Jim Alemany is Director, Rate Management Solutions at Descartes
Increasing cost and complexity
One of the biggest line items in logistics spend is the cost of moving goods over the ocean. This is true for several reasons, not the least of which is the complexity of the movement itself and, in turn, the complexity of billing processes. Ocean freight rates encompass a growing inventory of surcharges, turning bill of lading calculations into mathematical challenges. Given that ocean freight invoices represent the largest single component of any logistics spend, they also account for the greatest margin of error in the financial supply chain.
Now, more than ever, there is a need for automated, electronic-based systems and processes that can simplify freight payment and audit management, improve accuracy, and ultimately reduce costs.
The high price tag of manual processes
Despite the technology and resources available to the logistics sector today, manual processes are still used extensively in freight invoicing processes. Unfortunately, that inefficiency comes with a high price tag. Audits and spot checks have shown that anywhere between 25% and 30% of all ocean freight bills of lading are incorrectly rated. Today the question is not whether the shipper is being billed inaccurately. Rather, it is a matter of by how much.
The complexity of ocean freighting has always made bills of ladings prone to inaccuracies, and the remedy has been too costly to put into effect. This is in large part because the processes used to pinpoint incorrect rates are time consuming and require specialized skills. Even at that, only a fraction of errors are uncovered, simply because of the inability of human resources to sift through the volumes of contracts and carrier governing rules tariffs to capture all discrepancies. As a result of the difficulties and costs associated with performing a worthwhile audit, shippers find it easier to simply pay the overages, despite knowing they may be paying too much. Even when rates began to be published electronically, most applications in use still required clerks to manually enter rate information, and find and calculate rates for generating contracts. Those that have implemented more sophisticated billing systems in recent years continue to experience inaccuracies as ocean freight rates and surcharges do not conform to most accounting packages. Even when those errors are relatively small, the cumulative losses can be significant.
Electronic freight auditing
The optimal ocean freight audit solution is one that audits all bills of lading prior to payment, with limited user oversight required. This is achieved by leveraging the capabilities of a globally connected network combined with a Web-based rate management system to automate the process of comparing and auditing bills of lading with contracted rates. With this approach, standard ocean bills of lading are transmitted electronically over a value-added network and processed within a rate management system for auditing. By combining electronic messaging with a powerful and sophisticated contract management system, shippers have the framework in place for much more efficient and accurate freight invoice audit, approval and payment process.
The critical components of an automated freight audit solution include:
There have been some interesting developments in the area of private fleet and for-hire carrier operations over the past few years. We have seen a significant increase in customer interest in solutions that integrate the planning and execution functions of shipments. Previously, most private fleet operating businesses we had talked to viewed the fleet as a separately managed entity that was typically focused on outbound distribution. In some cases, the fleet would have static backhauls for inbound goods. For-hire carriers were typically managed by a different team. Integrating the planning and execution of private fleet and for-hire raises some interesting challenges. While the objective is usually to provide the lowest cost of delivery, success demands that integration must encompass delivery training needs, equipment, special services, etc. The requirements for pricing, planning, and executing private fleet and for-hire assets however usually involve a very different information and business process. Unifying the data and business processes for effective control without becoming overwhelmed by complexity is a significant challenge. Before examining how the challenges can be addressed, it is important to first look at the various considerations that must be taken into account.
