What is demurrage?

Demurrage is the daily sum a charterer pays an owner when a vessel is detained for loading or discharging beyond the laytime allowed in the charter party. It is liquidated damages for delay, fixed in advance as a rate per day, and it accrues only once the agreed free time has been fully used.

Demurrage sits at the centre of voyage-charter economics. In a voyage charter the owner quotes a freight rate that prices the voyage on the assumption that the cargo will be worked within an agreed window of free time, the laytime. If the charterer’s terminal, agent or receiver holds the ship longer than that window, the owner loses earning days that the freight did not pay for, so the charter party converts that lost time into a fixed daily charge: demurrage. Because the figure is agreed in advance, demurrage is liquidated damages, not a claim for actual loss. The owner does not have to prove what the delay cost; the charterer simply pays the agreed rate for the overrun. That is the single feature that separates demurrage from detention, which is damages at large for delay outside the charter-party machinery.

The demurrage rate is almost always quoted in US dollars per day and is part of the headline fixture terms negotiated alongside freight, laycan and the loading and discharge rate. On a dry-bulk fixture it is benchmarked to the vessel’s daily time-charter equivalent (TCE), so that a day on demurrage roughly compensates the owner for the day’s lost earning capacity.

How demurrage is calculated

Demurrage is computed off the laytime statement, the document that reconciles the time allowed against the time actually used at each port. The core formula is:

demurrage amount = (time used minus allowed laytime) x daily demurrage rate

The variables are:

allowed laytime: the free time granted by the charter party, derived from the cargo quantity divided by the agreed loading and discharge rate, expressed in days and hours. It can be a fixed period or a rate-based calculation.
time used: the laytime actually consumed, counted from the moment laytime commences (a valid notice of readiness plus any turn time has expired) until completion of cargo operations, with permitted interruptions and exceptions deducted.
time on demurrage: the positive difference between time used and allowed laytime. If the figure is negative the ship is on dispatch, not demurrage.
daily demurrage rate: the agreed USD per day figure, applied pro rata to the hour or minute for partial days.

The mechanics in a single overrun statement look like this:

Laytime item	Value	Notes
Allowed laytime	4 days 00 hrs 00 min	70,000 mt at 17,500 mt per day, both ends
Time used	5 days 14 hrs 24 min	From NOR + turn time to completion, exceptions deducted
Time on demurrage	1 day 14 hrs 24 min	Time used less allowed laytime
Demurrage rate	USD 24,000 per day	Pro rata for part of a day
Demurrage amount	USD 38,400	1.6 days x USD 24,000

The 1 day 14 hours 24 minutes of overrun is expressed as a decimal (1.6 days) and multiplied by the daily rate to give the demurrage payable. Most charter parties make demurrage payable per day “and pro rata for part of a day”, so the overrun is always carried to the hour or minute rather than rounded up to a whole day.

Demurrage vs dispatch vs detention

These three terms describe what happens to the time clock around laytime, but they are commercially and legally distinct. Demurrage and dispatch are the two sides of the laytime bargain, both fixed in the charter party. Detention is what arises when the charter-party machinery runs out and the owner falls back on a claim for actual loss.

	Demurrage	Dispatch	Detention
What triggers it	Time used exceeds allowed laytime	Cargo completed before laytime is used up	Delay outside the laytime regime, e.g. ship held after laytime and demurrage have run or laytime never started
Who pays	Charterer pays owner	Owner pays charterer	Party at fault, usually charterer, pays owner
Nature of the sum	Liquidated damages, agreed daily rate	Agreed daily rebate, usually half the demurrage rate	Unliquidated damages at large, owner proves actual loss
Set in the charter party	Yes, fixed USD per day	Yes, fixed USD per day	No, governed by general law of damages
Typical dry-bulk level	Benchmarked to daily TCE	Half of demurrage (dispatch half demurrage)	Often the demurrage rate used as evidence of loss

The practical line between demurrage and detention matters most when laytime never validly commenced (for example because the notice of readiness was invalid) or when the ship is held after both laytime and any agreed demurrage period have been exhausted. In those situations the owner’s remedy is detention, and the owner must evidence the loss rather than rely on the agreed rate, although the demurrage rate is frequently accepted as the best available measure of that loss.

