Demurrage

The term "demurrage" /dɪˈmɜːrɪdʒ/ from Old French demeurage, from demeurer - to linger, tarry - 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 shipowner pays to the charterer for its delayed operations of loading/unloading.[1] Officially, demurrage is a form of liquidated damages for breaching the laytime as a 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.[1]

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

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.[2]

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.[3]

Container haulage

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.

Railway transport

In railway law, it is the charge on detention of trucks[4] (or rolling stock), either to the shipper for holding the car (laden or not), or to the connecting railroad(s) while the car is empty and returning to the home road (in either case, as a way to encourage speedy unloading and return of empties to improve utilisation of rolling stock).

Business and banking

In business, demurrage is a delay in delivery of a product via delivery truck. When a delay occurs with product delivery, the delivery party can elect to claim a no fault delay by submitting a demurrage charge. Criteria for allowable demurrage, payment conditions, and payment terms for demurrage are typically prenegotiated and accepted by the vendor via contract prior to conduct of business. Some vendors allow free no-cost time for limited hour(s) when demurrage occurs, others do not allow free time for delays. The demurrage charge is normally an hourly rate. Unforeseeable until delivery, costs of delays are sometimes separately invoiced from the cost of deliverable.

In banking, demurrage is the charge per ounce made by the Bank of England in exchanging coin or notes for bullion.[4]

The term demurrage is coming into use to describe time spent by a service person(s) accommodating delays that tend to prolong the interval that would normally be allocated for the service being delivered. A typical example would be a locked-out (LOTO) piece of equipment that required commissioning. The lock-out prevents progress toward the objective, is outside of the control of the person(s) providing the service and is simply a fact of modern work environments particularly during rework and start-ups of complex equipment involving several teams working at the same time. Best practices would allow for this potential 'liquidated damage' in contingency allocation and planning in order to mitigate risks and minimize cost overruns.

Currency

In complementary currencies field, demurrage is a cost associated with owning or holding currency. It is sometimes referred to as a carrying cost of money. The term was used by Silvio Gesell. It is regarded by some as having a number of advantages over interest: while interest on deposits lead to discount the future and to place immediate gains ahead of long-term concerns, demurrage does the opposite, creating an incentive to invest in assets which lead to longer-term sustainable growth. If the currency is backed by a basket of commodities, demurrage is the holding cost of the basket of commodities, providing monetary stimulation when there is an excess commodities and a restricting the quantity of the currency when there is a shortage in the basket of commodities. In this way it automatically prevents unsustainable economic bubbles before changes in retail sales or GDP can occur. If production of the basket of commodities increases in efficiency, the quantity of the money available for non-commodity production economic activity increases, using up the excess commodities and raising the standard of living in addition to any other technological advances that make more efficient use of the commodities (which does not expand the monetary base). Conversely, if resource constraints begin to reduce the efficiency in the production of the basket of commodities, the monetary base begins to shrink without increasing the purchasing value of the currency, causing economic contraction before a collapse occurs. There is no incentive to hold or spend the currency, but it encourages long term investment and discourages short term investment when compared to a currency that extracts interest payments from the economy over and beyond the increase in the efficient production and transformation of commodities into products and services, which exhibits itself as price inflation.

References

  1. 1 2 Maritime Knowhow website: GENCON Clause 7
  2. ↑ Maritime knowhow website: Notice of Readiness
  3. ↑ Maritime knowhow website: Statement of facts, Time sheet
  4. 1 2  One or more of the preceding sentences incorporates text from a publication now in the public domain: Chisholm, Hugh, ed. (1911). "Demurrage". Encyclopædia Britannica. 8 (11th ed.). Cambridge University Press. p. 17.
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Terms:Intertime container

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