Four years ago, transportation spending at enterprise communications systems company Avaya was a relatively unmanaged process. The Basking Ridge, N.J., global shipper, spends more than $150 million a year on transportation getting goods to clients that include JPMorgan Chase and Home Depot.
Most of the time that meant invoices came in and then payments went out.
But the logistics and transportation demands on the company to support its dual revenue stream model of new products and after-market services are highly complex, said Hamish Clark, Avaya’s business process manager. They include tracking inbound shipments from contract manufacturers in China to distribution centers in Memphis, Frankfurt, Germany and Singapore; global implementation of new telecommunications systems; reverse logistics; asset recovery; time-critical spare parts shipments and an ever-changing mix of modes and service levels.
“We have every complexity known to man,” Clark said.
Even so, in terms of freight payment, Avaya was in the dark, not even breaking freight charges down to the assessorial level in asset recovery contracts.
“We had no insight into that process,” Clark said.
With fuel prices growing more volatile and the recession demanding a strong look at cash flow, however, the company studied how it was managing the process and concluded any effort to cut transportation costs demanded more visibility into freight audit and payment. It moved to outsource the process.
Unfortunately, the first company Avaya hired wasn’t up to the task, ultimately wasting 18 months of the company’s time. Trying to fit Avaya’s business into its own standard formats, for instance, the company did not account for overdimensional weights and penalties.
The second time around, Avaya was a much smarter customer. It demanded a partner that understood its business. “A lot of companies said they could, but few could understand all the nuances of what we were trying to achieve,” Clark said.
For Avaya and a growing number of shippers, the experience is part of a gathering shift in the freight payment field that has more providers stretching into customized or targeted services closely configured to a shipper’s distinct operations. Many are using technology to provide more data to integrate the payment process into logistics decisions.
It used to be, said Michael Regan, president and CEO of TranzAct Technologies, “if you provided accurate data and meaningful reports, you were an innovator. Today, you have to provide software that can manipulate the data and allow customers to understand the cost implications of different supply chain scenarios.
“Ten years ago, you could identify cost saving opportunities for your customers and be considered an industry leader. Today, you’d better have logistics professionals on staff that can translate those recommendations into reality and actually produce those savings,” he said.
It’s one reason freight payment and audit firms — broadly defined, from mega-portals to mom-and-pops — are prospering these days as recession-bedraggled companies continue to turn to logistics outsourcing as a way to cut costs. The cost-cutting exercises in business, it appears, are fueling real growth in the freight payment world.
Ocean and air transportation spending through the GT Nexus Trade and Logistics Portal exceeded $10 billion in 2009. INTTRA, formed in 2000 by a consortium of ocean carriers as an e-commerce platform for the ocean container industry, is expanding its scope of services after a $30 million infusion of private equity funds from ABS Capital Partners.
Atlanta-based First Data, a global provider of electronic payment processing such as ATMs and point-of-sale credit card swipes, joined forces last year with a team of transportation industry veterans to form PayCargo, an online freight-payment system for the global ocean shipping industry.
An influx of new customers helped CTSI, a Memphis, Tenn.-based freight payment and audit firm, to modest growth in 2009. For CTSI and companies like it, new business offset a decline in transaction volume among existing customers and a slowdown in corporate decision-making.
“It took twice as long to close accounts, and shippers are definitely expecting lower fees than ever before, but 2009 was a great year for us,” said Brian Scott, CTSI’s senior vice president of global sales.
As cost-cutting moved to the forefront of the corporate agenda, more senior-level executives got involved in the freight audit and payment process, bringing with them demands for lower transaction fees and new value-added services. Requests for proposals for freight audit and payment now typically address benchmarking, inbound compliance studies, shipment optimization and reporting tools, increased freight visibility and detailed analysis and planning.
“If you just offer freight payment, you are toast,” Scott said.
Expanding its value proposition, CTSI now offers transportation management system services bundled with freight payment and audit, giving customers a single point of contact. The capabilities can’t really match the biggest global TMS providers, but they are embedded in the freight payment functions, easy to use and more than adequate for many shippers.
CTSI says it helps companies save 2 to 4 percent on their freight bills. Many of its clients are 3PLs looking to leverage the company’s technology.
According to business consultant Aberdeen Group, companies pay an average of $18 to process an invoice, with some invoices costing more than $40. Expenses related to disputes can add $15 to the bill, said Chris Courts, group manager for transportation at First Data.
PayCargo, started last year by First Data and a group of maritime industry executives, is designed to let shippers, carriers, 3PLs, brokers and forwarders settle payments within a standardized platform that complements existing legacy systems. It reduces the cost of approving and disputing payments and helps shippers avoid demurrage and other storage charges arising from inefficient payment processes and procedures, said Juan Dieppa, PayCargo’s executive vice president and co-founder.
Dieppa estimates about 10 percent of freight bills include incorrect or disputed charges or other mistakes related to contracts. They can include problems with rate structures, fees, surcharges and other add-on costs costs.
Dieppa and the other shipping industry executives approached First Data last year with the idea for PayCargo. The synergy seemed perfect: First Data’s EFS Transportation Services subsidiary already was a
$6 billion provider of financial settlement services such as fuel cards for the North American trucking industry. The group presented a convincing case that a huge market existed for a similar neutral, Web-based electronic settlement tool for the ocean shipping industry.
