The logistics trade-off between D&D and warehousing costs

Abstract

This study analyses the impact of container demurrage and detention (D&D) on the total logistics costs (TLC) of a shipper. More specifically, it looks into how these costs influence the decision to store cargo in a container throughout the hinterland chain or in a warehouse. To do this, a case study with company-specific data is implemented. The findings show, first of all, that the lead time plays an important role in whether D&D occurs. Longer lead times exceeding the D&D free time result in D&D costs which increase the shippers’ TLC considerably. Second, the impact of D&D on the TLC is shipping line dependent. Hence, shippers can limit the TLC increase by choosing shipping lines that offer more free time for intermodal transport. Third, increases in the warehousing cost component can result in higher TLC compared to the TLC when D&D charges occur, suggesting that it might become more interesting for the shipper to store its goods in the container throughout the hinterland chain and thus pay D&D instead of in a warehouse. These results, although case-dependent, give insights into alternative storage options throughout the chain and their costs for shippers as well as that incurring D&D charges can be acceptable under certain logistics strategies.