International trade propels the world economy in that it interlinks economies of different markets, industries, and consumers. Behind each successful import or export transaction lies a somewhat complex system of customs regulations and compliance procedures. The most common-not to mention expensive-problem any importer faces is detention by customs, which may incur considerable demurrage charges, operational delays, and even confiscation risks.
More days that the shipment stays in port storage mean increased expenses and reduced profitability, translating to delayed timelines. What begins as an administrative check rapidly begins to become a financial complication if not sorted out on time. It is in this respect that detention and confiscation, or how demurrage charges in customs work, become of great importance for the importers to understand.
In this paper, the focus has been on demurrage, detention, and confiscation, explaining what detention in shipping is, demurrage charges from importers, how to manage the costs and avoid supply chain delays.
Demurrage, Detention and Confiscation - Defined
Before discussing the financial implications, it is important to define some terms: demurrage, detention, and confiscation.
- Demurrage is one type of charge that a shipping line or port authority can levy in instances where containers or cargo are held beyond the permitted free time.
- Detention: Temporary detention by customs with a view to confirmation or verification of requirements for compliance. Goods, until such time as the resolution occurs, remain the property of the importer.
- Confiscation: This is when customs permanently seize the goods on account of a violation comprising misdeclaration, illegal importation, or failure to comply with the applicable requirements. Ownership of goods is transferred to the government.
Hence, the definition of Demurrage, Detention, and Confiscation can be stated as: Demurrage is a commercial charge due to delays, detention is purely a procedural hold, while confiscation is a legal penalty.
Demurrage Charges: The Concept
Demurrage charges are the most common cost elements arising from delays in customs clearance. The shipping lines and port operators charge demurrage charges per day on uncleared goods lying in a port or container yard beyond the stipulated free days, ranging between 3 to 7 days.
These are fixed charges relating to the type of container, whether 20ft or 40ft, duration, and the tariff policy at a port. These detentions drag on in customs for weeks, with very, very high demurrage charges at times amounting to the value of the goods.
Demurrage Charges: Why They Occur in Customs
In customs, there are charges known as demurrage charges if the cargo or containers remain detained for more time than the permitted free time. Even in cases when the importer is not at fault for the delay but due to some procedural requirement by customs, he shall be charged for the demurrage charges.
Following are some of the common customs scenarios that attract demurrage charges:
- The customs examination or assessment takes longer than anticipated.
- Waiting for laboratory test reports
- Exemption from SVB - Special Valuation Branch
- Licenses or certificates for imports not available.
- Anything that might be an inconsistency with the documentation or valuation questionnaires
The customs charges are inevitable to the importers, given that proper management and early interventions are not effected.
Example:
- Importer imports one 20 ft food-grade raw material container.
- Customs sends samples to be lab tested; this will take longer than usual.
- The free 3-day period expires while one is awaiting the report.
- The container stays in the port for an extra 6 days simply because the lab report is late.
- Customs gives OOC only on receipt of the test report.
- The importer is obliged to pay demurrage even if the delay was due to the customs procedure and not his fault.
The Concept of Detention Charges
The shipping line will charge for detention when the empty container is kept beyond the allowed free time outside the port. Once the container leaves the terminal for unloading or delivery, the shipping line would expect it to be returned within a set period of time. If the importer delays sending back an empty container, detention charges begin to accrue per day.
These charges compensate the shipping line for losing the availability of its container to carry the next shipment. Delays occur either because of slow unloading, congestion in a warehouse, or any other factor impeding transport, or due to internal logistic problems of the importer. Similar to the concept of demurrage applied at the port, detention charges raise the import cost considerably if not efficiently managed.
Understanding Detention of Goods by Customs
Upon arrival at the customs port, imports are checked and verified if they comply with all the regulations concerned with imports. Customs detain goods in case of a discrepancy, when further documentation is needed, or if an infringement is suspected.
Detention in shipment simply means retaining the goods by customs until such time as the issue is resolved. The detention here implies that customs are not confiscating or seizing it, but delaying the clearance. The importer cannot take delivery or move the goods from the port until it is cleared.
Example:
- Consignment of mobile accessories imported by ABC Electronics Pvt. Ltd. arrives at Mumbai Port.
- While inspecting the same, customs officers notice a discrepancy in the declared HSN code on the invoice.