“Without the shipping expertise, contacts and industry knowledge that our partners bring to the table, we would have had a hard time coming to market,” Courts said.
Shippers can approve or dispute transactions and track shipments through PayCargo. Payments to carriers can be debited from shipper accounts or paid by PayCargo, which maintains an account with the shipper. PayCargo also manages carrier credit extended to shippers.
Carriers can be paid immediately for receivables, reducing the costs, time and mistakes associated with paper settlements. So, far PayCargo has signed five of the top 20 carriers and is in negotiations with at least six others.
The savings realized by auditing freight bills usually pays for the service, said Harold Friedman, senior vice president of global corporate development at Fort Myers, Fla.-based Data2Logistics.
The main driver behind shipper decisions to outsource freight payment is to gain access to actionable information such as carrier report cards and performance monitoring that can be used to drive down costs. That’s one of the most important things freight payment companies such as Data2Logistics do: capture data and monitor trends, and keep shippers in the know.
The in-house accounts payable systems companies such as Data2Logistics replace aren’t designed to capture the data that supports logistics planning and cost reduction. It’s the data piece that has caused the company and the industry as a whole to evolve from an alternative payment service to a Web-based information provider.
Data2Logistics’ customers are all shippers, but it works with carriers to pre-emptively ward off billing errors. The company has seen every kind of mistake, from bad calculations, incorrect rates and misclassified products to erroneous fuel surcharges and mileage counts.
“We want the greatest number of bills to be presented right every time,” Friedman said. “That’s the most efficient way for all.”
Data2’s latest reporting tool uses IBM’s Cognos business intelligence architecture. The tool has enhanced graphic and user-friendly features such as drag-and-drop. It’s designed to provide clients with custom, ad hoc or standardized reporting based on all assessorial and freight charges and related documents. Data mining and analysis is used to identify cost-saving opportunities in areas such as modes and service levels, and extraneous costs such as dimensional charges. It can benchmark against industry best practices and identify opportunities for process improvements.
“We want to put shippers in control of their own information environment,” Friedman said.
Carriers say they are most competitive when they understand shippers’ goals and priorities. A good freight payment and audit firm will translate these goals through the payment process and provide the data needed to meet them. They’ll also help shippers understand the rules under which carriers operate
“I would be surprised if half of shippers could say they have read carriers’ tariff or understood their rules and service guides,” Friedman said. “That’s one of the keys to controlling costs.”
Avaya, after stumbling in its initial outsourcing foray, ultimately hired Data2Logistics, and the company is advancing an ambitious agenda. The company’s embedded logic lets Avaya break out costs in minute detail. For example, it can identify costs related to returns even if the data is buried in multiple invoices and overlaps with other cost categories such as asset recovery and repair. RFPs can be run on a moment’s notice because assessorial charges are transparent. Avaya used to have one level of expedited air shipping; now it has three, largely through increased visibility into service level expectations provided by freight audit data analysis.
While Clark can’t quantify the exact savings provided by outsourcing freight payment, he said it was one of several contributors to an overall 30 to 40 percent reduction in Avaya’s global transportation spending over the past four years.
“We have moved up in the maturity curve,” Clark said. “We are now managing cost and harvesting savings, and the key is good data.”
Freight audit data also helps the company meet demands at the corporate level for better performance forecasts. Logistics planners can accurately project how increases in the cost of fuel would impact the transportation budget, because fuel’s share of the spending is no longer buried in 30,000 invoices, Clark said.
That’s proving a powerful incentive to 3PLs.
INTTRA, based in Parsippany, N.J., is launching a product for freight forwarders and NVOCCs similar to its platform for ocean container shipments.
INTTRA eInvoice, an electronic invoicing, dispute resolution and payment processing tool could enable forwarders to cut invoice processing fees by more than half. DB Schenker, Kuehne + Nagel and DHL Global Forwarding are participating in pilot programs and CMA CGM, the world’s third largest container carrier, is testing eInvoice with customers in North America.
Originally formed to allow shippers to electronically book cargo with its five original investors — Maersk Line, Hamburg Sud, Hapag-Lloyd, Mediterranean Shipping and CMA CGM — INTTRA has been given a mandate by ABS Capital Partners, its new majority shareholder, to broaden its commercial scope to include shippers and forwarders.
“Small shippers will be able to make bookings and shipping instructions online,” INTTRA CEO Ken Bloom said. “It’s very similar to the product we operate for carriers, so in a sense, it’s an old product brought to a new market.”
With eInvoice, INTTRA hopes to establish standards for invoicing and dispute resolution in the ocean container trade, as it did for electronic booking and shipping, said Tim Gannon, INTTRA’s managing director for new business.
“When receivers of invoices have problems, they can respond with standardized response codes to identify the root cause of disputes,” he said.
Discrepancies in freight charges have always been common, but market volatility has increased the number of disputes related to bunker surcharges, ratings, product classifications, overlapping contract databases and other causes.
“We are looking to capture that information in a centralized system and drive process improvement through business reporting,” Gannon said.
INTTRA doesn’t directly compete with freight payment and audit firms on the trucking side. Its larger aim is end-to-end automation of the ocean shipping process to reduce the high costs associated with paper transactions and bottlenecks due to lost invoices, protracted disputes and other causes.
“At the moment,” Gannon said, “the settlement process in the ocean freight industry is almost entirely paper-based.”
David Biederman can be contacted at email@example.com.