Demurrage and Detention: Expense or Inventory Cost?

The terminal released the box on day nine, the carrier's invoice arrived three weeks later, and accounts payable coded the whole amount to the landed cost voucher because it carried the purchase order number. At quarter end the auditor picked the line, asked why four days of demurrage caused by a supplier's missing packing list sat inside the unit cost of a SKU, and nobody could show which days were whose fault.

Container time charges are small per line and large in total, and they fail in the same way every quarter: the account is chosen from the reference number on the bill instead of from the cause of the delay. A cause code captured before posting, a written abnormal-cost test and a recovery ledger turn each charge into one defensible entry, and they stop finance paying invoices that a US billing rule says nobody owes.

• What this guide covers: the difference between demurrage, detention and per diem for accounting purposes, the abnormal-cost test under ASC 330-10-30-7 and Ind AS 2 paragraph 16, invoice validity under 46 CFR Part 541, month-end accruals and recoveries from suppliers, brokers and customers.
• What it adds: a timestamped incident on one import, a release query for stale accruals, worked US ($) and India (₹) ledgers, and a close checklist for container time charges.

Why one container's time charges end up in three different accounts

Demurrage, detention and per diem look alike on a bill but measure different things, so they rarely share one account. Demurrage is generally a charge for cargo or equipment occupying terminal space beyond free time; detention, often called per diem in the US, is a charge for keeping the carrier's container outside the terminal beyond free time.

The US Federal Maritime Commission's billing rule groups them for invoicing purposes. Its definition in 46 CFR 541.3 covers any charges, including per diem, assessed by ocean carriers, marine terminal operators or NVOCCs for the use of terminal space or shipping containers, but not freight. Our guide to separating demurrage, detention and terminal storage on a bill covers how to rebuild each clock; this article starts after the arithmetic is agreed and asks where the money belongs.

Reading ASC 330-10-30-7 and Ind AS 2 paragraph 16 for container time

Neither standard mentions demurrage by name, so the answer rests on two tests: did the cost bring the goods to their present location and condition, and was it normal? A day that was unavoidable in importing the goods can be an acquisition cost; a day caused by a failure is an abnormal or storage cost and goes to the period.

Under US GAAP, ASC 330-10-30-1 includes in inventory the expenditures incurred in bringing an item to its existing condition and location. ASC 330-10-30-7 then requires abnormal freight, handling costs and wasted materials to be treated as current period charges. KPMG's inventory handbook adds that an increase in direct acquisition costs does not typically represent an abnormal cost, which matters when a carrier raises its daily rates.

Demurrage accounting treatment under ASC 330-10-30-7 and Ind AS 2 paragraph 16 depends on cause: container days that were unavoidable in acquiring the goods may join landed cost, while days caused by late documents or a full warehouse are period charges, and each posted day should carry one cause code.

Ind AS 2 frames it differently. Paragraph 10 admits costs of bringing inventories to their present location and condition, and paragraph 11 names transport and handling directly attributable to acquisition. Paragraph 16 lists exclusions, including abnormal amounts of wasted materials, labour or other production costs in clause (a) and storage costs in clause (b), unless storage is needed in production before a further stage.

• Demurrage under Ind AS 2: a charge for cargo sitting in terminal space reads most naturally as storage, so many Indian preparers expense it under paragraph 16(b) whatever the cause.
• Detention under Ind AS 2: container rental while the box travels to and is unloaded at your site is closer to transport and handling under paragraph 11, but only for the normal unloading window.
• Either charge under US GAAP: there is no separate storage exclusion paragraph, so the abnormal test in ASC 330-10-30-7 does most of the work and the written policy must define "normal".
• Terminal storage from a CFS or MTO: treat it like demurrage; it pays for space, not for movement.

A cause code chosen before the amount is known

Capture the reason for each chargeable day when the clock runs, not when the bill arrives weeks later. The cause code drives the account, the recovery route and the dispute; an amount without a cause can only be guessed at.

Keep the code list short. Six codes cover most import and export flows, and every additional code dilutes the review. Where a single day has two causes, such as an exam hold that overlaps a supplier's late certificate, code the day to the earlier event that stopped release and record the second as a note; splitting a day between parties invites a dispute nobody can settle from the documents.

