Demurrage

Demurrage is the charge that falls due when a ship is held up in port longer than the time allowed for loading or unloading its cargo. HMRC's own internal guidance defines it as 'the charge made by a transport operator for the detention in a port of ships, railway wagons, vehicles, containers and pallets used in the provision of a transport service when the customer delays unloading the freight beyond a specified time.' Although that definition is written for VAT purposes, it captures the commercial substance recognised throughout shipping law: demurrage compensates the shipowner for the ship being tied up earning nothing while the charterer is still working the cargo.

The charge is calculated by reference to the laytime period agreed in the charterparty — the number of days allowed for loading or discharging — with demurrage running for each day (or part-day) beyond that period. HMRC's guidance confirms that the charge 'is typically calculated daily for each day exceeding the stipulated period,' consistent with the way demurrage rates are fixed as a daily figure in the charterparty itself. Demurrage is also recognised as a genuine cost of importing goods: HMRC's guidance on import VAT lists demurrage among the 'incidental expenses' — alongside quay rent, entry fees, handling and storage costs — that must be included in the value of goods for import VAT purposes.

Because demurrage is treated in English law as liquidated damages for breach of the charterer's obligation to complete loading or discharge within laytime, the charterer's liability to pay it does not depend on proof of the shipowner's actual loss — the agreed daily rate applies automatically once laytime has expired, which is what makes demurrage clauses so commercially important in charterparty drafting and dispute practice.