Hurting for revenues and profit margins in recent years, ocean carriers have seemingly worked nonstop to find ways to cut costs in a rate environment stuck in the downside. I have worked with a few carriers to help reduce costs, and was surprised to find one area that few carriers have shown an interest: revenue recovery through an audit of their freight bills and invoices.
After reading and hearing so much about rate error factors, including at a JOC TPM Conference, Maersk CEO Soren Skou discussed his carrier’s key performance indicators, including one bolt of lightning: a 12 percent error factor in billing. That is a big number, considering Maersk was roughly a $14 billion-a-year company at the time. I have also seen reports estimating 25 to 30 percent error factors for other carriers in the past several years.
At TPM, I ran into a former colleague, and when I asked “what’s new?” he mentioned being affiliated with a company that does air and ocean freight bill auditing for carriers and forwarders. It reminded me of a couple of other business friends who have been doing this for more than 10 years.
They do not know each other, and they have not run into each other as competitors. It is not a competitive market. Few ocean carriers seem to have any interest in recovering what could easily be millions of dollars in revenue, and saving countless thousands or millions of dollars in internal processing costs.
I talked to Mark Palladino of ARG, and separately to Lorenzo Barcena and Keith Pomkowski of Maritime Industry Services. Both companies are successful at what they do. They approach the solution differently, and provide service to a total of three satisfied ocean carriers. This leads to my conclusion that there are a lot of carriers truly missing the boat.
ARG uses a sophisticated IT package through which it does batches of bills primarily for air service providers and one ocean carrier. The technology searches for apparent anomalies, and then analyzes the results in a post-audit environment searching exclusively for underpayments. ARG also can audit bills before they are sent out. The error factor for its ocean client seemed low, but further discussion revealed that ARG’s client rates one container at a time and in a single lane. So, large percentages of errors shouldn’t be found unless there were major personnel issues.
Maritime Industry Services has two relatively larger carriers, and they do a semi-automated, audit of all bills before they are sent to the customer. I can imagine the pressure as vessels sail daily, including weekends and holidays, and between the two carriers they have multiple sailings a day. The company audits 100 percent of the rated bills before they’re sent out, and it finds undercharges and overcharges.
The ARG client recovers undercharges, an obvious plus. Maritime Industry Services’ clients get clean bills before they leave the carrier to the customer, meaning more bills are paid on time and fewer disputes with the customers occur. That is where process cost savings come in. Bills are essentially done right the first time, so there are far fewer disputes and the necessity to audit an alleged error. There are fewer reissued bills, and payments are secured far faster than via a dispute, audit, and rebill process.
If error factors are near what is reported, and you simply extrapolate the impact on revenue, there are truly tens or hundreds of millions of dollars at stake. So, why are there only three carriers out of 15 or so potential clients taking advantage of this system? Is there a huge cost associated with the service?
Not really. ARG gets paid only on results. Maritime Industry Services charges per bill and recovers well more than the costs for the carriers, and it has proven results.
There are two important issues beyond cost recovery involved: the aforementioned reduction in process costs with fewer errors and rebilling, and shippers who track many key performance indicators with carriers that include error factors in documentation and billing. Not making your customers’ KPI requirements can cost you that customer or bring you a lot of grief that takes away from other essential issues.
There are definite benefits to shippers, too. Getting accurate billing costs them less in processing — check a bill once and pay it. Errors require time to clarify and correct a bill, and then getting a second or third one, which must be audited before it is paid — a waste of time, energy, and money.
If ocean carriers’ senior management is paying attention, here’s a real chance at making a difference on your bottom line — in a positive way.
Gary Ferrulli is chief executive of Global Logistics & Transport Consulting. Contact him at firstname.lastname@example.org.