Testing the carrier's invoice against 46 CFR Part 541 first

For US cargo, check whether the invoice is payable before deciding its account. Under 46 CFR 541.5, failing to include any required minimum information eliminates the billed party's obligation to pay, and under 541.7 an invoice issued more than 30 calendar days after the charge was last incurred is not payable.

Part 541 governs demurrage and detention invoices issued by ocean common carriers, marine terminal operators and NVOCCs, and took effect in 2024 (89 FR 14362). Section 541.6 lists what each invoice must contain, grouped into identifying, timing, rate, dispute and certification information. Accounts payable can turn that list into a pass or fail screen applied before any coding decision.

• Identifying information, 541.6(a): bill of lading number, container number, port of discharge for imports, and the basis for why the billed party is the proper party of interest.
• Timing information, 541.6(b): invoice date, due date, free time in days, start and end of free time, container availability date for imports or earliest return date for exports, and the specific dates charged.
• Rate information, 541.6(c): total due, the tariff rule, terminal schedule or service contract section behind the daily rate, and the rates applied.
• Dispute and certification, 541.6(d) and (e): a contact, a link or QR code to the mitigation process, defined timeframes, and statements that the charges comply with FMC rules and that the billing party's own performance did not cause them.

Demurrage and detention invoices for US ocean cargo must carry the fields listed in 46 CFR 541.6 and be issued within 30 calendar days of the last charge date under 541.7; accounts payable should treat a missing field or a late issue date as a reason not to post the liability at all.

Section 541.8 gives the billed party at least 30 calendar days from the invoice date to request mitigation, refund or waiver, and requires the billing party to attempt to resolve a request within 30 days of receiving it, unless both agree to a later date. Diarise both dates in the AP workflow, because a dispute filed on day 31 has lost its regulatory footing even when the charge is plainly wrong.

Month-end accruals for clocks that are still running

Accrue the charge for every box past free time at close, using the tariff tiers and the cause code, then release any accrual the invoice deadline has made unpayable. Without the release step, accruals for invoices that never arrive sit on the balance sheet for months and are written back in a lump that distorts the margin of a later quarter.

The accrual is a count of chargeable days multiplied by the applicable tier rate, per container and per charge type. Most carriers publish stepped rates, for example a lower daily rate for the first block of days and a higher one after. The query below lists open accruals and flags those that can be released under 541.7(a) because no invoice arrived within 30 days of the last charge date.

-- Accrued charge per container and charge type:
--   A = sum over chargeable days d of rate(d)
--   chargeable days run from free_time_end + 1 to MIN(stop_date, close_date)
--   rate(d) = tier_1_rate when d <= tier_1_days, else tier_2_rate
-- Release test (46 CFR 541.7(a), ocean carrier or MTO billing party):
--   no invoice received and close_date > stop_date + 30 calendar days

SELECT a.container_no,
       a.bl_no,
       a.charge_type,              -- 'DEM' or 'DET'
       a.cause_code,
       a.accrued_amount,
       a.stop_date,                -- gate-out (DEM) or EIR return (DET)
       a.billing_party_type        -- 'VOCC', 'MTO' or 'NVOCC'
FROM   dd_accrual a
LEFT JOIN ap_invoice_line i
       ON i.container_no = a.container_no
      AND i.charge_type  = a.charge_type
WHERE  i.invoice_id IS NULL
  AND  a.billing_party_type IN ('VOCC', 'MTO')
  AND  :close_date > a.stop_date + INTERVAL '30' DAY;

NVOCC bills need a different test. Under 541.7(b) an NVOCC has 30 days from the issue date of the invoice it received from its own billing party, a date the importer cannot see, so hold those accruals until the NVOCC confirms or invoices. For India, release accruals only on the line's or CFS's written waiver or after the contractual billing window lapses; no equivalent statutory deadline applies.

Recovering the charge from a supplier, broker or customer

A recovery is a separate asset with its own recognition test, not a reduction of the original posting on the day a claim is sent. Book the charge by cause first, then book the recovery only when the counterparty's acceptance meets the threshold in each market.

US practice distinguishes recovering a cost already recognised from recording a gain. PwC's financial statement guide describes recognising a recovery claim once the loss event has occurred and recovery is probable, limited to the cost already recognised; any excess falls under the gain contingency rule in ASC 450-30-25-1, which keeps gains out of the accounts until realised. PwC also notes that a disputed claim is presumed not probable.

