Per Diem
Per Diem in Shipping Operations
Effective cost management is critical for maintaining profitability and ensuring smooth logistics workflows in shipping operations. One often-overlooked expense is the per diem fee, which can significantly impact operational budgets if not properly managed. Understanding per diem, its implications, and how to address it effectively is essential for shippers, freight forwarders, and carriers.
What is Per Diem?
In the context of shipping and logistics, per diem refers to daily charges incurred for using shipping containers beyond the allotted free time. These charges can apply to both demurrage (charges for containers staying at the port) and detention (charges for containers kept outside the port). The term "per diem" is Latin for "per day," reflecting the daily rate applied for these fees.
In 2021, the Port of Los Angeles experienced significant congestion due to a surge in imports. Containers were stuck for weeks, leading to skyrocketing demurrage and detention fees. Companies like Home Depot and Walmart had to charter private vessels to avoid delays and additional costs. This scenario highlights how congestion can lead to excessive per diem charges.
Common Causes of Per Diem Charges
- Port Congestion: Delays at ports can extend the time it takes to retrieve or return containers.
- Inefficient Unloading Processes: Warehouses that lack adequate staffing or equipment may take longer to offload cargo.
- Poor Drayage Coordination: Missed communication between shippers, truckers, and terminals can lead to unnecessary delays.
- Documentation Errors: Mistakes in paperwork can slow down customs clearance or release of containers.
Importance of Per Diem
Per Diem charges are important for several reasons:
1. Cost Control
Per diem charges can quickly escalate if containers are not returned on time. This can result from delays at ports, bottlenecks in drayage operations, or inefficiencies in unloading processes. For businesses operating on tight margins, these fees represent an avoidable cost that eats into profitability.
2. Operational Discipline
Per diem fees encourage shippers and consignees to adhere to strict schedules. By enforcing timelines, carriers encourage better planning and coordination among supply chain partners.
3. Equipment Availability
Timely return of containers ensures that carriers have sufficient equipment to meet the demands of other customers. When containers are delayed, it creates a ripple effect, impacting the availability of resources across the supply chain.
4. Market Competitiveness
Businesses that manage per diem costs effectively are better positioned to offer competitive pricing to their customers. Avoiding these charges can improve overall cost efficiency, allowing companies to reinvest savings into other operational improvements.
Operational Impact of Per Diem
Understanding and managing Per Diem charges is crucial for maintaining the cost-effectiveness and efficiency of shipping operations. It ensures that containers are returned or moved promptly, reducing additional costs and improving overall logistics performance.
The Broader Impact of Per Diem Fees
While per diem charges directly cost shippers, they also have broader implications for the supply chain. When containers are not returned on time, carriers and leasing companies face disruptions that can affect global shipping schedules. These delays often translate to higher costs for everyone involved, including the end consumer.
By effectively managing per diem fees, businesses contribute to a more efficient and reliable supply chain. This not only benefits their bottom line but also fosters better relationships with carriers and logistics partners.
Why is Per Diem Important to Operators and Logistics Coordinators?
- Financial Management: Helps in controlling and reducing additional costs associated with prolonged container use.
- Efficiency: Promotes efficient use and turnaround of containers, avoiding bottlenecks in the supply chain.
- Planning: Assists in better planning and scheduling of container movements to avoid unnecessary charges.
Comparison with Related Terms
Term | Definition | Context |
Demurrage | Charges for containers that remain at the port beyond the allowed free time. | Per Diem charges include demurrage fees. |
Detention | Charges for the extended use of containers outside the port or terminal. | Per Diem charges include detention fees. |
Storage Fees | General charges for storing containers at a terminal or warehouse. | Per Diem charges can be part of overall storage fees. |
How to Manage Per Diem
Effective management of Per Diem charges involves:
1. Leverage Technology for Visibility
Real-time tracking tools provide shippers with accurate visibility via updates on container status, helping them plan operations around container availability and deadlines. Platforms like Terminal49, for instance, offer automated tracking of container discharge times and free days, allowing proactive planning.
2. Streamline Drayage Operations
Coordinating with reliable trucking partners and ensuring efficient scheduling in dryage operations can minimize the time containers spend in transit or waiting for pickup.
3. Optimize Warehouse Processes
Ensuring that warehouses are adequately prepared to handle incoming shipments can reduce unloading delays and expedite the return of containers.
4. Negotiate Shipping Line Charges
Some shipping lines or carriers may offer extended free time as part of negotiated contracts. Businesses with higher shipping volumes may have more leverage in these negotiations.
5. Monitor and Audit Charges
Regularly reviewing invoices for accuracy can help identify discrepancies or opportunities to challenge unwarranted fees.
6. Plan Efficiently and Review Contracts
Schedule container movements and returns in advance to avoid exceeding free time. Understand the terms of free time and Per Diem charges in your carrier contracts.
Terminal49 Solutions for Managing Per Diem
Terminal49 provides advanced solutions to manage Per Diem charges effectively:
- Real-Time Tracking: Offers visibility into container usage and free time periods to avoid Per Diem fees.
- Automated Notifications: Sends alerts about approaching free time limits, helping you take timely action.
- Centralized Dashboard: Consolidates all shipment data into one platform for efficient management and oversight.
By leveraging Terminal49’s solutions, shippers can effectively manage Per Diem charges, reducing unnecessary costs and enhancing operational efficiency. Schedule a demo with Terminal49 to explore how our solutions can help optimize your shipping operations.