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Issue 6 2014 - Freight Business Journal Freight audit leaps the Pond

Freight audit and pay services were a largely US phenomenon until about the middle of the last decade, says Donal Brennan, vice president, EMEA operations and global projects at CTSI- Global. “Things started to change from about 2005/06,” he says. “It was driven initially by the Enron scandal in the US and the resultant SOx (Sarbanes Oxley) legislation. Also, companies were becoming more conscious of where they spending money, as the recession started to bite.” This let to a sharp upturn in

the use of freight audit and pay services in Europe, to the point where perhaps 25% of firms now use a service of some sort (compared with 85-90% in the US). However, the initial spurt in uptake has probably passed, and the market is now in a steady growth phase, he believes. Generally, the higher value the goods being dealt with, the more likely is the shipper to consider a freight audit and pay service. Such services also tend to be used by companies processing upwards of 1,000 freight invoices a month, though there are some clients who handle around 10 million invoices a year. CTSI-Global

is one of the

originally US-based freight audit and pay firms that has seen the potential for overseas expansion and now has offices in Limerick (Ireland), Chennai (India) and Singapore; there are around ten global players involved in the European market, along with a number of smaller, more localised firms, especially in Germany. Brennan

says that

while the original impetus for expansion was US legislation, many companies are now using such services for cost saving and supply chain efficiency reasons rather than compliance issues. CTSI Global takes in invoices, paper, scanned

whether on

or electronically, carries out validity checks according to the client’s requested business rules – for example that the VAT amount and number is correct or that the shipment number has been correctly entered - carries out a duplicate check and an exception check and then either sends a notification to the client or pays on the client’s behalf. The service can save clients

a lot of expense, if they take into account the amount of their own staff’s time taken up in manual processing, argues Brennan.

How much it costs to process the average invoice is a how long is a piece of string type question, but $20 might be a reasonable number he suggests, whereas CTSI charges as little as 25-35 cents, he says. However, he argues, the come from the

real benefits

information that CTSI can provide. “We extrapolate a lot of data, which can be used to improve running of the business - for example, better requests for quotation, or how much is being spent by mode, carrier or trade lane – or you can compare different carriers.” Those factors will, in the longer term, outweigh the direct cost savings. A freight audit and pay service

also serves as a double-check of billing errors by freight service providers. As with many large organisations, freight service providers’ billing processes are not always as robust as they could be. The number of mergers and acquisitions in the freight and logistics industry has led to multiple systems within the same company, and making up and processing invoices is oſten seen as a chore. At the same time, the complexity of much freight pricing – actual versus chargeable weight, fuel and currency surcharges and so on - hardly helps matters. In fact, says Brennan, freight

companies themselves can benefit when a freight audit and pay company gets involved, as it can help them make their own processes more robust. “There are a huge number of variables in our industry and the lack on consistency does lead to problems,” he says. Some factors ultimately come down to interpretation, and if required CTSI can sit down with client and freight service provider to resolve issues. That said, “most freight carriers

are willing to put their hands up when they make a mistake, as it’s not in their interest to alienate a customer,” he points out. Another factor in the rise of

the freight audit and payment industry is the near demise of the specialist shipping or logistics manager. Freight payments are now under the control of general purchasing departments, who may not necessarily have the experience to make good decisions when it comes to buying freight services. The cheapest rate is not necessarily the most cost-effective.

Keeping cargo charges under control

One of the few home-grown players in the European freight audit and pay market is Netherlands-based ControlPay. Established in 2002, it is currently the only large-scale player to have originated on this side of the Atlantic, says director of global account management and sales, Pieter Kinds. ControlPay provides the

standard services, including checking of invoices and ensuring that they are correct; it is also helping its customers moving towards self-billing for freight, which is arguably the best way of ensuring that invoice information is correct, argues Kinds. FA&P companies can play

a vital part in ensuring that complex freight invoices are correct and that business rules are being followed. But freight service providers don’t always realise that it can be to their advantage to have an FA&P provider involved, says Kinds, because their involvement can mean that they also get paid more quickly. But the concept does still

