Demurrage – Everything there is to know about Demurrage.

Simple tips to avoid demurrage charges

Questions for Customs Brokers

This was a letter from one of our readers. Instead of answering it ourselves, we decided to post it to allow various customs brokers and importers to provide their answers.

Dear Demurrage.org,

Over the past 5 years of importing, my business has probably lost over $10,000 to demurrage charges and GO costs (government order) related fees, not to mention damaged goodwill with our customers because of delayed shipments or the countless hours my employees and I have spent on the telephone arguing with our broker, the shipper, the ports, and the drayage company. I have a handful of questions regarding this.

1) Is there any way for me to reclaim any of these demurrage and detention fees?
2) Is there a ‘best practices’ for importing. That is, a specific set of instructions my factory and employees should follow in order to avoid demurrage and other delays.
3) What can I do if my factory doesn’t provide the necessary documentation in a timely manner? Can I reclaim money from them or put in the contract that my next container should be discounted based on the tardiness of their documents?
4) Is demurrage insurance available?
5) Any other advice?

Very frustrated in Folsom,
David.

Filed under: Demurrage Tips, ,

How to Import Like a Customs Broker

CustomsHQ.com has written a great series of posts with a “How to Import Like a Customs Broker” theme. They list dozens of websites and tools that help importers work more efficiently and effectively. Additionally, the blog mentions a variety of importing strategies and techniques. Whether you are a new or experienced importer, you’ll probably find something of interest on the blog. If nothing else, they are partnering with an existing customs broker to give away free customs entries.

Filed under: Import like a Customs Broker,

A day with a customs broker

The other day I had the pleasure to spend an afternoon in the office a customs broker I know. While I was there, he told me the incredible story of how he came to the United States from South American and landed a job in the shipping department of a typewriter company.He left after 10 years to create his own customs brokerage. Since its founding 14 years ago, its provided a stream of income that allowed him to purchase a sizable office building, with rents more than covering the mortgage.

An immigrant from South America, he came to the US in 1986. He describes himself as a real over-achiever within the typewriter company, and he was curious enough about the shipping industry to become a licensed customs broker in his spare time.

In reading the 19 CFR, the holy bible of Customs Brokering, he discovered the section on customs duty drawbacks. If you buy something purchased overseas and then later export it to one of your customers overseas, the U.S. Treasury then owes you a refund on any tariff paid when the products were imported. Even if you did not import the goods yourself, the price of that tariff was baked into the price you paid. So just you give your customs broker the HS Code for your products, and the commercial invoice / receipt you got when you purchased them. My friend also discovered that you could file this retroactively for shipments you’ve already brought in. This discovery saved his company $35,000 in his first year, and $35,000 per year thereafter. (Read more about duty drawbacks.)

It’s neigh impossible to judge a man’s true performance record in a job he last held 14 years ago, when your only data points are his own words on the subject. Yet numbers don’t lie, and saving your company $35,000 per year that drops straight to the bottom line would be praised and rewarded in every successful company on earth.

He was an overachiever who had managed to turn the shipping department from a pure cost center, to a revenue center as well. Yet during his decade with the firm, they consistently overlooked him for promotions. After his boss, the Chief Operating Officer, hired his own friend as the head of shipping, he ended up practically doing the job anyways because the guy was not qualified or competent.

Now that he was a licensed customs broker, the idea of setting up his own shop as a brokerage became attractive. His love of numbers, evidenced still by the Precalculus text book on his bookshelf, came in handy. He made a dead simple presentation to the CEO, CFO and his boss, the COO, in which he showed them the price they were paying for customs brokerage services. And the price he was going to charge them for the same thing–about 25% less–if they would give him the contract when he went out of his own. No brainer right?

Side Note: Why don’t more companies offer this kind of incentives for employees to become lower cost vendors of the firm. In all liklihood, a skilled employee would more money running their own business to provide the service to the company (provided they could also find 1-2 other clients who wanted similar services), and the company saves money on shipping. In fact, there are companies that do that, and the most famous case, SEMCO, experienced more than 27% compounded annual growth for more than a decade. They are famously open, to the point of having 19 employees of their direct competitor working out of the firm. I digress.

