Effect of Demurrage and detention costs on modal choice

Ministry of Infrastructure and Waterways, the Netherlands

Assignment

Shippers and logistics service providers have to pay detention and demurrage fees to shipping lines when a container is not brought back to the shipping lines after the contractual negotiated number of free days. These detention and demurrage fees can quickly go up to hundreds of dollars per container when the number of free days is surpassed. In order to avoid this risk of paying fees, shippers and logistics service providers seem to increasingly choose road transport instead of rail or barge transport in Europe. This could result in a reverse modal shift, which makes it more difficult to achieve the international agreed results on the European Green Climate deal. BCI Global has been asked to map to which extent Demurrage and Detention are paid in the Netherlands, and which influence there is on modal shift. BCI Global has carried out this assignment with Ab Ovo and the Erasmus University Rotterdam.

Project summary

Shipping lines are changing the level of detention and demurrage fees throughout the last years, and also the number of free days available to return the container. The result in practice is that it regularly happens that detention and demurrage fees have to be paid by the users. It requires specific knowledge and policies by shippers and logistics service providers to limit the amount of fees to be paid. BCI estimates that every year hundreds of million dollars of detention and demurrage fees are paid by shippers and logistics service providers in the Netherlands. In order to avoid these fees as much as possible, certain shippers and logistics service providers are using road transport more than in the past. In this way, a contribution to a reverse modal shift can be recognized.

Our approach

BCI interviewed a long list of shippers and logistics service providers in the Netherlands in order to get information and data on the level of detention and demurrage fees and free days, and has used these data to make an estimation of the total amount of detention and demurrage fees paid by shippers and logistics service providers.

Result

In this project BCI has gathered the market information and knowledge to confirm the high annual level of detention and demurrage fees paid by Dutch shippers and logistics service providers. It was also confirmed that this has been a contribution to a reverse modal shift. One way to counter this reverse modal shift for the shipping line is to extend the number of detention and demurrage free days specifically when rail or inland transport is used