18


Issue 7 2018 - Freight Business Journal


///FREIGHT AUDITY + PAY


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 at enVista, 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 information


to provide in a consistent,


uniform manner and to tell them exactly how invoices have been received and processed. “Oſten, you find that a with


company 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 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


Governments such as Mexico’s are implementing sophisticated VAT-tracking systems despite being - or perhaps because - they are short of cash


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


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


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


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


The European Commission reckons that the EU is losing about €150 billion - worth of VAT every year


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,


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


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


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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