- The consignment is held up, and none of the goods are delivered or moved until clarification regarding the issue is sought.
- Customs requests additional documents in support of the classification and duties applied.
- The shipment shall be released for delivery when the importer has submitted documents as requested and customs verifies compliance.
Detention in Shipping: How It Affects the Supply Chain
Detention in shipping can have ripples along an entire logistics operation. For instance, while a shipment is in detention, importers cannot access goods for distribution, manufacturing, or sale.
Detention in shipping not only blocks working capital but also delays further shipments and warehousing operations, hence affecting the delivery schedules. The cost implication starts with each extra day of detention due to demurrage charges in customs and storage costs.
Detention in shipping will also affect the reputation of a firm and its relationship with clients, most especially for those firms dealing with just-in-time inventory systems.
The Concept of Confiscation of Goods
Confiscation means the seizure of imported goods by Customs authorities due to failure to comply with Customs regulations. It usually occurs when prohibited and/or restricted goods are found among importations, or in incomplete or incorrect documents, or for some other requirement concerning compliance that has not been fulfilled. Confiscation is a serious measure that keeps the integrity, safety, and security of the trade of any country intact.
Why Confiscation of Goods Occurs in Customs
Seizure of goods by Customs can be on account of several reasons, including:
- Importation of prohibited or restricted items without the required permission or license.
- Mis-declaration or falsification of the nature, quantity, or value of goods.
- Imports do not conform to regulations on labeling and quality and safety standards.
- Non-payment of duties and taxes within the specified time limit.
It thus provides for the confiscation acts against the non-compliance and malpractices in trade, deterring effects that ensure importers follow the law.
Example: Sealing and Confiscation due to Non-Compliance
Importer: Global Gadgets Pvt. Ltd.
Cargo: 10 cartons of electronic gadgets
Problem: Shipment contained items whose imports are restricted without a valid license.
Scenario:
1. The container reaches the port and goes for customs clearance.
2. Physical detection of restricted electronic components by customs officers that require prior approval as per Import Policy
3. License not produced by importer at the time of inspection.
4. Customs seals the container and issues a notice of confiscation declaring that the non-complying goods shall be seized.
5. The importer shall be fined, and the seized goods shall be auctioned or destroyed in accordance with the provisions contained in the regulations.
The result would be confiscation on the ground of violation of import regulations, although the rest of the cargo might be well within compliance. Proper documentation, licenses, and compliance with Customs and its regulations thus come into play.
Demurrage, Detention, and Confiscation of Goods: Who Bears the Cost?
Demurrage and detention charges are normally payable by the importer. In cases where the delay is due to internal processing or Customs examination beyond the control of the shipping line, the latter may impose demurrage charges in accordance with their tariffs. Charges may also multiply when importers fail to present essential documents in time, or raise valuation disputes, or when goods are detained to check for compliance issues. In order to avoid such additional charges, an importer has to coordinate well with Customs brokers and clearing agents.
The cost and consequences of the confiscation of goods are normally borne by the importer. As a rule, the importer bears the cost and consequences of the confiscation of goods. In other words, if there is a seizure of shipment due to non-compliance or violation of regulations related to import, it will be the responsibility of the importer for all penalties or fines imposed by Customs against such shipment. Repeated or serious violations can also invite legal action or restrictions on future imports; hence, strict adherence to the regulations becomes a key consideration for the importers.
How to Avoid Demurrage, Detention, and Confiscation of Goods in Customs
Importers may also incur further charges due to shipment delay, non-compliance, and incorrect documentation. The following steps will proactively help reduce the risk of demurrage, detention, and confiscation:
- Proper and timely filing: Bills of Entry, invoices, and packing lists are to be completed correctly.
- Engage experienced customs brokers: Retain the services of professional customs brokers to pre-clear and avoid any compliance issues.
- Shipment and free period monitoring: This means monitoring the container movement and customs free time in order to avoid demurrage charges.
- Request extensions or waivers as and when required: File an extension in case of genuine delays to reduce potential charges.
- Early communication with Customs: Present any valuation, classification, or examination issues for early resolution prior to shipment arrival.
- Ensure full documentation: Complete documentation means all permits, certificates, and licenses are within their validity period and available.
