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Issue 8 2018 - FBJNA At the same


time, technology that’s even more


esoteric in handling Big Data will impose yet further demands on FAPs.


Disruption technology


Enter blockchain. “Many of the challenges faced


by shippers today help drive the need for more information that they can receive from a Freight Audit & payment provider,” says Tom Zygmunt, marketing manager at Cass. He and other execs are girding


for the tamper-proof database technology known as blockchain, which actually is based on the old-fashioned general ledger. Blockchain allows automated invoice calculations through a


series of chronological “blocks,” with verified data accessible in real time. “Although


still that, if in its


infancy, blockchain has been characterized as a disruptive technology


widely


adopted, could enable a giant leap forward in


supply-chain


collaboration and automation,” says Zygmunt, whose company joined the nascent Blockchain in Transport Alliance. “Without


the totality of


transportation information, you cannot achieve the next level of savings for your client,” he says. “New technology continues to enhance the presentment of critical information in formats that are most useful and timely. All this e-wizardry still leads


back to the consumer, who not only expects ever-faster service


but also demands privacy. Here, another new twist faces FAPs: the European Union’s General Data Protection Regulation, or GDPR, which took effect in May. Harold Friedman, Senior Vice


President, Global Corporate Development for Data2Logistics, says the rule shiſts ownership of “personally identifiable information,” or PII, such as names, addresses, ID numbers, and so forth, from the business that collects and hosts that data back to the customer. Shipping invoices, he says,


“may at times include PII. The fact that they do requires compliance. GPDR comes with a big stick. Non- compliant organizations can face heſty fines of €20 million or 4% of the company’s global revenue, whichever is larger.” While regulatory pressures,


///FREIGHT AUDIT + PAY


Carrie Bornbaum, Executive Assistant at CT Logistics, uses the company’s FreitRater technology. (CT Logistics Photo.)


truck shortages, and rising rates continue pushing shippers to find ways to cut their transportation


spend, Friedman concludes that the consumer must remain the focus—“recognizing that


transportation is a service, not a commodity business.”


Big beasts dominate the freight audit landscape


The Freight audit and pay (FAP) landscape is changing rapidly, says Dominic McGough, managing partner at enVista for the EMEA and APAC regions. Whereas a few years ago, anyone who could use a spreadsheet program could set themselves up as an FAP firm, today’s companies are investing heavily in IT systems and a global presence. EnVista is now two years into


its five year plan to develop into a global provider of FAP and related services, says McGough. He explains: “At first, FAPs were


mainly in North America. But then there was a big uptake in interest by multinational firms, initially in Europe. FAP firms then started to invest in the Asia-Pacific region, but only the bigger ones, and then finally a very small number extended their reach into Latin America to offer a truly global service.” Mergers and acquisitions in the


sector have resulted in fewer, but larger FAP firms (like Veraction’s acquisition of National Traffic last year, followed by Trax’s more recent purchase of Veraction) and there are also signs of venture capital firms getting interested in the sector. McGough states: “The cost


and complexity of operating globally is high, so there are fewer companies in that space.” Worldwide FAP can never be


a one-size-fits all service. There are too many local, national, and multinational customs, regulations and practices for that. For example, in North America


it’s common practice for FAP firms to take on the payment as well as the auditing functions, however in some countries, such as China or Brazil, doing so would have tax implications, so an audit-only service is commonly provided. Another important factor


today is the sheer size of the data-processing task, says McGough. “With the move towards e-commerce, the number


of transactions has


increased enormously. Moreover, government agencies, mindful of the amount of tax revenue at stake, are paying closer attention to those transactions”. Meanwhile, says McGough:


“We have had a stellar year this year, with double digit growth. Business has been won from other FAP firms, but also from customers who have never used such an FAP service in the past but are now realising and exploring the benefits FAP can offer to their supply chains”. There’s much more to freight


auditing than simply correcting errors on freight invoicing these days. In fact, says McGough, if an FAP firm finds itself routinely correcting the same or similar errors all the time for the same customer, it could be a sign that it isn’t doing its job properly. “What the FAP firm should be doing is taking corrective action to ensure that it doesn’t happen again,” although the fact that some firms get paid on the basis of the number of errors that they detect and correct means that not every FAP firm takes such a proactive


approach, he suggests. Many customers though are


new to FAP, attracted by enVista’s ability to provide information in a consistent, uniform manner and to tell them exactly how invoices have been received and processed. “Oſten, you find that a company


with 31 facilities handles invoices in 31 different ways,” says McGough. EnVista will carry out a normalisation procedure to standardise invoices and send them back to the client in a uniform manner. Inconsistencies arise because carriers oſten use their own descriptions for various surcharges for fuel and currency. BIFA (the British International


