Issue 7 2020 - Freight Business Journal

23 Keeping track of freight costs

It’s been a diffi cult time for freight audit and pay fi rms. Fewer freight bills means less work and many face tough times. However, the sector is resilient and many operators are reinventing themselves as logistics analysts.

Freight audit and pay faces turbulent times

Freight Audit and Pay (FAP) companies have been going through a difficult time during the Covid crisis. This is particularly true

of those that work on a transactional, ‘no win no fee’ basis – analysing each transaction for any service failures or other shortcomings for which the shipper customer can

claim compensation.

This is because the volume of transactions have been greatly reduced during the crisis and that in turn means that there is little or nothing to audit. Moreover, many FAP firms

also make a substantial part of their income by recovering freight payments on behalf of clients after service failures by shipping lines or parcels carriers. However, with shipping lines and parcels carriers declaring force majeure on delayed deliveries or blank sailings,

this may not be

currently possible, leaving a major hole in many FAP firms’ finances. Even though FAP firms may

be continuing to attract new clients, if these are recruited on a no win, no fee basis, pickings may be thin. Observers of this specialised sector of the freight industry

predict that the situation will lead to a greater pace of mergers and acquisitions of companies. Some might say even greater, given the volatility of the sector before the Covid crisis. FAP companies have not only been active in acquiring each other; FAP firms with their specialist activity and large customer bases can be attractive purchases

for companies

operating in other sectors of freight and logistics, or even for those involved in banking or finance. The other means by which

FAP firms can weather the Covid storm is by cutting costs. Some European and North American-based businesses have outsourced the actual auditing and processing of freight invoices to India or other lower-cost offshore locations; according to one commentator, the fact that the Indian government has made it illegal to fire staff during the crisis has given some operators an incentive to sack or furlough their European workers instead and move all or much of their operations there. However, offshoring could

lead to problems, some suggest. One is data protection; any firm that claims to be based

in Europe or the US but then sends freight data to a server and office in India might well be in breach of data protection laws such as GDPR in Europe. Data connections in low cost countries may be less secure and the auditing process less effective, because of language barriers or lack of geographical knowledge. How many people in India know that Solihull is part of Birmingham, for instance? It might sound like a fine distinction, but if a shipper has negotiated a lower rate for freight picked up in Birmingham as opposed to other parts of the country, it could make a big difference to costs. Adding to the complexity,

much shipping line and carrier billing leaves a lot to be desired. Some of this may also be due to offshoring, while other factors include the differing systems for ocean freight, demurrage, haulage or handling. The security of many carriers’ own data systems isn’t perfect; some, including Maersk and FedEx have suffered breaches in the last couple of years although the industry has moved to improve matters. It is also worth asking

whether your FAP’s server is modern and secure. IT experts

reckon that, whatever the lay person might think, these days Cloud-based systems are in fact often more secure than ‘on premise’ services, given the huge amounts that firms like Microsoft have spent on security. Pieter Kinds, who was

global business development Director at freight audit and pay company ControlPay until early 2020 but is now chief executive and owner of the Freightender multimodal logistics procurement platform, believes that FAP firms will have to become more agile and digitally aware if they are to prosper. Some have become rather

fossilized and can find it difficult to adapt to the changing needs of the market, he says. FAP firms’ technology was once considered cutting- edge, but they are now finding it hard to digitise and offer a truly attractive service, particularly to smaller companies. Ironically, what has kept

some FAP firms in business is the inflexibility of their systems that has made it hard for customers, particularly larger multinational ones, to move away from them. “If you’re an FAP firm, companies do tend to stay with you forever, because the cost of changing is enormous,” Kinds told FBJ. But it is this same rigidity in processes that were designed with the needs of major multinationals in mind that is making it hard

for FAP firms to add new customers. “Instead of having a large

battery of people, FAP firms need to put technology at the centre of their operations. At the moment, it’s still a very manual process.” FAP firms are still geared to

offering large companies what Kinds terms a “Ferrari” service with all sorts of extras included whereas many potential customers would

be quite

satisfied with a much more basic “Vauxhall” type of offering. The danger for the FAP sector

is that freight audit software is often available – sometimes from firms offering transport management systems and the like – that includes a set of tools that allows companies to take a DIY approach to freight auditing, at least in many jurisdictions. “Yes, there are places where everything is still on pieces of paper because local regulations insist on it, but in Western Europe this isn’t the case so a self-help approach is possible for many firms.” The freight auditing process

could also in time be made simpler and more achievable in- house because of the activities of companies like Freightender, which aims to simplify and standardise freight and logistics tendering, which in turn will make the auditing process much more straightforward. At the moment, though,

freight invoices remain complex, little understood

outside the freight community itself and prone to errors, many of them not in the customer’s favour. Actually, says Kinds, freight carriers do often sharpen up their invoicing act when dealing with companies that

use FAP companies,

knowing that errors are much more likely to be detected and queried. In general, however, standards leave a lot of room for improvement although there are some examples of good practice, such as DHL Express, he says. Freight bills have many

different components and the amount of

each component

will vary greatly according to circumstances and location and are well beyond the capability of a general company auditor. While other bills such as those for materials or utilities do get audited from time to time, freight and logistics is one area where routine scrutiny should be considered, says Kinds. Many of the FAP firms have

set their sights on Europe and Asia and this

is where their

greatest growth prospects lie, although it is fair to say that the activity is still most closely associated with North America, where it originated. European freight and logistics spending tends to be more fragmented than in North America, where national transport managers will typically be in control of much bigger budgets than their counterparts in other parts of the world.

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