How demurrage connects to the laytime regime

Demurrage is never a standalone clause. It is the consequence at the end of a chain of laytime provisions, each of which feeds the calculation. The dependency map below shows the adjacent terms and exactly how each one bears on demurrage.

Related term	How it connects to demurrage	Page
Notice of readiness	A valid NOR (plus any turn time) starts the laytime clock that demurrage is measured against. An invalid NOR can mean laytime never commenced, pushing any delay claim into detention rather than demurrage.	Notice of readiness
Laytime	Demurrage accrues only after the laytime allowance is fully consumed. Laytime is the free time; demurrage is the priced time beyond it.	Laytime
Dispatch	The mirror image of demurrage: money the owner pays back to the charterer when cargo is completed before laytime is used up. Usually set at half the demurrage rate.	Dispatch
Loading and discharge rate	The agreed rate sets how fast the laytime allowance is consumed, and therefore how much laytime is allowed in the first place. A slower rate means more allowed laytime and less demurrage exposure.	Loading and discharge rate
Laycan	Fixes the window in which the ship must arrive and tender NOR. A missed laycan can cancel the fixture before any laytime or demurrage question arises.	Laycan

Read top to bottom, the chain is: the ship arrives within laycan, tenders a valid notice of readiness, turn time expires, laytime begins to count at the agreed loading and discharge rate, and only when that allowance is exhausted does demurrage start to run. If the ship finishes early, dispatch is paid instead.

How a demurrage clause is worded

Demurrage clauses on dry-bulk fixtures are typically built on a GENCON-family template (BIMCO’s GENCON voyage charter form), amended in the recap. A representative clause and its component parts read as follows.

Annotated demurrage clause

“Demurrage at the loading and discharging ports is payable by the Charterers at the rate of USD 24,000 per day or pro rata for any part of a day, per running day, and shall fall due day by day, payable upon receipt of the Owners’ invoice.”

“at the loading and discharging ports”: the clause applies the same rate at both ends. Many fixtures instead specify different rates, or aggregate laytime across both ports (“laytime to count both ends together”).
“at the rate of USD 24,000 per day”: the agreed daily figure. This is the liquidated-damages rate; the owner need not prove actual loss to recover it.
“or pro rata for any part of a day”: demurrage is calculated to the hour or minute on the overrun, not rounded up to whole days.
“per running day”: once on demurrage, time runs continuously including periods that would have interrupted laytime, unless the clause expressly excepts them. This is the “once on demurrage, always on demurrage” convention in clause wording.
“shall fall due day by day, payable upon receipt of the Owners’ invoice”: demurrage accrues continuously but is invoiced and paid against the laytime statement after the event, often subject to a time bar elsewhere in the charter.

The exact wording matters because it determines whether laytime exceptions (weather, holidays, strikes) continue to apply once the ship is on demurrage, and whether demurrage runs at the load and discharge ports separately or as a single combined account.

Worked demurrage calculation

Take a Panamax loading coal on a single voyage charter. The fixture terms are representative and anonymised:

Cargo: 72,000 mt of coal
Loading rate: 20,000 mt per weather working day, Sundays and holidays excepted
Discharge rate: 18,000 mt per weather working day, Sundays and holidays excepted
Demurrage rate: USD 22,000 per day, pro rata, both ends
Dispatch: half demurrage on laytime saved at discharge

Allowed laytime at load is 72,000 ÷ 20,000 = 3.60 days. Allowed laytime at discharge is 72,000 ÷ 18,000 = 4.00 days. With laytime accounted separately at each end:

Port	Allowed laytime	Time used	Result	Amount
Load port	3.60 days	5.10 days	1.50 days on demurrage	1.50 x USD 22,000 = USD 33,000 demurrage
Discharge port	4.00 days	3.00 days	1.00 day saved	1.00 x USD 11,000 = USD 11,000 dispatch
Net			Demurrage less dispatch	USD 33,000 - USD 11,000 = USD 22,000 owed to owner

At the load port the charterer’s terminal worked the cargo more slowly than the agreed rate, using 5.10 days against an allowance of 3.60, so 1.50 days of demurrage at USD 22,000 give USD 33,000. At discharge the receiver worked faster than the agreed rate and saved a full day, earning dispatch at half the demurrage rate (USD 11,000 per day) for USD 11,000. Netted, the charterer owes the owner USD 22,000. Whether the two ends are netted like this or settled separately depends on the charter party wording; some fixtures keep load-port demurrage and discharge-port dispatch as independent accounts.