Freight Association, which represents freight forwarders and similar companies in the UK) recently hit out against the proliferation of different surcharges - for equipment imbalance, peak season and currency and fuel, including the new ‘sulphur surcharge’ recently added by some shipping lines - to cover the cost of cleaning up vessel emissions, saying that it would prefer any necessary increases to be consolidated within freight rates. BIFA adds that its


freight forwarder members


have the task of explaining surcharges to their customers, who sometimes unfairly blame them for the increases. McGough agrees that the


large number of surcharges can oſten cause confusion to freight industry


customers, “so our approach is to record what we do


and present it so that the client gets a uniform structure, with charges shown in the form of a table, either as a flat charge or as a percentage of the freight cost.” Another area of growth that


McGough notes is an increase in auditing of domestic transport. Companies are anxious to identify the entirety of their shipment costs, not just from the overseas supplier to the initial point of delivery, but all the subsequent movements right up to the consumer’s door, in many cases. While enVista has provided such a service for its North American clients for some time, now there is growing interest in other parts of the world, he says. “It’s not unusual to see 4-5 different invoices associated with a single shipment, and collating this information gives the client the total landed and delivered cost.” Recent developments in


analytics have made it possible to provide this level of complexity. In fact, says McGough, multinational clients are starting to demand the level of visibility that they have long enjoyed in their North American operations elsewhere in the world. The emerging nations


have until now been seen as information


‘black holes’ but


this landscape is beginning to change, McGough continues. Cash-strapped South American governments have suddenly become


very interested in


recovering taxes such as VAT and, starting as they are with a clean sheet of paper, have introduced


systems that can track individual invoices and account for VAT and other taxes. “Solutions have been implemented in Mexico and Colombia, and now there is interest from developed nation governments, such as that of Spain,” says McGough. Lost VAT is certainly a sore


point in the EU. According to the latest European Commission figures, published on 20 September, countries lost almost €150 billion in revenue in 2016. While this is a decrease of around €10bn, it still amounts to 12.3% of total VAT revenues. Certainly, the Mexican VAT


recovery system works very smoothly, he adds, with some of the highest VAT recovery rates in the world. Could such a system even help


the UK aſter Brexit, particularly for consignments crossing and re- crossing their Ireland/Northern Ireland border? EnVista has been helping its


customers based in or with an interest in the UK prepare for Brexit, insofar as that is possible since no one yet knows what Brexit


will actually be. It has


helped or is helping many firms achieve Authorised Economic Operator (AEO) status, on the grounds that even if full AEO status is not strictly necessary to operate across the UK’s border’s aſter March next year,


it will


certainly help them run their operations in a tighter, and more controlled way. Historically,


take-up of AEO in the UK has been lower than


in some other EU countries but, despite the difficulties in achieving the exacting AEO standards, there has been “a huge upsurge” in the number of customers showing an interest, says McGough. “In fact, the big question now is whether HMRC has got the ‘bandwidth’ to do all the certifications that may be required.” The process of freight auditing


itself is meanwhile developing, with the largest companies making significant investments in


artificial intelligence (AI),


machine learning and business intelligence. These technologies can identify trends, learn from errors and take corrective action with minimal intervention by human operatives – supply chains these days are so complex that it is simply impossible to solve issues simply by “throwing headcount at it”, even if it was financially viable to do so. However, the price that has to


be paid is major investment in IT and systems, and this is something that only the largest FAP firms can provide, McGough suggests. Being geographically spread also helps – an AI investment in one country can be replicated in all regions in which enVista operates. Also, seeking ever higher


returns on their investment, what clients of FAP firms increasingly demand these days are analytics. The level of information provided allows customers to drill down into their supply chains, identify where their waste is occurring and take the necessary steps to reduce or possibly eliminate it.


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