Any company that ships needs to control shipping costs. In the latest Precision Report we look at the importance of freight bill auditing and examine outsourced and in-house solutions.
Global shipping and transportation is an expensive business, and one rife with inefficiencies. Recent research from Drewry, the maritime research and consulting services firm, claims that more attention needs to be paid to transportation and shipping payment processes. The consultancy firm see technology as the answer to this problem. Few global shippers would dispute the assertion that freight auditing and invoice reconciliation can throw up marked errors. Despite that, not all organizations track, control and audit their shipping spend.
First let’s look at the figures for the global container shipping industry. Drewry found that over the course of last year, 400 liner services moved 207 million twenty-foot equivalent units (teu). This resulted in 1.26 billion freight invoices, which earned revenues of $166 billion in 2017.
Given these figures, and the sheer amount of invoices generated, it is not hard to see why Drewry believes that technology is the answer for tackling inefficiencies in the freight payment process.
Drewry’s research concluded that the “simplification and/or automation of invoicing and payment practices, especially for small and medium sized shippers and forwarders” would improve invoicing efficiency as well as reduce administration costs.
“In particular, we believe that tremendous efficiency gains can be achieved through technological solutions,” said Drewry.
For many shipping lines, manual invoicing is still the norm. Drewry found that smaller shippers using the spot market can experience an error rate of up to 30 percent. This is an unacceptably high, particularly compared to larger shippers that work on annual contracts. For these shippers, the error rate is between 2 percent and 5 percent.
Drewry also found that forwarders are more likely than shipping lines to generate accurate invoices. Between 95 and 98 percent of invoices from forwarders are correct because they use standardized pricing and experience lower freight rate volatility. Although container lines aim for similar rates of invoice accuracy, many do not achieve this and for some, the actual performance is significantly lower. Furthermore, manually reconciling disputed invoices is a significant industry problem.
Parcel shippers have been slower to recognize the value of freight bill auditing and many enterprises have a poor understanding of their parcel spend. There are a number of reasons for this. Firstly, this is because, historically, they sent very few small parcels.
Smaller, more frequent parcel shipments are becoming the norm for many enterprises. One example is automotive OEMs. Although many sell the majority of their parts through traditional distribution channels such as dealerships and authorized repair shops, there has been significant growth in OEM parcel shipping. This is partly because vehicles have become more complicated. As a result, it is impossible to maintain every part in stock at every dealership or repair location. Therefore, OEMs are increasingly sending parcel shipments of individual parts rather than large shipments of freight.
A further reason is because parcel shipping data is often fragmented. If a global organization is using different carrier systems across different countries or regions, this data is siloed and difficult to track. In addition, many enterprises simply do not track inter-office shipping costs and simply pay carrier invoices as they arrive. However, this data will become increasingly important in the coming years as the parcels market continues to grow and logistics and transportation costs rise.
A number of leading industry analysts predict that substantial increases in e-commerce logistics are inevitable. Gartner estimates that by 2020 same-day delivery will drive up logistics costs as a percentage of revenue by 50 percent. For some shippers, particularly omnichannel and e-commerce organizations, shipping is their greatest fulfilment expense.
To make matters worse, this year has thrown up additional challenges for shippers, particularly in the US. These include capacity demands and driver shortages. Added to that, dimensional pricing and unexpected accessorial charges can have a sizable impact on carrier costs. To meet these challenges shippers have a number of options — not all of them ideal. One example is lengthening lead times, an approach unlikely to appeal to customers.
Transportation execution software solutions — and the analytics they provide — makes it significantly easier to track parcel spend, even if using multi-carrier shipping. However, even global enterprises using such software solutions often outsource freight bill auditing.
