What is Detention and Demurrage
In simple terms, detention is charges by the Vehicle Operated Container Carrier (VOCCs) for the use of equipment, while detention is a charged fee for the use of Maritime Terminal Operator’s (MTO) space. Although these charges are levied by VOCCs, they are assessed by Port Terminals or MTOs and Container Depot Operators.
The Contract of Carriage normally stipulates a “Free Time” for exports to present the container to the Terminal before it’s shut out period, or for importers to return the emptied container to the appointed container depot before the “Last Day” period.
What is the significance of Detention and Demurrage
Ultimately, one of the purpose of the levy of Detention and Demurrage is to protect the interest of the VOCCs so they can quickly circulate their container for other uses. Another primary reason for these charges is to facilitate the efficiency of Port Terminal Operators and all other parties related to the supply chain. Recent Federation of Maritime Commission’s report has rightfully concluded that Detention and Demurrage plays a big role in ensuring the smooth operation of the supply chain engine. But the perceived increasing charges is also addressed at length on the Federal Maritime Commission report.
A few factors has caused the freight forwarders, shippers and consignees to feel victimized by the perceived increasing charges of Detention and Demurrage by liners over the years to name a few, the five day work week of VOCCs’ documentation office vis-a-vis a 24/7 operating port terminal, the misinformation and documentation errors, the complicated matrices of “Free Time” which is too lengthy to be explored in this article and the many involving parties that play a role of delivering goods to and from traders.
Logistics Landscape of Malaysia
In August 2008, Malaysia Container Depot Association has announced the charge of RM 5.00 per container to the hauliers, which is then passed on to the local traders. Now, upon the writing of this article, the Depot Gate Charges has increased to RM 30.00, equivalent to an annual compounded increase of 25%. Depot operators are hired by VOCCs to monitor incoming containers and stage the containers to the request of the VOCCs, traders would conjecture that VOCCs has passed on the cost of monitoring it’s equipment to the traders. This, compounded by the fact that the tariff for Detention, Demurrage by VOCCs are ever increasing year on year has created a strong conception among the trader and it’s logistics solution provider that Malaysia’s cost of transportation is ever increasing.
The Edge reported in this article said that Economic Planning Unit Malaysia set a condition that a dedicated berth would require the container liner to own a stake in the berth, much like Maersk Line holding a substantial stake in Tanjung Pelepas, Johor. Therefore, it is not a big leap to conclude that this stance Malaysia has taken has given MTOs more leverage and dominance in setting the operational costs to pass over to the local SME logistic service providers and finally the local traders.
How does Malaysia Measure up in terms of standards compared to other neighboring nations
The Gulf Cooperation Council’s container depot development has been bright in light of recent announcement of COSCO Shipping Line developing the large container freight stations. Singapore has an estimated Container Depot Operator of 61 active container depots. Malaysia on the other hand only has 45 active container depots. Granted that there many factors that may attribute to the low numbers of container depot operators in Malaysia, but when looking into the high cost of Detention and Demurrage as well as container depot gate charges. One way forward to increase Malaysia’s competitiveness and efficiency as a trading hub is to increase the amount of container depot operator. This will spur competition among depot operator and spread the inland container road movement to a wider network of roads to reduce container congestion.
The Way Forward
Container Depot Operator, Maritime Terminal Operators, Port Authorities all share the responsibility of taking Malaysia to the next level in terms of trade. VOCCs are largely in the dominant position in logistics and have the upper hand in determining the tariffs applicable. It is up to Malaysia to up the ante and improve locally in order to stage itself in a better bargaining position to stop VOCCs from increasing it’s Detention and Demurrage charges.