Example : TATA Motors India is importing radial tires for their automotive operations from a Chinese Supplier, Qi Ling Suppliers ( QLS). The PO terms will be discussed along with the freight charges and the place of delivery. INCOTERMS would play a major part in this transaction as the Indian purchasers and the Chinese sales guys have never interfaced in-person with each other and the cultural differences make it increasingly harder for the two parties to come on the same page, its the world's best hagglers vs the world's best hard-play vendors :). So everything has to be mentioned in the PO, black and white.
The consignment will be shipped from Shenzhen port after the payment terms are realised as per the Letter of Credit. Container Ships presently use the easily chokable Malacca Strait to travel to the West. The Chinese are frantically working towards the Silk Road route which passes through mainland POJ& K and are parallelly working toward a Polar Silk Route which connects Northern Norway to China via Russia, this searoute becomes accessible due to rising waters because of global warming.
Back to the core topic, the containers for TATA Motors will be unloaded at Nhava Sheva port near Mumbai. The container will be transported to a custom nominated container yard. The Consignee gets a normal free time of 5 days to complete the customs formalities. Thereafter, the consignee has to pay a detention charge per day for the container. The detention charge would be like a parking fee for the consignee. Detention charges are levied in USD (global currency) and not in the local currency INR. The rationale behind the USD pricing is that : a partIcular container traverses across the world and its not possible to measure its waiting time money downtime in any local currency.
Demurrage, on the other hand, is the charge levied by the container yard for the space occupied by the container. Also known as ground rent, demurrage is calculated in the local currency since the space occupied by the container is in a local land with fixed lease prices. Shipping companies offers 3 free days, thereafter they charge 50 INR per day with the last slab after 30 days priced at INR 255 per day per container.
Detention and demurrage are two seperate terms which was mostly used interchangebly by the wider non-core supply chain professionals. Demurrage is a very insignificant cost to the
consignee as compared to detention charges.
Detention & Demurrage charges can be entered in the MIRO as unplanned delivery cost at the header level. The system will either distribute the cost among the invoice items or carry the cost to the UPF account depending on the system settings.
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