Many large volume parcel shippers outsource freight bill auditing and payment to third party providers. There’s a compelling — if somewhat conventional — reason for this. Invoice reconciliation is time consuming. This means you are devoting company resources to this instead of concentrating on your core business. On the face of it, this makes sense. Third party freight and parcel invoice auditing is pretty straightforward. Here is how it works:
You send the freight and parcel invoices from the past 180 days to your freight auditor
The auditor compares invoices and bills with pricing agreements to identify errors
If there are no discrepancies, payment is authorized
When a discrepancy exists, the freight auditor works to resolve the issue
If you are overcharged, the freight auditor files a claim on your behalf
There are downsides to outsourcing freight bill auditing. Although unusual, malfeasance is certainly one of them. In 2013, the auditing firm TransVantage Solutions Inc was accused of embezzling shippers’ funds. In 2016, Shirley Sooy of TransVantage Solutions pleaded guilty to wire fraud and money laundering charges. Sooy admitted that she ran the company as a Ponzi scheme until it collapsed into bankruptcy in 2013.
A far more likely worry is the issue of data. Third party freight auditing vendors receive a file of your shipments as well as invoices from the carriers. They match, audit, resolve and pay the authorized invoices. However, consider what information may be important to your organization. What if you want to customize a report? What if you need to report on additional data elements for the transaction beyond what the third party freight auditing vendor offers? Do you ask them create and format data so that you can populate your data warehouse and run you own reports against it? And if so, how much are they charging you for that? How long does that take?
If data is important to your organization — and it is to most — an in-house freight bill audit and pay solution may be a better answer. This way, you will have all of the shipping data, all of the freight invoices, all of the resolution details, all of the audit trail as well as all authorized payment files. This data gives you more options and visibility. Simply put, you will have custody and control of your data to report on as you see fit.
A robust freight bill audit and payment solution is an important element in an organization’s transportation management process. A best-in-class solution should offer the following:
Capability to reduce unnecessary charges with accessorial identification
Address correction function to keep you in front of address corrections to avoid additional charges
Connectivity, to your carriers, your AP and logistics systems. Ideally, you would want your freight and parcel invoicing system to electronically communicate
Globally enabled automation to simplify the auditing for all of your invoices, regardless of carrier, mode, geography, language or currency
Complete visibility into your transportation operations with in depth reporting
Affordability: the solution needs to be affordable to obtain, implement, staff and run
PRECISION’s Freight Bill Audit and Pay solution makes reconciling your shipping operations easy and efficient. PRECISION automates the process of approving freight bills and identifying discrepancies between anticipated freight costs and carrier invoices. This helps organizations avoid overpayment and improves transportation and logistics performance.
Using smart automation, you will be alerted to shipments that exceed your predetermined thresholds. This will allow you to evaluate the parameters or conditions that drove the alert, for example package weight variance or unexpected assessorial fees.
Moving parcel auditing and freight cost verification in-house offers distinct advantages. A comprehensive freight audit system can help organizations to identify consolidation opportunities and trim costs by making smarter transportation decisions. Furthermore, freight bill auditing provides an analytical, financial review of invoiced costs versus supplier agreements.
Without having proper shipping, tracking and invoice data, shippers are at a disadvantage. The PRECISION solution consolidates shipping data and provides insights into critical key performance indicators. As a result, organizations gain a detailed view of their freight spending and complete visibility into their transportation operations.
Precision Software, a division of QAD Inc., provides industry-leading global trade management, transportation execution and multi carrier shipping software solutions from a single, integrated platform. Preeminent industry leaders in every region of the world rely on our global support centers to leverage thousands of carriers and manage millions of shipping transactions every day. The PRECISION solution’s open architecture allows for easy integration with leading Enterprise Resource Planning (ERP), Warehouse Management Systems (WMS) and existing legacy solutions. An ISO-certified company, Precision Software assists companies around the world to minimize shipping costs, optimize first mile and last mile deliveries, avoid compliance delays and mitigate the risks associated with dynamic trading environments. Precision Software’s customers span multiple industries including banking and finance, life sciences, high technology, retail, industrial, automotive, higher education and public sector as well as logistics providers. For more information about Precision Software, visit www.precisionsoftware.com.