Tank Storage Extension Fees: The Hidden Cost in Petroleum Trading
Your petroleum deal looks solid. Price is right, supplier seems legitimate, everything checks out. Then you hit a 10-day delay arranging your letter of credit. Suddenly you're paying $1,200 per day in storage extension fees – an extra $12,000 you didn't budget for.
Tank storage extension fees are one of the hidden costs that can turn a profitable deal into a break-even one. Here's what you need to know to avoid them.
What Are Tank Storage Extension Fees?
Storage fees are daily costs charged by tank terminals for storing petroleum product – typically $500-$2,000+ per day depending on volume stored, terminal location, product type, and market demand for tank space.
Extension fees specifically kick in when product stays in storage beyond the originally agreed period. The first 10-30 days might be included in your deal, but every day beyond that costs you.
How It Works
In a normal transaction, the seller stores product in a tank, you agree to purchase with a transfer date 10 days out, those 10 days of storage are included in your deal, and you pick up on day 10 with no extra fees.
The problem scenario: Same setup, but on day 10 your payment is delayed due to a bank issue. Day 12 you're still waiting for your SBLC to process. Day 15 you're finally ready to transfer. Those 5 extra days cost you 5 × $1,000/day = $5,000 in extension fees.
You pay for every day beyond the agreed date.
What Causes Storage Extensions?
Extensions happen for multiple reasons. On your side: banking delays when your SBLC or LC takes longer than expected, payment processing delays, shipping delays when your vessel isn't ready, documentation issues, or decision delays.
On the seller's side: product not ready when promised, seller delays in arranging transfer, or terminal access issues.
Sometimes neither party is at fault: port congestion, weather delays, regulatory holds, or force majeure events.
Your contract should specify who pays for delays caused by each party. If it doesn't, you're setting yourself up for disputes.
Typical Costs
Small volumes of 1,000-5,000 MT cost $300-800 per day. Medium volumes of 5,000-20,000 MT run $800-1,500 per day. Large volumes over 20,000 MT cost $1,500-3,000+ per day.
A 10,000 MT shipment delayed 10 days at $1,200/day costs you $12,000 extra. That adds $1.20/MT to your product cost – meaningful when you're buying at $500/MT.
Who Pays?
It depends on your contract terms. Buyers typically pay if they cause the delay – payment delays, vessel delays, or if they request an extension. Sellers typically pay if they cause the delay – product not ready, documentation delays, or product quality issues requiring replacement. Sometimes costs are shared when neither party is at fault, like force majeure events, or when the contract specifies shared responsibility.
Check your Sales Purchase Agreement carefully. It should explicitly state who pays extension fees under what circumstances. If it doesn't, add that clause before signing.
How to Avoid Storage Extension Fees
Build in buffer time. Don't agree to tight timelines. If banking takes 2-4 weeks, plan for 5 weeks. Add 20-30% buffer to all timeline estimates.
Prepare everything in advance. Have banking documents ready, payment authorization pre-approved, shipping arranged ahead of time, and all paperwork prepared before the clock starts ticking.
Choose payment methods wisely. Wire transfers take 1-2 days while SBLCs take 2-4 weeks. If you're using an SBLC, start the process immediately – don't wait until the last minute.
Verify product early. Don't wait until day 9 to do your dip test. Verify on day 2-3, leaving time to resolve any issues without triggering extension fees.
Communicate clearly and have backup plans. Know exactly when the transfer must happen, communicate any delays immediately, coordinate closely with the seller, and have contingencies ready – backup payment methods, backup vessels, plans for common delays.
Budget for Potential Extensions
Even with the best planning, delays happen. Budget for 5-10 days of potential extensions. On a $500,000 purchase, that's about 7 days × $1,000/day = $7,000 in extension risk. Add 1.4% to your budget as a buffer.
Better to budget and not need it than be caught short when your bank takes an extra week to process the LC.
Red Flags
Watch out if the seller charges storage fees from day one, not just extensions. Storage should be included in the initial period.
Beware unrealistic "free storage" periods like "you have 48 hours to pick up" on an international deal. That's not enough time to arrange logistics and signals potential problems.
Red flag if the contract doesn't specify who pays extensions. This leaves room for disputes when delays inevitably happen.
Major red flag if the seller charges you extension fees for the seller's own delays – product wasn't ready on time but they bill you anyway. That should be the seller's cost, not yours.
What to Negotiate
Negotiate a reasonable free storage period – sufficient time for normal logistics. Typically 10-15 days for domestic deals, 30-45 days for international transactions.
Get clear responsibility clauses: who pays if the buyer delays, who pays if the seller delays, and what happens with force majeure events.
Include a rate cap – a maximum storage fee per day that protects you against surprise charges.
Add a notice requirement: the seller must notify you when an extension is impending, giving you a chance to accelerate the process and avoid fees.
Storage Fees vs Demurrage
Don't confuse storage fees with demurrage. Storage fees apply to product in tanks at the terminal – a daily rate while your product sits in storage beyond the agreed period.
Demurrage is entirely different: it's the penalty for keeping a vessel waiting at port, and it's much more expensive at $10,000-50,000 per day.
If you're using vessels, both can apply simultaneously – storage fees for the tank and demurrage for the waiting vessel. That's when costs really escalate.
Bottom Line
Tank storage extension fees are daily costs for product staying in storage beyond the agreed date – typically $500-2,000/day depending on volume and terminal. They add up fast: 10 days × $1,000 = $10,000 extra.
Avoid them by building buffer time into your schedule, preparing all logistics in advance, choosing fast payment methods, verifying product early, and communicating delays immediately.
Budget for potential extensions even with good planning. Add 5-10 days of extension costs to your budget as a risk buffer.
Your contract must specify the free storage period length, extension fee rates, and who pays under what circumstances. If these terms aren't explicit, negotiate them before signing.
Don't let storage fees turn a good deal into an expensive one. Plan your timelines carefully and build in buffers for the delays that will inevitably happen.
Take Action
Get clear terms on storage and extension fees upfront. Submit an RFQ on CommoditiesHub and review all cost components, including potential storage extensions, before committing.