Have you wondered what a demurrage & detention rate is in the trucking industry? Here we will be diving in to learn more about just that. Every industry has common terms they use that may puzzle newcomers and the trucking industry is no different in that regard. Stick with us and we will break the concept of detention fees and how they differ from demurrage fees in trucking and affect your freight costs.
A trucking company’s detention rate is not a random number picked from a hat. Outside of parking, detention is one of the biggest complaints within the trucking industry. Most shippers and receivers have a 2-hour window to load/unload a truck. Any time spent outside of the allotted two hours is detention. The detention is used to offset the cost of a truck being detained at a shipper or receiver. If you are working through a broker, detention rates have typically already been negotiated with their shippers and receivers. If this is the case, you will not need to figure out your detention rate. However, if you are not using a broker, your detention rate may be good information to know. To get started you need to know your operating cost to better evaluate what you need to charge for any days of detention or accessorial charges while waiting on your truckload. In your negotiation of rate you will need to do your homework and know what is expected or included in their terms as well. This could consist of a grace period, storage charges, free time or number of free days. There may also be different policies on an empty container vs a full container.
One term that you may often hear in association to detention charges is demurrage charges which may also be referred to as per diem charges. Some people may even confuse the two thinking that they are the same thing. Demurrage is actually a charge in respect to a long-distance freight shipping where import containers or ocean freight is coming into container yards in the United States instead of drayage which is a shipping container being moved locally or over short distances. In addition to import shipments, this can also occur with export containers as well as going outside of the United States.
The Hours of Service allow truckers 14 hours of work time each day. 11 of those hours for driving. Excess time spent at a shipper or receiver cuts into a driver’s profits. Consequences for extended detention can include missing an unloading time or needing to pass on another load due to a missed pickup time. These scenarios damage a truck driver’s reputation and cost the truck driver money.
Carriers often have a detention rate to counterbalance some of the income lost during detention. “Detention rate” is the fee carriers charge for their detention time. Rates can range from $25-100 an hour. This fee does not fully make up the cost of the driver’s stationary truck and lost time, but it softens the blow. For shippers, detention rates are unexpected costs and cut their profits.
Your detention rate is an important number to take a look at and negotiate to make sure that you are financially covered in these downtimes. To know your detention rate, you first need to know your operating cost. If you are a trucker and would like to learn more on the operating cost there is a great article here to help you with just that. Your operating cost covers every expense required to run your company: fuel, maintenance, tires, permits, and salaries all contribute to this cost. To move forward from this and figure out what your detention rate should be from your operating cost would be to break it down further and find out what your operating cost is per hour. From here you will have a much better idea of what a detention time is costing your business to know what to negotiate for a fee during that time.
What is Your Average Cost Per Hour?
John Doe’s trucks drive mostly on the highways and most of those roads have a speed limit of 60 mph. To determine how much money it costs to run a truck for 1 hour at 60 mph, John needs to multiply his cost-per-mile by the speed limit.
If John’s trucks are not moving, he is not making money. As determined above, it costs John on average $75.54 an hour to run his trucks. To cover the cost of an idle truck, John decides to charge a $75.54/hour detention rate when his truck is held longer than two hours at a shipper or receiver.
NOTE: Negotiating detention with a broker or shipper needs to happen while you are negotiating your freight rate. In addition, make sure to get the final, negotiated amount in writing, or you run the risk of not getting paid.
Stay on top of your monthly expenses. Know when your costs change and update your operating cost accordingly. Your operating cost helps you determine your detention rate.
Everyone loses money when a truck driver is detained. With ELDs measuring the Hours of Service more closely, eyes are turning to shippers and receivers to fix the problem. If they do not, freight and detention rates will continue to rise to compensate for the truck driver’s lost income.
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