The typewriter company jumped at the opportunity to save money on their customs entries, and he was in business. It took a few years, but by delivering excellent service to his only customer, he eventually one referrals to a view others. Gradually he built up a book of 20-30 customers that brought in a steady income stream.

A woman, obviously undergoing some deep emotional trauma, called him several times during our chat. Weeping and sobbing, the woman appeared to be really leaning on him for emotional support. Unfortunately his portable phone, whose only setting was “speakerphone at full blast,” would have made it inconvenient for him to really have that conversation with him while I was in the room.

The broker calmly deferred the lady’s impassioned pleas for a shoulder to cry on, explaining only that he was in a meeting — never letting on that there was somebody else in the room who was very much involved in this conversation, even if I did not speak.

In between her desperate calls, a trucker also dialed in. He was pretty heated because a customer’s error meant that he couldn’t pick up a container before the onset of the huge Noreaster pounding the region. He wasn’t taking his rig out into that mess. Nothing stirs up a shit storm in the shipping business like 32 inches of snow. In fact, one of the most common causes of demurrage is weather related shipping delays.

Because the phone was still on speaker, I got to listen to this trucker say some pretty mean things about the importer they shared as a customer. He didn’t blame the weather for the $270 charge he was going to eat, but instead took it all out on his customer, an importer whose been in the trade for years.

In this case, the extra day of weather related delay was covered by the trucking company, which is a pretty big risk for them to take on, in my opinion. I presume that most trucking companies have found some form of insurance policy on the weather, to offest these direct costs of demurrage charges caused by large storms. If demurrage charges are highly correlated with the weather, there may be markets where a company could hedge that risk away, simply ensuring they received payments from that policy whenever a large enough storm hit the markets they serve.

As the trucker shared his agony over the demurrage charges, I started to realize that this guy is so much more than just a customs broker. He seems to be an emotional pillar holding together his entire network, almost a therapist willing to serve unselfishly in the name of love and commerce.

In general, customs brokers do not have much face to face conversation. Everything is done by phone, or electronic transmissions of an endless stream of emotionless documents. The telephone conversations may be what kept him sane, working in that office all by himself all day. The trucker too must spend most of his time alone, and you can’t talk on the phone when you are driving a truck, your conversation with the customs broker might be the only one you have for a while. Better nurse it for all the emotion you can suck out of the guy.

Filed under: Uncategorized

What causes demurrage charges?

Demurrage occurs when an importer doesn’t clear its shipments through U.S. Customs in a timely manner. Customs imposes significant fines, so most companies do their best to have all the paperwork on hand and ready to go BEFORE the shipment ever arrives at port. But every now and then, something goes wrong and the shipments get stuck in limbo at the port.

What are the three most common causes of demurrage?

1: Lack of financing – with 10-10-80 payment terms, the vast majority of the purchase price is paid at the very end of the transaction. Many aggressive importers attempt to stretch their financing as far as possible, so they may find themselves over-extended and unable to make the payment for the final 80% due when the goods are loaded onto the ship. In this case, the seller will refuse to release the goods into the importers possession, causing them to be stranded at port, where U.S. Customs will be quick to impose demurrage charges. Those charges can add up very fast, so it usually makes sense for importers to try raising the money to get them out, even if it means accepting usurious interest rates on short-term bridge financing.

2: Poor understanding of the paperwork required by customs – The process of clearing customs can be confusing, and without an experienced broker to hold your hand (it is perfectly to clear your own shipments through customs without a broker, after all), you may end up overwhelmed and unprepared to submit all the correct documents at the last minute.

In order of importance, the four documents required to clear most shipments through U.S. Customs are:

Commercial Invoice – Your supplier’s invoice for the shipment is an itemized list with the price paid and the Harmonized Schedule code for each product on the shipment.