Once on demurrage, always on demurrage and other conventions

The single most consequential convention in laytime law is captured in the maxim “once on demurrage, always on demurrage”. The non-obvious rule is this: the exceptions that interrupt laytime (excluded periods such as weather, Sundays, holidays, or strikes) stop counting time against the laytime allowance, but they do not stop counting time against demurrage, unless the charter party expressly says so. The logic is that demurrage is the charterer’s own breach, so the charterer cannot rely on laytime exceptions to reduce the consequences of their own delay. To carve out exceptions once the ship is on demurrage, the clause must use clear words that expressly extend the exception to the demurrage period.

A few related conventions to keep in view:

Interruptions to laytime: while laytime is still running, excepted periods (defined in the laytime clause) are deducted from time used. The Laytime Definitions for Charter Parties 2013 (LDCP 2013, published jointly by BIMCO, the Baltic Exchange, CMI and FONASBA) standardise what phrases like “weather working day” and “Sundays and holidays excepted” mean, which is what makes the calculation reproducible across fixtures.
Continuous running on demurrage: once the ship is on demurrage, “per running day” wording means time runs around the clock, including nights, weekends and weather stoppages, subject only to express exceptions.
Demurrage time bars: charter parties commonly require the owner to present the demurrage claim, with supporting documents such as the statement of facts and laytime statement, within a fixed period after completion of discharge. In concept, missing that window can extinguish an otherwise valid claim, which is why timely document collection matters as much as the arithmetic. The principle is widely flagged in P&I club guidance from clubs such as Gard, the UK Club and North.

These conventions are matters of charter-party construction and the general law of laytime, not arithmetic, but they change the result of the arithmetic, so they are part of any competent demurrage calculation.

Managing demurrage exposure

Demurrage exposure is managed on both sides of the fixture, and the levers are commercial rather than legal.

Set the rate at or above daily TCE. From the owner’s side, the demurrage rate should at least match the vessel’s daily time-charter equivalent for the trade, benchmarked against Baltic Exchange route assessments, so that a day on demurrage compensates for the day’s lost earning capacity rather than subsidising the charterer’s slow terminal. A rate set below TCE turns delay into a discount.
Negotiate the laytime margin deliberately. From the charterer’s side, the protection against demurrage is the loading and discharge rate and any extra free time negotiated into laytime. A charterer who knows their terminal is slow should buy more allowed laytime up front rather than pay it back at the demurrage rate after the event.
Monitor statements of facts in real time. Most demurrage disputes are evidential, not legal. The statement of facts and the laytime statement, signed by the master and the agent, are the primary record. Tracking them as the cargo is worked, rather than reconstructing them weeks later, is the single biggest control on demurrage outcomes.
Mind the time bar and the NOR. A valid notice of readiness protects the start of the clock; a disciplined claim-submission process protects the end. Both are administrative, both are decisive.

For larger units the stakes scale with the rate: a Capesize on an iron ore run carries a far higher daily demurrage figure than a Panamax coal cargo, so the same number of overrun days produces a much larger bill. Desks that fix repeat trades through ship-brokering advisers model the demurrage rate against the prevailing TCE band before agreeing the fixture rather than after.

Scope and what this page does not cover

This page explains demurrage as a commercial and charter-party concept: what it is, how it is calculated, how it relates to dispatch, detention and the wider laytime regime, and how exposure is managed. It does not draft jurisdiction-specific demurrage or laytime-exception clauses, opine on the validity of a particular notice of readiness, resolve a contested statement of facts, or advise on the time bar applicable under a given law and forum. Those questions are matters for chartering counsel and the desk’s operations team, working from the actual charter party, the signed statement of facts and current Baltic Exchange data. The worked figures here are representative and anonymised, not market quotes.