandemic.
Even so, the report found that U.S. shippers are not enjoying savings from the global dip in demurrage and detention charges.
In fact, the report concludes that in May of this year, the average charges imposed by container lines to customers with vessels in the port of Long Beach spiked to $2,730 per container, up from $2,638 from the year prior.
Our domestic ports are also being charged much more than ports in Europe, India, China and the rest of Aisa, according to Container xChange’s study.
The study found that in May, demurrage and detention charges were a whopping $2,692 per container at U.S. ports compared to $549 a can in Europe, $482 in India, $453 in China and a paltry $366 in the rest of Asia.
This pricing imbalance prompted Christian Roeloffs, co-founder of Container xChange, to remark, “Throughout this pandemic, as shipping costs have soared and inflation has become a threat to the U.S. economy, the focus on container line behavior by politicians and regulators has magnified.”
The Biden Administration clearly agreed, and in a fact sheet issued earlier this year said:
“Most traded goods—everything from the housewares you buy online to the agricultural products’ American farmers market overseas—are transported by ocean freight companies. These companies have formed global alliances—groups of ocean carrier companies that work together—that now control 80% of global container ship capacity and control 95% of the critical East-West trade lines.”
This consolidation happened rapidly over the last decade. From 1996 to 2011, the leading three alliances operated only about 30% of global container shipping. Significant consolidation occurred in the years running up to the Pandemic.
Since the beginning of the pandemic, these ocean carrier companies have been dramatically increasing shipping costs through rate increases and fees.
They increased spot rates for freight shipping between Asia and the United States by 100% since January 2020, and increased rates for freight shipping between the United States and Asia by over 1,000% over the same period.
Oftentimes cargo owners are charged fees—known as “detention and demurrage” fees—even when they can’t get access to their containers to move them. The FMC estimates that from July to September of 2021, eight of the largest carriers charged customers fees totaling $2.2 billion — a 50% increase on the previous three-month period.
These historically large shipping price increases translate into higher prices for American consumers.
Meanwhile, the ocean carrier companies are experiencing elevated profits and soaring profit margins. Estimates suggest that the container shipping industry made a record $190 billion in profits in 2021, a seven-fold increase from the previous year and five times what it made over the entire period from 2010-2020.
Profit margins have increased by even larger amounts. In the third quarter of 2021, the average operating margin of the major carriers was about 56%, compared to an average operating margin of 3.7% two years earlier.
Beyond price increases, several specific business practices of many large ocean carrier companies are hurting American businesses and farmers. For example, because of their market power, these alliances are able to cancel or change bookings and impose additional fees without notice.
These unpredictable practices undermine American businesses’ ability to deliver orders on time.
All too often, ocean carriers are effectively refusing to take American exports altogether, preferring to speed back to China with an empty ship to make a quick turnaround rather than transport American exporters’ cargo or dock at American ports.
This is especially difficult for our farmers, who have spent decades building relationships internationally, only to find that now they can’t transport their agricultural products overseas with any reliability or predictability.
The carriers have also continued to pursue practices that directly contribute to port congestion, such as imposing “box rules” that require truckers to use only certain trailers to haul their containers—thus forcing truckers to wait for the “right” kind of trailer to become available.
That leads to lower pay and longer wait times for our nation’s truck drivers, who get paid per box, and allows the ocean carriers to generate even higher detention and demurrage fees.
So, now you know. The next time someone asks why things cost so much these days, tell them they are getting detention.