- Import regulations: Knowing what cannot be imported, or is restricted; understanding the labelling and safety regulations.
- Pay duties and taxes promptly: Payment of duties and taxes should be made within the time stipulated to avoid detention or any other penalties.
Thus, if these measures are followed, the chances of incurring extra costs would be reduced, and the importers will be able to clear the shipments without much problem.
Case Scenario: Sequential Effect on Import Consignment
It would involve various steps, right from the time cargo lands at an Indian port, before the consignment is actually cleared. While free storage time allows for efficient processing, defective documentation, Customs inspection, and non-compliance with various requirements or regulations can invite demurrage charges, detention, sealing, or even confiscation. Below is a chart showing sequential steps and their consequences.
|
Stage / Timeline |
Description |
|
Day 0 |
Arrival of Consignment at Port |
|
Day 1 to 3-7 |
Free Time Allowed for Storage and Clearance |
|
After free period ends |
Exceeding Free Time- Demurrage Charges |
|
Any time after arrival if discrepancies found |
Customs Detention- Detention Charges |
|
After repeated non-Compliance or serious violation |
Sealing and Confiscation of Goods -Increased Costs and total Loss |
Demurrage, Detention, and Confiscation: Their Financial and Legal Implications
Most importers underestimate the costs of demurrage, detention, and confiscation. However, delayed cargo or Customs non-compliant cargo has further financial losses, possible legal penalties, and disrupts one's operations. The financial implications call for an understanding of such ramifications for effective supply chain management.
Demurrage Charges
Demurrage: This is the fee charged by shipping lines when the container has exceeded the free period at the port. The costs include:
- Container storage and ground rents
- Interest on late payment
- Operational delays or spoilage
Demurrage legally falls under the Indian Ports Act of 1908 and the Merchant Shipping Act of 1958, which allow for recovery charges on account of the prolonged use by the shipping lines. The financial burden would be less if the clearances were effected in time.
Detention in Customs
Detention: This is when the goods are retained by Customs pending inspection or for failure to comply. Other costs include:
- Storage charges at Customs warehouses
- Interest on belated duties and taxes
- Customs Act, 1962: Penalties under Sections 112 & 113 Risk losses include:
- Losses of perishable items
Confiscation Proceedings
Confiscation means that in case of violations for misdeclaration or importation of prohibited items, the goods are seized. The financial implication is the total loss of goods plus fines. Relevant statutory provisions:
- Section 111, Customs Act, 1962 – Confiscation for contravention
- Section 112 - Penalty for improper importation
- Section 113 - Penalty for violation of rules
Preventative compliance is the best means of avoiding confiscation and all its dire financial and legal consequences.
How SKMC Global Can Help
SKMC Global takes pride in making such intricate customs procedures easy and helps the importers avoid financial losses. It offers end-to-end services in detention of goods by customs, investigations by SVB, disputes relating to valuation, and document review. We help our valued clients in the following areas:
1. Pre-import documentation review: This is a critical review of all import documentation for accuracy and completeness, acting to prevent detention.
2. Representation before customs authorities: We liaise with the officials for expedited release.
3. Demurrage mitigation strategies: Assist with waiver applications or negotiations with shipping lines for the reduction of demurrage charges.
4. Provide SVB and valuation assistance: Professionally handle Special Valuation Branch queries to avoid further detentions.
5. Compliance audit support: Preventive checks on import data and classification for smooth clearance.
With years of experience, SKMC Global has efficiently supported importers through the intricacies of demurrage charges in customs and detention in shipping via their customs advisory services, therefore saving them both time and costs.
Conclusion
Every importer has to make a differentiation among detention, demurrage, and confiscation. From the definition of confiscation, detention, and demurrage, we understand that detention is procedural, demurrage is financial, and confiscation is penal. Complete avoidance of demurrage charges on importers and demurrage charges in customs may not be possible; at least they can be minimized by timely action, correct documentation, and professional guidance.
Be it cargo stuck in detention during shipment or being made to bear exorbitant charges for demurrage, do not let that be a problem that keeps on growing. Approach SKMC Global for help-a trusted customs consultancy partner for smooth and timely clearances at reduced costs, conforming to Indian customs. By working together with an expert, importers can avoid this trap, stay within the law, and protect their business interests from detention or penalties.