Tension between shippers and carriers over invoice accuracy rising

Tension between shippers and carriers over invoice accuracy rising

While Maersk Line says it has improved its overall invoice accuracy in recent years, some estimate 30 percent of all shipping invoices have an error.

Declining shipping rates and slowed revenue growth due to faltering global demand have heightened tension between some container lines and shippers over the accuracy of invoices as both sides look to cut costs.

Pressured by budgetary needs and facing volatile container price changes that make an already complex task more difficult, invoice accuracy at container lines in recent years has declined as the ocean carriers reduce their back-room staff or send the work offshore to be done by cheaper, less experienced, workers, some shippers and industry financial veterans say.

That has increased the burden on shippers, forcing them to spend time and resources to more closely scrutinize invoices in the hope of catching errors and then dispute charges, the sources say. One veteran auditor estimated that errors cost the typical shipper $50,000 to $150,000 a year.

The new dynamic has added stresses to a process that critics say has long been riddled with problems and seems resistant to improvement. Three years after Soren Skou — then CEO of Maersk Line and now CEO of Maersk Group —  highlighted the problem by admitting that his carrier’s invoices were rife with errors, and that the company’s top customer service challenge had “for some time” been trying to fix it, Maersk appears to have made some gains. But observers say they feel the industry as a whole suffers the same — and perhaps worse — problems as in the past.

“It hasn’t changed from what we have seen,” said Don Pesek, director of audit and rating services at Cass Information Systems, Inc., of St. Louis, Missouri, of the inaccuracies. “It’s been an issue since day one. There are always disagreements, there are always discrepancies. There is a lot of human error.”

Industry struggles play a role

Asking why improving accuracy is so difficult, and where the problem originates, provokes a variety of responses from shippers and auditors. They cite factors including the complexity of the process, the number of players involved in moving a container around the world, the sheer volume of moves and a lack of standardization. Throw in the extreme volatility of current shipping prices, loose contract language and sloppy and “funky math,” and invoice inaccuracy is still prevalent to a troubling degree, observers said.

“It’s almost worse,” said Brenda Barnes, export manager for Geo. S. Bush & Co. Inc. of Portland, Oregon, who is also export chair of the Pacific Coast Council of Customs Brokers and Freight Forwarders. “I have been doing this approximately 30 years now. But when I first started, things were very accurate.”

Barnes and others said the problem has been exacerbated by the effects of declining container rates and the accompanying pressure to cut costs and personnel, and sometimes replace knowledgeable workers with cheaper employees.

One agriculture shipper, who asked not to be identified, said error-filled invoices are “becoming more common” in the past year and personnel reductions at the ocean carriers put the onus on shippers to catch them.

When container lines move invoice work offshore, shippers querying an invoice find themselves dealing with someone with whom they have no past connection, and who is often only in the job for a short time due to rapid turnover, and so is less knowledgeable of the business or particular clients, the shipper said.

“Every time we get a call from someone new, it’s time consuming and it takes us away from other tasks, in order to work with the people that are new, that aren’t familiar with our account” he said. “When we talk to ocean carriers, a lot of it is that the rates are so low that this is one area that they have cut back on … Customer service has become less of a, not necessarily priority, but focus.”

“It just puts a larger workload on those that are dealing with that,” on the shipper side, he said. “We haven’t necessarily added personnel, but it’s put a bigger burden and its consumed more time to address these issues.”

Another shipper, an import logistics manager who asked to remain anonymous, said the problems vary from carrier to carrier.

“With some carriers, I‘m very confident and I rarely see errors,” he said. “With others, I’m not very confident at all. And in some cases, I don’t know that I would even call them errors as much as funky math.” 

The issue drew attention in 2013, when Skou told an audience at JOC’s 13th annual TPM Conference in Long Beach, Calif., that the company’s invoice accuracy rate was at the 88.2 percent mark and “has been, for Maersk Line, the highest customer service issue for some time.” As CEO, he said, he was distressed “to know that 12 percent of our invoices are not accurate.”

At the time, several industry observers said that Skou’s figure of one in eight invoices being inaccurate could be lower than for the error rate in the industry as a whole, which they estimated could be as high as 25 percent or 30 percent.

The scrutiny sparked soul searching in the industry, and improvements at Maersk. The company now has a 92 percent accuracy rate, after “adding more resources to this area,” and trying to make the process more transparent, said Peter Hartz, line head of customer service excellence at Maersk, in a statement provided by the company. He said it had “increased organizational focus” and conducted an end-to-end review of our processes, and “invested in a new end-to-end global system covering quotes, filing and contracting,” which was implemented at the end of 2015.

In addition, a customer app showing “our performance with the customer's cargo on the customer charter metrics,” added to transparency, and helped improve service. And the company has put a customer charter on its website that shows the rate started the year at about 90 percent, and that the company has a goal for the year of 94 percent accuracy.

