The freight payment and audit business flows smoothly most of the time. Technology and competition have rendered the float — the process in which payers delayed payments to carriers to earn interest on funds — pretty much to the dustbin. Today’s freight payment companies pay carriers in a timely fashion with the aid of electronic disbursements, online portals and other sophisticated technologies.
The only glitches are the millions of errors and data discrepancies that keep popping up on freight bills.
The three biggest changes in the freight payment business over the last 15 years have been advances in technology, more detailed fee structures and the development of tools to implement meaningful cost savings programs, said Mike Regan, president and CEO of Elmhurst, Ill.-based TranzAct Technologies. Since its founding in 1984, TranzAct has processed more that 600 million freight bills and disbursed more than $60 billion in freight payments to more than 26,000 carriers.
Side Bar: A 10-Step Program.
Technology has turned things that couldn’t be done 20 years ago into routine practices. Freight bills and related documents are scanned and sent to any location in the world; more than 94 percent of TranzAct’s bills are processed in EDI. Tools such as automated routing guides, rating applications and other tools enable shippers to put data to work for real cost savings.
The technology also has affected time and effort it takes to process different types of transactions. Instead of treating all freight bills equally, shippers today want detailed fee structures that reflect the amount of time it takes to process transactions. For example, it costs much less to electronically process a UPS parcel transaction versus having to manually process transactions for rail or ocean shipments.
While shippers have always relied on accurate data, new technologies allow for data mining and analysis to put that data to work to control inbound transportation costs, optimize outbound shipping patterns and, with fuel prices spiking, understand carrier and mode options.
“Today, shippers are looking for a partner that can provide the tools to take that data and translate it into meaningful cost-saving programs,” Regan said.
The freight payment business in general may have changed, but the types of errors found on freight bills stubbornly persist. The most common errors include: failure to submit supporting documentation with the freight bill; audit-driven disputes where there is conflicting data between the freight bill versus the shipper bill of lading, and disputes resulting from interpreting the contract or rules tariffs.
The key to efficient freight payment is consistency in the data provided by shippers and carriers. For example, when a shipper uses a product master file to determine the weights of goods on the bill of lading, or doesn’t include dunnage, the carrier is more likely to reweigh shipments and identify instances where they can charge for more weight. If shippers fail to provide the data for shipments subject to dimensional freight rules, carriers may bill them extra for these shipments. Carriers have become more aggressive in reweighing shipments and adjusting their charges for shipments accordingly — and they may charge a fee for the weighing.
“It’s a very big deal on the LTL side,” Regan said.
Side Bar: Paying By the Line.
Errors also can spring from contractual disputes involving charges for items such detention, and accessorial charges such as notify fees, inside delivery, reconsignment, storage, and sort and segregation. These kinds of disputes can leave a freight payment firm in limbo while the parties wrangle over charges.
Despite new technologies and due diligence, there are charges the shipper may not be able to identify and include on the bill of lading at the time of shipment. Shippers may not believe they are liable, but if they are identified in the rules tariffs, then the carrier has to agree to waive the charges or the shipper has to agree to pay them.
Regan cited an instance in which a carrier assessed dimensional freight charges that a customer disputed. The carrier said the shipment measured 54 inches across. The shipper said this was unlikely since their pallets are only 40 by 48 inches. The carrier countered that there was overhang on the pallet and provided pictures. The shipper insisted they could not determine the measurement from the pictures. Both parties stuck to their stories.
TranzAct spent almost two hours mediating this dispute, which was over a difference of $23 on the final bill.
The dispute points to a truism in the freight payment industry. Shippers — not necessarily any who are TranzAct customers — may need to review the information they are providing to their carriers. Regan said they should keep in mind that carriers have invested heavily in equipment and technology to understand and bill for everything being shipped, and for the different services they provide.
Overall, the good news is online portals make all but a handful of payment disputes much easier to resolve. TranzAct’s formula for error-free freight payments and resolution of disputes involves a triangular process between the freight payment company, the carrier and the shipper. It’s based on the premise that shippers want to see their carriers paid in a timely and accurate fashion. That’s why it’s important to work with both the carriers and shippers to identify root causes for the issues that create errors and exceptions.
Harold Friedman, senior vice president of global corporate development of Data2Logistics, said identification and resolution of root cause errors is key to effective freight payment management. Merely correcting errors isn’t enough.
“Many people in this business say that they save you all of this money in correcting rate errors, but that doesn’t improve your margins,” Friedman said. “You are just correcting something that should not have occurred in first place.”
Root causes often can be traced to loading of inaccurate data. When that happens, mistakes can be compounded and repeated until corrected. Pre-payment audits are effective in preventing errors before they occur. The Data2Logistics rate database uses advanced algorithms and proprietary software to reduce carrier overcharges, correct rate errors, collect for service failures, eliminate duplicate billings and identify incorrect accessorial charges.