Bill of Lading or Airway Bill – A receipt for the transportation of the goods from their overseas point of origin to the destination port in the US. In the international trade industry, the original BL also servers as legal title to the goods, so by submitting the original BL to U.S. Customs, you are in effect demonstrating that you are the legal owner of the products in question. The BL provides data on the number of products on the shipment, weight, volume, product description, contact information for both parties, name of the carrier, plus details on the ports the goods will pass through en route the U.S.

Packing List – A document from your supplier or their shipping company that lists all the packages within the shipment and their contents. This is different from the commercial invoice in that it deals with the actual boxes on the shipment, showing what is in each box, instead of just grouping everything together by product type.

Arrival Notice – When the ship carrying your goods reaches the port, your carrier or freight forwarder will send you the Arrival Notice. It’s just a document certifying the date on which your goods will arrive. CBP requires this so they can be certain that your shipment is in fact at the port before they waste time on it.

With these four documents in hand, any customs broker will be able to help you clear the vast majority of shipments, although some specific goods will require additional documents. For example, shipments containing unfinished wood products are required to show a fumigation certificate certifying that they have been treated with pesticides.

3: Incompetent Customs Brokers – This is the least common cause of demurrage, but surely there are incidents where customs brokers themselves lose paperwork or fail to file it on time. In fact, most customs clearances can be processed in under 15 minutes, and the reply as to whether the goods have cleared is instant. So if your broker tells you they are waiting to hear back from customs about whether your goods have cleared, chances are they haven’t even filed them yet. Get on their case before you rack up demurrage charges. And then think about getting a new customs broker or working with a software application that can help you do it yourself.

Filed under: Uncategorized

Avoiding Demurrage

Avoiding demurrage almost always comes down to one thing: Having your paperwork in order as soon as possible.  Before you make a purchase from a factory or overseas supplier, alway inform them that you require all customs paperwork (commercial invoice, bill of lading, packing list, and anything else required such as DOT/EPA/FDA paperwork) to be sent within 48 hours of the shipment leaving their country.  In general, you should withhold payment from the factory until they provide the above documentation.  If you are paying for an entire order up front, you lose much of your leverage when it comes to getting any concessions from your factory.  American companies usually work hard to ensure repeat business, but many overseas suppliers, especially in China, simply do not care enough about repeat business.  We recommend negotiating the following payment structure with a factory:

10% Deposit
10% Paid upon proof of completion of goods
80% Paid after the goods have shipped, but before receipt of the original bill of lading.

Most factories are amenable to this payment structure.  It benefits them because they receive more cash up front than with a letter of credit, and it benefits the supplier because you have more control of the money and therefore it is easier for you to demand concessions and good service/behavior from your supplier. Eliminating a 3rd party (the bank which provides the letter of credit) will naturally improve the efficiency of the transaction, but there is a level of added risk.

Filed under: Uncategorized

Avoid Demurrage

Here is a simple tip for avoiding demurrage charges: Make sure your broker has truly submitted your entry to US Department of Customs and Border Protection in a timely fashion.

If you call your customs broker, and he/she says that they are waiting to hear back from US Customs, they are probably lying to you.  The reality is that in most cases, your broker will get a clearance from customs within seconds of submitting the entry, via the automated web interface.  Usually “we are waiting for clearance from customs” is a codeword for “I haven’t gotten around to submitting the entry yet, but when I do I will let you know.”

If your broker tells you something like this, consider calling the port directly.  You can find the phone number for every customs port on this list: http://www.cbp.gov/xp/cgov/toolbox/contacts/ports/.  Tell them what is going on with demurrage, and there is a chance they will look into the case and help you figure out what the problem is.

Filed under: Demurrage Tips,

Demurrage Sucks.

Welcome to demurrage.org.  A simple website with one purpose: helping you avoid demurrage fees and speed up the logistics of your importing business.  With over 30 years of import/export and customs brokerage experience, the founders of this site have an understanding of the fundamentals of the ocean shipping industry.  Demurrage is a nightmare for most importers, especially people first getting started in the business who can’t afford to lay out the hundreds of thousands of dollars per entry that demurrage can cost, not to mention the time delays that can damage relationships with vendors and clients.  If you have questions or comments, please direct them to the “Demurrage Chat” section of the site.

Filed under: demurrage,

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