suffer from a lack of acceptance by the freight industry, he continues. Partly, it may be because the freight industry itself has neglected automation and moreover many firms, as a result of previous mergers and takeovers, themselves lack unified systems and find it quite hard to handle data themselves. A big freight organisation could have as many as 30 different systems. “Oſten, automation is quite

neglected,” he confirms. “It can be a very ‘political’ issue within companies, people are dealing with it for the first time and perhaps they even feel threatened by it. Bringing in a freight audit and pay company can open up a ‘Pandora’s Box’ of discrepancies that might now be discovered.” Errors creep into freight

invoices, sometimes because they are genuine mistakes, or sometimes because carriers know that shippers will accept a certain ‘tolerance’ in billing. The issues also tend to be far more complex in Europe than in the

some countries,


US; whereas in the latter, a degree of standardisation has allowed FA&P to be sold almost as a commodity service, Europe has a multiplicity of business practices, government requirements (in

there are

statutory payment times, for example), VAT rates, customs controls and so forth. Few companies in Europe have

yet focussed on freight payments as a core part of their strategy, says Kinds. Those that do, are oſten the better organised firms with strong, ‘top down’ management, frequently Japanese-owned and already a high degree of uniformity in their business practices. In those cases where ControlPay has been involved, it has helped bring headcount down in the relevant department quite dramatically, over time. However, Kinds acknowledges

that this can take a long time to achieve in a typical European company set-up, with its multiple sites, processes and procedures, “which makes it difficult to see what is happening.”

Audit and pay gains a global fan base

Freight Audit and Pay services are gaining ground in other parts of the world, although they are still a long way behind North America. Outside the US and outside the global top 500 or 1,000 firms, “it is a new and not widely known and accepted business practice for small shippers,” says president of CT Global Freight Audit, Allen J. Miner. “But once they understand the payback and return on investment and the downstream benefits such as reportable databases, then they realise that it is a big value-added service for their companies.” CT Global Freight Audit, with a

global HQ in Cleveland, has had an office in the UK, near Birmingham, since 2007 from which it services everywhere outside North America, says Miner. Staff there have foreign language skills and freight expertise in most parts of the world, including India, China and Russia. CT’s Freightrater and its new

‘LION’ (Logistics Intelligence Optimisation Network) soſtware have also been adapted to meet the needs of overseas markets and can validate invoices all over the world, says Miner. There are

dollar spent with a freight audit and pay company could yield five times as much in recovered money, or around 3-5% of a typical company’s freight spending. But perhaps the biggest potential

challenges in some markets, such as China and India, but gradually the concept is gaining ground. LION, Miner describes as “truly

global soſtware that can globally execute, reagardless of location, knitting together all the different transport legs from supplier to destination across oceans.” The UK market is also growing

especially swiſtly, although companies using FA&P are still a minority even here. “In the US, seven out of ten manufacturers outsource it, whereas in the UK the proportions are reversed – perhaps two or three out of ten.” Are there major differences

between the service provided in the US and the rest of the world? “Yes and no,” says Miner. “The US industry and model is different because it is a mature market, and

also because the US Government regulations allow us or the shipper to reduce the amount paid to the carrier based on what the actual controlled net charges should be. Outside the US, they don’t allow that and you have to remit the carrier in full and, aſter explaining the billing error, then ask for a credit note.” In some respects, the freight is more labour

audit process

intensive than in the US in many countries, but soſtware and automation have gone a long way to mitigate this, says Miner. Use of EDI is growing outside the US and it does make it easier for clients to drill down into the detail of freight bills, for example to examine supplemental charges and see if they are legitimate or not. Miner calculates that every

gain is in data mining. CT Global can show how much traffic is being moved and between which origin and destination, how frequently carriers are used, the cost per tonne and it can allocate costs to accounts within the company’s ERP system. ERP systems, by the way, “don’t provide that sort of information,” says Miner. “They are just accounting systems and have no understanding of the minutiae of transport.” The system can also provide a

lot of other information such as the number of pieces delivered to every customer, delivered cost per unit and so on, all of them aids to good decision making. Users can find out if they are making money from a particular customer. Such knowledge, Miner is convinced, “will change behaviour in the long run.” Instead of using dozens of different freight providers, companies will leverage their relationship with smaller numbers of larger providers.

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