Demurrage and detention charges are among the most common sources of commercial disputes in the shipping and logistics industry in India. They arise when containers are held beyond the free time allowed by the carrier, and they can accumulate rapidly into significant sums. Yet many shippers and importers are surprised by these charges and unclear about their legal obligations.
This article explains what demurrage and detention are, how the charges arise, what defences are available, and how disputes are handled in India.
The Difference Between Demurrage and Detention
The terms demurrage and detention are often used interchangeably but they refer to different things. Demurrage is the charge levied by the carrier when a container remains at the port terminal beyond the free time allowed for collection after the vessel arrives. It is essentially a charge for occupying terminal space.
Detention is the charge levied when an importer has collected the container from the terminal but fails to return the empty container to the carrier's nominated depot within the free time allowed. It is a charge for the continued use of the carrier's equipment outside the port.
Both charges are calculated on a per-day basis and the rates increase in tiers as the delay extends. An importer who allows a container to sit uncollected at a port terminal for several weeks, or who retains the empty container for an extended period, can face charges that far exceed the value of the goods.
How the Charges Are Contractually Based
Demurrage and detention charges are contractual. They arise from the terms of the bill of lading or the carrier's tariff, which is incorporated into the contract of carriage. Most bills of lading contain standard provisions allowing the carrier to charge demurrage and detention at published tariff rates.
The carrier's tariff, which sets out the free time periods and the applicable daily rates, is typically available on the carrier's website and is deemed to be incorporated into the contract of carriage. Importers who have not read the tariff cannot generally avoid liability on the grounds that they were unaware of the rates.
A recent case before the National Company Law Appellate Tribunal involving a freight forwarder and a solar energy company highlighted that detention and demurrage disputes require detailed examination of evidence and are not suitable for resolution in summary proceedings. This reinforces the importance of maintaining complete records of all communications with carriers and port authorities when a dispute arises.
Common Reasons for Disputes
Disputes about demurrage and detention arise for several reasons. Importers sometimes argue that the free time did not begin to run because customs clearance was delayed due to regulatory inspection or examination by customs authorities, and that the carrier should not charge demurrage for delays caused by factors outside the importer's control.
Disputes also arise where the carrier claims demurrage from a date when the container was not actually available for collection because port congestion or terminal operational issues prevented access. An importer who was ready and willing to collect the container but was unable to do so due to terminal conditions has a reasonable argument that demurrage should not run for that period.
Disputes about whether proper notice was given of the container's arrival, and therefore whether the free time calculation is correct, are also common.
Regulatory Developments
The Tariff Authority for Major Ports and the shipping line regulatory framework have evolved over the years in response to complaints from trade associations about excessive demurrage and detention charges. There have been regulatory interventions aimed at standardising free time periods and imposing caps on escalation rates. Shippers and importers should be aware of the current regulatory position, as it may affect the enforceability of charges that exceed prescribed limits.
Practical Steps When Facing Demurrage Claims
When a demurrage or detention claim is received, the first step is to review the bill of lading and the carrier's tariff to verify that the charges have been calculated correctly and that the free time periods have been properly applied. Check whether any periods should be excluded because the container was not available or because regulatory delays were outside your control.
Maintain complete records of all port entry notifications, customs examination orders, container gate-out records, and empty return receipts. These documents are essential evidence if a dispute reaches litigation or arbitration.
Many demurrage disputes are resolved through negotiation. Carriers are often willing to reduce or waive charges where there is a clear record showing that the delay was caused by factors outside the importer's control, particularly in cases involving regulatory examination or port congestion.
Where the amounts are significant and a commercial resolution cannot be reached, the dispute may need to be referred to arbitration under the bill of lading's dispute resolution clause, or litigated before the appropriate court. Given that many bills of lading contain foreign arbitration clauses, the practical and financial implications of pursuing a claim need to be assessed carefully against the quantum of the dispute.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. It does not create a lawyer-client relationship. For advice specific to your situation, please consult a qualified legal professional. LawCite Advocates is a law firm registered in India.