• Supplier settles in cash: credit a recovery account against the abnormal expense line once the supplier accepts in writing.
• Supplier offers a price credit: ASC 705-20-25-1 presumes consideration from a vendor reduces the purchase price of its goods, so a credit on the next order may land in inventory instead; agree the policy with auditors before the first material claim.
• Broker or forwarder at fault: claim under the service agreement and net only against invoices the broker has agreed to reduce.
• Customer recharge: treat a contractual recharge as part of the sale arrangement and route it through the revenue team, not freight.

Recovery of supplier-caused demurrage is recognised separately from the original charge: under US GAAP once recovery is probable and capped at the cost already expensed, and under Ind AS 37 paragraphs 31 to 35 only when realisation is virtually certain, typically on the supplier's signed acceptance of the debit note.

Ind AS 37 sets a higher bar. Paragraph 31 forbids recognising a contingent asset; paragraph 33 allows recognition once realisation of the income is virtually certain; paragraph 34 requires disclosure when an inflow is probable. Where the demurrage is part of a provision, paragraph 53 applies the same virtually certain test to reimbursements. Ind AS 2 paragraph 11 separately deducts rebates and similar items from purchase cost, which covers price credits.

Incident trace: an exam hold, a late packing list and a stale invoice

The trace below follows one illustrative US import of two 40-foot containers under purchase order PO-4500018820. It shows how one shipment produces three treatments and why posting from the reference number alone gets all three wrong.

1. 3 March, 06:40, terminal: Both containers discharge; last free day is 7 March. Container C-4471 is selected for a customs examination, released on 9 March. The TMS opens demurrage clocks DEM-4471 and DEM-4472.
2. 10 March, 15:20, import desk: The supplier's corrected packing list for C-4471 arrives a day after the exam release and the broker needs it to close the entry, so pickup slips to 12 March. Operations codes 8 and 9 March as GOV-EXAM and 10 to 12 March as VND-DOCS.
3. 19 March, 09:05, receiving DC: C-4472 left the terminal on 6 March, inside free time, but the full DC held it; the empty returns three days after detention free time ended on 16 March. Cause code OWN-DOCK; month-end accrual ACR-0331-017 books $450.
4. 2 April, 11:30, AP: The carrier's demurrage invoice INV-DM-22871 for $1,000 arrives with every 541.6 field present. AP, uncoded, posts it to landed cost voucher LCV-2209 against the PO.
5. Controlled version, 28 April: The voucher is split by cause: $350 to inventory, $650 to abnormal freight with a supplier debit note. No detention invoice has arrived 30 days after 19 March, so accrual ACR-0331-017 is released under 541.7(a).

Worked ledger for one import in USD and one in INR

The same rules produce different numbers in each market because Ind AS 2 paragraph 16(b) pulls terminal storage out of inventory and because Indian GST sits on top of every charge. Figures are illustrative, and the US policy shown treats random exam holds as normal; an entity that expenses all demurrage would post the $350 to the period instead.

The Indian figures assume that the broker's agreement makes it liable for losses caused by a missed duty payment and that the broker signs the debit note before the books close. If acceptance arrives after the reporting date, the expense stays in the period and the recovery is disclosed if probable, then recognised when acceptance makes it virtually certain. The landed cost capitalization guide shows how the capitalised ₹13,000 spreads to units and how much moves to cost of sales.

Which steps the ERP should block and where a reviewer decides

Rules belong where the answer can be read from a field; people belong where the answer depends on a document's meaning. A container charge with no cause code, an invoice missing a 541.6 field or a recovery with no acceptance should never post, while assigning blame between two overlapping causes needs a reviewer.

Freight audit and coding live next door to this workflow. The freight GL coding matrix sets default accounts for linehaul and accessorial lines; container time charges should use the same account families so that the cause code, not a new chart of accounts, carries the extra detail.

Close checklist for demurrage, detention and per diem lines

A short checklist run on the third working day keeps container time from leaking into unit cost or lingering in accruals. Each item names its evidence so an auditor can test it without interviewing the import desk.

The year-end item matters most when goods are in transit or waiting at port on the balance sheet date; our goods-in-transit cut-off guide covers who owns the cargo at that moment. For more logistics finance controls, browse the logistics and supply chain hub. If you want a cause-coded charge workflow wired into your TMS and ERP, send us an RFP with your monthly container volumes and the carriers you use.