It’s no secret that shipping lines struggle to achieve accuracy in the invoices they issue to beneficial cargo owners (BCOs) and non-vessel-operating common carriers (NVOs), but the root cause of that problem is often laid at the door of technology, or a lack of investment in technology.
Research earlier this year by Drewry Supply Chain Advisors found that large shippers face ocean freight invoicing inaccuracy rates of 2 to 5 percent, while smaller shippers face rates as high as 30 percent. Mark Palladino, principal of ARG LLC, a New Jersey-based revenue recovery company that helps airlines and shipping lines, said he doesn’t attribute ocean carriers’ problems with invoice inaccuracy to lack of technology adoption but to poor data and poor processes.
Some of the blame lies with shippers as well, Palladino said in a discussion Friday with JOC.com.
“The shipper could easily input the wrong service contract for a container and that could flow through the entire move, all the way to invoicing,” he said.
Pre-audit/post-audit of invoices
ARG performs pre-audits and post-audits of invoices for ocean carriers to see whether they have undercharged or overcharged according to the terms of the contract and the service actually rendered. It’s generally presumed that the carrier — as the service provider — is the one that needs to reconcile any discrepancies. It’s also presumed by many shippers that carriers use overbilling as a profit center.
But Palladino said carriers are hurt by erroneous invoices as much as helped. He said lines underbill as often as they overbill, and the difference is that most shippers now catch overbilling and correct it, whereas they don’t do so if they are underbilled.
“I’m not against automation in any way — I’m a technology guy,” he said. “But when tech is implemented in an incorrect manner, that doesn’t help solve anything. Carriers are spending on booking platforms, visibility platforms, and invoicing and billing systems, but issues still persist. That’s because the processes in place feeding these systems — the data capture and data integrity systems — are flawed.”
In terms of shippers’ ability to effect process change, Palladino said it’s evident that the more standardized the process is, the lower invoice error rates are.
Direct invoices from VOCCs
“The direct invoices from VOCCs [vessel-operating common carriers] tend to have fewer errors because the rates are all-in; the shippers aren’t subject to surcharges,” he said. “There are more errors when the carriers bill NVOs. There are different booking process, different SLIs [shipper’s letters of instructions]. “ And we’re not talking thousands of dollars, we’re talking hundreds of millions or billions.”
He admitted standardization in the ocean freight industry is not prevalent anywhere, with no single way that carriers received bookings or SLIs. Some are submitted by paper and others electronically.
“With GRIs [general rate increases] and surcharges and a lack of standardized rates, it’s inherently a flawed process,” he said. “In air cargo, invoicing used to be a mess, but booking and pricing are now more standardized so you see error rates have dropped significantly.”
Drewry’s mid-2018 research found that the liner shipping industry is exposed to $34.4 billion in invoice and payment processing inefficiencies, based on 1.26 billion invoices issued in 2017.
“We try to educate the carriers,” he said. “When you overcharge, more often than not, you’re not getting the revenue because the customer is correcting the invoice. But it pisses off the customer, so you’re contributing to customer churn, and you’re taxing your own resources resolving those invoices. What if you go to the customer and say, the industry average is a 7 percent inaccurate invoice rate, and we can do 99 percent. That’s a competitive advantage, because it takes shippers resources to rework those invoices too.”
Contact Eric Johnson at email@example.com and follow him on Twitter: @LogTechEric.