Demurrage and detention: right or obligation?

Much can be said about the man in the middle of commercial transactions, particularly where liabilities and costs are concerned. Certainly, a freight forwarder always operates between shipper, carrier, and consignee - and that is where we excel.

Hamburg Sud ship

Sometimes, however, the freight forwarder is caught in such a way that the only available outcome is to lose. As Assistant General Counsel to BDP International, I am regularly called in to help resolve situations where the interests of several parties involved in the shipment of goods seem directly opposed. One example of such a situation concerns the charges for demurrage and detention, which are imposed by a carrier to cover the period during which a container cannot be used for the next shipment. 

A shipper or consignee, on the other hand, is sometimes faced with circumstances preventing him from taking possession of cargo immediately upon arrival at destination.

For your consideration, I raise the question: should there be a limit to the practice of charging demurrage and detention? Or perhaps more appropriately: is an unlimited right to charge demurrage and detention ethically and morally acceptable?

One case I dealt with recently involved an ocean transport from the EU to India, where the consignee failed to pick up the cargo from the port. The consignee was in financial difficulties and unable to pay for clearance of the goods. Logically, any increase in cost would only add to the consignee’s troubles. However, only about two years later, the carrier moved to dispose of the goods, at which time demurrage charges in excess of EUR 100,000 had accrued. In another case, the consignee went into bankruptcy while a large number of containers were at the destination port and several shipments were still to arrive. Having heard of the bankruptcy, some of the shippers held on to their original documents, making it impossible for BDP or the administrator of the consignee to take possession of the goods. This caused cargo to sit at the port for several months and in some cases more than a year. In neither case did BDP hold title to the goods or possession, so we had to rely on the disposition and ability of the other parties involved to accomplish a solution.

sign document agreement

Of course, a carrier must protect itself and the measure of demurrage and detention generally works well, as it can be known by the shipper and consignee beforehand - so in a perfect world, the costs are predictable. Unfortunately however, when things go wrong, these costs may not be manageable and the longer they are permitted to accrue, the slimmer the chances are that the party ultimately responsible will be willing and able to pay the full amount. Virtually all carriers charge demurrage and detention. It is their right to do so. Another right carriers commonly reserve by their terms and conditions is the right to dispose of cargo through public auction or private sale to cover their costs.

Carriers, therefore, have a way to cut their losses and mitigate the damages they suffer as a result of their equipment not being available for the next shipment. Should there be an obligation to so mitigate?

If it is clear that a consignee is unable to collect the cargo, then one might argue that it is irresponsible, unreasonable or even unethical of a carrier to let demurrage and detention charges accrue. Even if there is no financial difficulty or other clear indication that a consignee will not collect, one could imagine that after a while, the right to dispose of the cargo becomes an obligation to mitigate damages. Otherwise, does demurrage and detention not become a means to profit from someone else’s troublesome circumstances?