Tag Archives: shipping delays

‘Insult to injury’: Record rail demurrage adds to shipper costs

This article spells out some of the issues in demurrage charges rail lines are charging for cargoes that are not being removed from their premises.

Demurrage is charged, say the rail lines, when cargo is left at a rail terminal beyond a specified number of days. Charges vary by railroad. The chart they provide, reproduced below from Supply Chain Dive, shows how the seven Class I rails charge demurrage rates.

How individual railroads charge for demurrage varies
RailroadRange of daily demurrage fees
BNSF$150 to $500, depending on container dwell time and facility
CN$100 to $450, depending on container dwell time and facility
CP$75 to $350, depending on container dwell time, facility and who owns the equipment
CSX$100 to $500, depending on container dwell time, facility and whether the equipment is for domestic or international use
KCS$100 per day after free time expires, in all cases
NS$100 to $300, depending on container dwell time and facility
UP$100 to $225, depending on container dwell time, facility and whether the equipment is for domestic or international use

SOURCE: Letters in response to the STB, as linked. Union Pacific did not disclose its specific fees in the letter, but its rates are available online.

Shippers complain that sometimes the demurrage is due to the fact that rail lines have canceled trains that they previously were running. The shift by all of the Class I rails to some form of Precision Scheduled Railroading (PSR), a system of lean operations in which only the movements required are made, is responsible. If a shipper delivers a cargo, but then the train is canceled, who is to blame?

And it’s understood that regardless of what they say, all of these rail lines have adjusted capacity in line with the principles of PSR, even if they won’t call it that. But setting capacity based on experience is not easy when we are experiencing not only a surge in customers, but also many abnormal conditions throughout supply chains that disrupt the standard patterns. Decisions about PSR, such as reducing the number of locomotives or yard staff or engineers, are based on forecasts, and forecasts are always wrong; so it’s a question of whether the rails have left enough slack in the system to handle the variation in the rest of the system. The answer appears not.

One particularly vexing problem with the current system is being addressed by the Surface Transportation Board (STB) which governs rail operation in the US. In the past, demurrage was viewed as something infrequent that did not matter much, and railroads did not develop systems to capture and bill for it in a regularized way. But now, it’s essential that the accounting for it be accurate and transparent, and that bills be sent in a way that shippers can handle digitally and determine the facts from their side about each incident. More accurate and standardized billing is key. That’s what the STB wants to achieve by regulating the nature of demurrage charges by rails.

Already in place at the end of 2020 are new rules requiring bills to be sent to shippers rather than intermediaries, and

“provide machine-readable access to minimum information on billing, including details on the billing cycle covered by the invoice, the car involved, the commodity being shipped, and railroads’ original estimated time of arrival for the cargo in question”

Supply Chain Dive, ‘Insult to injury’: Record rail demurrage adds to shipper costs | Supply Chain Dive, Jan 12, 2020.

As expected, some rails complain this will lead to more litigation and questioning. Of course! But in fact no one wants the delays that cause demurrage, and it’s in everyone’s interest to understand exactly what happened to cause the problem. The new billing standard will clarify a lot, and get into shippers’ hands so they can do something about the problem.

I think it is a big step forward in the rail arena. I wish it were as clear in ocean shipping, in the port and terminal arena.

Published Jan. 12, 2022

Sarah Zimmerman Associate Editor

Edwin Lopez Lead Editor

‘Insult to injury’: Record rail demurrage adds to shipper costs | Supply Chain Dive

New teu waiting days indicator highlights the severity of global container congestion

Kuehne + Nagel has developed a new measure of container congestion. Its digital platform seaexplorer now features the Global Disruption Index.

The index seems to total the cumulative TEU waiting time in days, based on container ship capacity in certain disrupted hot spots. Many US ports are included in the index. some Chinese and Korean ports and European ports are also included.

The graph below is an example of the information available. It clearly shows the rise in the index from 1- December to 19-January. North American ports are also clearly the largest contributors; however it is not clear from the article whether more ports from the US and North America are included in the analysis. The patterns are clearly similar.

Source: Graph from seaexplorer via Daily Splash article.

Now quite a few marine reporting services have developed congestion measures.

Is there a best one? I have not seen a study comparing the indices as to accuracy or the ability to provide insight.

For instance this Bloomberg article talks about another one, from RBC Capital Markets.

And this article from the Washington Post gives a good picture of the problems in the US.

Splash247 has also reported on the index created by the New York Federal Reserve here.

But the congestion cannot be denied. How to measure it and how to fix it are the questions to answer, for we get what we measure.

Sam Chambers January 20, 2022

New teu waiting days indicator highlights the severity of global container congestion – Splash247

Nordstrom leverages pack and hold inventory to mitigate supply chain risk

Nordstrom and a number of other retailers are starting to keep more inventory, by buying larger lots and holding some. The fact that retailers are publicizing this means that they are starting to recognize that inventory shortage is a substantial issue. With sources of supply bottlenecked, stuff can’t be moved to the US as quickly.

Does it make sense to place larger orders earlier? Devotees of the bullwhip effect will say that’s counterproductive. Perhaps, in the long run with perfect coordination with suppliers. But when you have near-disaster conditions in the supply chain for, say, clothing manufactured in Vietnam, and ocean carriers blanking just about every other sailing, you need to take some action. That may mean committing to larger purchases and saving some of it against future demand rather than trying to sell it all at once.

We’ll see if the policy works, and how quickly it damps out. Especially if the ocean supply chain begins to normalize. Inventory is expensive, and the expense is both highly visible and easily tracked, unlike the lost business due to shortages on the floor.

Published Dec. 7, 2021 Max Garland

Nordstrom leverages pack and hold inventory to mitigate supply chain risk | Supply Chain Dive