demurrage

This article is largely based on an article in the out-of-copyright 11th edition of the Encyclopædia Britannica, which was produced in 1911. It should be brought up to date to reflect subsequent history or scholarship (including the references, if any). When you have completed the review, replace this notice with a simple note on this article's talk page. Thanks! (January 2011)

The term demurrage originated in vessel chartering (notably voyage chartering) and refers to the period when the charterer remains 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 charterer pays to the shipowner for its extra use of the vessel.^[1] Officially, demurrage is a form of liquidated damages for breaching the laytime set out in the governing contract (the charter party). The demurrage sometimes causes a loss to the seller as it increases cost of the total freight.^[2]

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.

After the laytime has expired, and the vessel is on demurrage, no exceptions or interruptions to laytime are relevant, even during force-majure events such as strikes, etc. This is based on the principle that if the charterer had completed loading or discharging within the agreed laytime, the vessel would have left the port before the force-majure event could intervene; hence the thumb rule once on demurrage, always on demurrage.

The term demurrage has been extended to use in the hire or rental of assets other than ships.

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 allolate demurrage (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.^[3]

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.^[4]

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 (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 utilization 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.

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. Furthermore, demurrage acts like inflation, stimulating the circulation of the currency, encouraging economic activity, and increasing employment.

Gas cylinders

The rental fee for a gas cylinder assessed by the vendor until the tank is returned.

References

Attribution

 This article incorporates text from a publication now in the public domain: Chisholm, Hugh, ed. (1911). "Demurrage". Encyclopædia Britannica (11th ed.). Cambridge University Press. 

External links

Look up demurrage in Wiktionary, the free dictionary.

• Laytime-Calculation.com (Shipping)
• Variety of demurrage information & strategies
• Haugen Consulting LLC What is demurrage?
• Transaction Net A "Green" Convertible Currency, Bernard A. Lietaer