For many freight payment companies, carrier portals are the key to quick resolution of errors and root cause analysis. Carriers can see immediately what was billed, how much was paid and reasons for any adjustments. “Carrier portals lead to a much quicker resolution process and a more informed carrier base,” Friedman said.
Payment disputes that extend beyond the posting of data on portals generally involve contractual issues. In one instance, Friedman said, a shipper had a product weighing 49.5 pounds. The carrier applied dimensional weight charges for products greater than 50 pounds. The carrier’s scales rounded the weight upward, causing the product to reach the 50-pound threshold and incur the extra charges.
“We recovered a big amount of money for the customer because we paid attention to the details,” Friedman said.
Errors vary by carrier, shipper and mode. Fuel surcharge errors are among the most common. Other accessorial errors, which can represent as much as 20 percent of freight costs, include improperly applied discounts and disputes over shipments that are prepaid or sent collect.
Friedman estimates between 3 percent and 5 percent of freight invoices are incorrect. That number has remained more or less constant since deregulation in 1980, which didn’t simplify things as those in the industry had expected.
“The regulated environment rate was complex, but with deregulation, shippers and carriers in effect created their own rules for rate-making, so processes are even more convoluted,” Friedman said.
At CTSI, a Memphis-based freight payment and audit firm, invoice amounts that don’t match up with those in the rating engine are sent to an audit queue, said Larry Watts, vice president of freight operations. CTSI usually pays the rated amount. Shippers can either agree to the payment or dispute the bill.
Disputes may be related to incorrect rates, waived accessorial charges, fuel surcharges, service levels or mileage. Sometimes shippers and carriers hold different versions of contracts or may be using different units of measure.
Those kinds of disputes arise regularly, although shippers wind up agreeing to the cut-to-rate in the vast majority of cases, Watts said.
CTSI’s international business is growing, and much of its data entry is done in Chennai, India, as CTSI continues to move from a paper environment to EDI. CTSI processes about 70,000 paper invoices a week out of a weekly total of some 1.3 million invoices.
Transplace, a non-asset-based 3PL that provides logistics technology and services, sees freight billing from both sides of the fence, both as a freight payer and as a truck broker that bills for trucking services, President and CEO Tom Sanderson said.
Prior to deregulation, many shippers used freight payment agencies to slow the payment process, and agencies made money on the extra float. Today, with information and communications moving so rapidly, manufacturers and retailers are more likely to pay for freight services within a reasonable time frame. “We pay what we believe we owe them,” Sanderson said. “We don’t want to sit on their money.”
With electronic billing, error-free freight payment is a no-touch transaction all the way through. Errors mean touches, and that leads to a more expensive process for everyone. Fuel surcharge errors are the most common, largely because smaller carriers have difficulty tracking multiple surcharge programs.
About three years ago, as part of a Lean Six Sigma initiative, Transplace analyzed fuel surcharge discrepancies and found they accounted for much more than half of all carrier invoice errors. As a result of the study, Transplace decided to issue payments to carriers based on what it determined was the correct surcharge.
Fuel surcharge disputes are fairly easily resolved because few parties want to commit time and resources to a protracted dispute-resolution process. Other common errors relate to discrepancies in weights and measures and errors caused by inaccurate and/or improperly filed rate data.
Shippers sometimes fail to weigh their shipments, especially on the LTL side, leading Transplace to take the view that carriers are generally right. “We tend to give that one to the carriers,” Sanderson said.
Because of the fragmented nature of the carrier industry, freight billing errors tend to be spread out broadly among thousands of small companies. Shipper errors tend to be more concentrated because they often result from repetitive errors resulting from inaccurate data loaded into rating engines.
“All of a sudden they will have a spike in errors that is attributable to a specific event,” Sanderson said.
Multiplied tens of thousands of times over, freight payment errors add up.
Error rates in the ocean container business are extremely high, in the 20 to 25 percent range. That’s a dizzying number considering the millions of invoices processed industrywide annually, said Stuart Tarmy, senior director of electronic invoice presentment and payment for INTTRA, the Parsippany, N.J.-based technology platform for ocean bookings.
Errors largely stem from the complicated pricing structures, unanticipated charges, exchange rates, taxes, port charges and other costs associated with global trade. The charges also can involve the tough and time-consuming issue of value-added taxes and other international charges.
That’s in part why INTTRA and the major carriers that are part of the company’s network formed an EIPP, for Electronic Invoice Presentation and Payment, Standards Advisory Board, which held its initial meeting in November 2010, to develop standards for the industry.
The majority of ocean container invoicing is still paper-based, Tarmy said. If discrepancies are in the 2 to 3 percent range, they are usually resolved quickly, but if not, they are pushed into a difficult and time-consuming exception process.
Compliance requirements for electronic payments, which differ by country, are the primary reasons the ocean shipping industry is so far behind the e-commerce curve.
“With the push of a button, you can reduce an invoice and lower your tax payments by 10 percent,” Tarmy said. “Countries want you to prove that digital invoices are not tampered with.”
Contact David Biederman at email@example.com.