Legal Definitions - demurrage

Demurrage refers to a financial charge imposed when a party fails to load or unload cargo from a vessel, or return rented equipment, within the time period specified in a contract. It serves as compensation to the owner of the vessel or equipment for the lost opportunity to use that asset due to the delay.

This charge typically applies in two main contexts:

• Maritime Shipping: When a ship is delayed at port beyond the agreed-upon "free time" for loading or unloading cargo. The charterer (the party hiring the ship) pays demurrage to the shipowner. This can be a rate pre-agreed in the contract (contract demurrage) or, if the delay extends significantly beyond the contract terms, a court-determined amount (noncontract demurrage or damages for detention).
• Equipment Rental: When rented equipment, such as shipping containers, railcars, or trailers, is not returned to the owner or port authority by the specified deadline.

Here are some examples illustrating how demurrage applies:

• Example 1: Delayed Vessel Unloading

  A construction company charters a cargo ship to transport a large quantity of steel beams from one country to another. Their contract with the shipowner stipulates a maximum of four days for unloading the steel once the ship arrives at the destination port. However, due to an unexpected strike by port workers, the unloading process takes seven days.

  How it illustrates demurrage: The construction company would be charged demurrage by the shipowner for the three extra days (seven days minus the four-day free period) the vessel was held at port. This compensates the shipowner for the revenue lost because their ship was unable to depart for its next scheduled voyage on time.

• Example 2: Overdue Shipping Container Return

  An apparel importer receives a shipment of clothing from Asia in several large ocean containers. The shipping line provides a standard five-day grace period for the importer to pick up, unload, and return the empty containers to the port or a designated depot. Due to a sudden surge in orders and limited warehouse space, the importer is unable to return three of the containers until eight days after they were made available.

  How it illustrates demurrage: The shipping line would impose demurrage charges on the apparel importer for the three additional days (eight days minus the five-day grace period) that the containers were kept. This compensates the shipping line for the lost opportunity to use those containers for other customers during that period.