Quick Jump
Definition of Per Diem Charge
A per diem charge is a daily fee assessed by shipping carriers, terminals, ports, or equipment providers when containers, trailers, chassis, or other transportation equipment are retained beyond the allotted free time period. Derived from the Latin phrase meaning "per day," these charges serve as financial penalties designed to incentivize the timely return of equipment and maintain efficient flow within the supply chain. Per diem charges are distinct from demurrage fees (which apply at ports and terminals) and detention fees (which apply during pickup and delivery), though all three share the common purpose of encouraging equipment turnover.
Why is Per Diem Charge Used in Logistics?
Per diem charges exist as a critical mechanism for maintaining equipment availability and operational efficiency throughout the logistics ecosystem. Without these financial incentives, shippers and consignees might retain containers, chassis, and trailers indefinitely, creating severe equipment shortages that would ripple through global supply chains.
The primary purposes of per diem charges include:
- Equipment Turnover: Encouraging rapid return of containers and chassis ensures adequate equipment availability for other shipments
- Asset Utilization: Carriers and equipment providers maximize the productive use of their capital-intensive assets
- Cost Recovery: Compensates equipment owners for lost revenue opportunities when assets sit idle
- Congestion Management: Discourages using containers as temporary storage, which contributes to port and terminal congestion
- Supply Chain Velocity: Promotes faster cargo movement through the distribution network
Key Components of Per Diem Charge
Free Time Allowance
Free time represents the grace period during which equipment can be held without incurring charges. This period typically ranges from 2-7 days depending on the carrier, equipment type, and trade lane. Import containers at ports often receive 3-5 free days, while chassis providers may offer 4-7 days. Understanding and tracking free time is essential for avoiding unexpected costs.
Daily Rate Structure
Per diem rates are typically structured in escalating tiers that increase the longer equipment is held. For example, days 1-5 over free time might cost $75/day, days 6-10 could jump to $150/day, and beyond day 10 might reach $250/day or more. This tiered approach creates progressively stronger incentives for equipment return.
Equipment Types Subject to Per Diem
Various equipment categories carry per diem charges, including:
- Intermodal containers (dry, refrigerated, tank, flat-rack)
- Chassis (pool chassis, carrier-owned, leased)
- Trailers (dry van, flatbed, refrigerated)
- Specialized equipment (gensets, container modifications)
Billing and Documentation
Per diem charges are typically invoiced separately from freight charges and may appear on statements from carriers, chassis pool providers, or terminal operators. Proper documentation includes equipment numbers, pickup/return dates, free time calculations, and applicable rate schedules.
How Does Per Diem Charge Impact Supply Chain Efficiency?
Per diem charges significantly influence supply chain operations and decision-making at multiple levels:
Operational Planning: Logistics managers must coordinate receiving schedules, labor availability, and warehouse capacity to process inbound shipments within free time windows. This drives tighter scheduling and improved dock door management.
Inventory Strategy: The cost of per diem charges factors into decisions about just-in-time delivery versus holding safety stock. Companies may choose to unload containers quickly and store goods in warehouses rather than using containers as temporary storage.
Carrier Relationships: Shippers with consistent on-time equipment returns often negotiate extended free time or reduced per diem rates, creating competitive advantages and stronger carrier partnerships.
Technology Investment: The need to track free time and equipment status drives adoption of transportation management systems (TMS), container tracking platforms, and automated alert systems that notify stakeholders of approaching deadlines.
3PL Value Proposition: Third-party logistics providers like those in the Fulfill.com network help ecommerce businesses avoid per diem charges through professional dock management, adequate receiving capacity, and established carrier relationships with favorable terms.
What Challenges are Associated with Per Diem Charge?
Managing per diem charges presents several operational and financial challenges for supply chain participants:
- Visibility Gaps: Tracking multiple containers across various carriers with different free time rules creates complexity, especially for high-volume shippers
- Dispute Resolution: Disagreements over pickup/return timestamps, free time calculations, and applicable rates can lead to lengthy invoice disputes
- External Factors: Port congestion, labor shortages, appointment availability, and weather events can prevent timely equipment return despite best efforts
- Rate Volatility: Per diem rates can change with market conditions, particularly during peak seasons or supply chain disruptions
- Chassis Availability: In some markets, returning containers requires chassis that may not be readily available, creating circular problems
- Documentation Complexity: Different carriers use varying terminology, billing cycles, and rate structures, complicating accounts payable processes
- Cost Allocation: Determining whether per diem charges should be absorbed, passed to customers, or shared requires clear contractual terms
Successful mitigation strategies include implementing robust tracking systems, negotiating favorable free time terms, maintaining flexible receiving capacity, and partnering with experienced 3PL providers who understand local market dynamics.
Frequently Asked Questions About Per Diem Charge
What is the difference between per diem, demurrage, and detention?
While often used interchangeably, these terms have distinct meanings. Demurrage applies to containers held at port terminals beyond free time. Detention applies to containers held at shipper/consignee facilities. Per diem is a broader term that can apply to any daily equipment charge, including chassis rental fees. The specific terminology varies by carrier and region.
How can I avoid per diem charges?
Key strategies include: scheduling deliveries with adequate receiving capacity, pre-clearing customs documentation before vessel arrival, using container tracking technology, negotiating extended free time with carriers, maintaining strong relationships with trucking companies for timely equipment return, and working with 3PL partners who have established processes for rapid container turns.
Are per diem charges negotiable?
Yes, shippers with significant volume, consistent on-time returns, and strong carrier relationships can often negotiate extended free time periods or reduced per diem rates. These terms are typically included in service contracts or rate agreements.
Who is responsible for paying per diem charges?
Responsibility depends on the terms of sale (Incoterms) and contractual agreements. For import shipments, the consignee typically bears responsibility once the container is available for pickup. However, contracts between buyers, sellers, and logistics providers should clearly define per diem liability.
How are per diem charges calculated?
Charges are calculated by multiplying the daily rate by the number of days equipment is held beyond free time. For example, if free time is 5 days, the container is returned on day 10, and the rate is $100/day, the per diem charge would be $500 (5 days × $100/day).