It didn't used to be this way

Steve Ferreira, the founder of Ocean Audit, Inc., of Southington, Conn., contrasted the current state of play with the shipping industry’s solid record of invoice accuracy two decades ago, when there were “robust” back office processing teams and “invoices being checked and double checked before they had been released to customers.” Now, the process is weakened by carriers switching back office functions offshore to Costa Rica, the Philippines, India, and elsewhere, he said.

“That is really the crux of the problem — (that) all the good invoice control on the ocean carrier side has kind of been negated and gone out the window,” said Ferreira. “All the good audit controls that were in place some years ago, at the ocean carriers, because of the staff reductions and the offshoring (have diminished). Now it’s like the wild west of the errors. There are more errors now than there ever have been in the history of shipping.”

Ferreira estimated that about 15 percent of carrier invoices now contain errors, and 20 percent of those filed by third-party logistics providers and non-vessel operating common carriers.

He added that studies by his company have found that errors may be inflating the legitimate freight bills of the typical beneficial cargo owner, or BCO, by 1 percent, which for 90 percent of importing and exporting shippers amounts to overcharges of between $50,000 and $150,000 per year.

The volatility and speed of rate changes of the last three years have added to the problem, by pushing carriers and 3PLs to focus most on getting an invoice out swiftly, and diminishing the concern for accuracy, he said.

“Most errors happen from improper software algorithms being utilized”’ to calculate an invoice, and drawing on the wrong contract information, he said. Added to that, he said: “It is human error in some respects, because there’s not enough robust training on the ocean carrier side.”

Disputing an invoice to remedy an error has, meanwhile, gotten “harder than ever,” said Ferreira.

“Some BCO’s identify the overbilling, but feel defeated as their ocean vendor never addresses it, or it falls through ‘email cracks’ and eventually dies and is never recovered,” he said. “Some BCO’s feel it’s not worth chasing a $1,000 refund here or there when they have 100 containers coming in on the next vessel that demand their very lean staff’s attention.”

At Cass Information Systems, Pesek said that whatever errors are introduced by the carrier into the invoice are then compounded by the fact that carriers use different language in the invoice from that in the contracts, which makes it very difficult for shippers to determine exactly what charges are for, and whether they are legitimate claims or not. That weakens the shipper’s ability to check the accuracy of the invoice, and creates more work — and expense — by requiring follow up and disputes over charges, he said.

Solutions are out there

“It’s a complicated business, but we see a huge discrepancy in the description of the bill charges,” he said. “If we can’t equate it to an allowed charge in the contract, I have a charge that I can’t substantiate and I think it’s an invalid charge, and it shouldn’t be paid.” What’s needed is standardized language to describe charges, he said.

Likewise, a standardized approach would also improve accuracy in currency conversions, which are another cause of errors, he said. When the carrier’s invoice is in one currency and the shipper’s standard practice is to pay in another, each often uses a different currency conversion source to calculate the amount owed — and the result is a discrepancy in the two estimates, and confusion, he said.

Over the years, different solutions aimed at remedying the problem of inaccurate invoices have been tried. Transplace, an international third-party logistics provider that offers transportation outsourcing and brokerage services, tried reducing invoice errors by including contracted rate data in the original booking. By initiating a dialogue between shippers and carriers up front, discrepancies in rate changes, accessorials and other charges could be recognized early on, the company said.

HubTran, a Chicago-based provider of automated back-office services, including electronic invoicing, auditing and payments, late last year released a cloud-based software that can extract information from contracts and presents it in a way that allows both carrier and shipper to easily compare their versions of what is owed.

The idea behind it is that errors will always occur in transportation invoicing because it is so complicated, and there are so many factors and players involved, said Matt Bernstein, HubTran’s CEO. “In one transaction,” he said, “you might have the company, shipper, broker, the trucking company, the factoring company, and the freight payment audit company — six different parties trading paperwork.”

“What we are trying to do is create software that allows these companies to pass through everything that matches very easily, identify the discrepancies and then provide for a very efficient collaborative way to resolve those discrepancies,” he said. That provides a more organized way to resolve it than the traditional way in which “every discrepancy is handled in an ad hoc communication,” he said.

Inttra, the Parsippany-based electronic transaction platform and information provider through which about one-quarter of all of the world’s containers are booked, also believes that improved organization of invoice information can help accuracy.

The company’s electronic invoicing system shares the invoice and related information in a single file, so that several participants can see the information. That helps the parties deal with it in a timely fashion, and reduces errors, said Inna Kuznetsova, Inttra’s president and chief operating officer.

“Sorting this all out will take a lot of time,” said Kuznetsova. If there’s a delay, “two months later, figuring out if you reviewed the right spot rate, if the right increase was applied, if the right bunker fee (surcharge) was applied, becomes very, very difficult.”

Contact Hugh R. Morley at Hugh.Morley@ihsmarkit.com and follow him on Twitter: @HughRMorley_JOC.