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Invoice Auditing

How to Optimize Freight Contracts to Save Money

By Shipware | Contract Negotiation, Invoice Auditing, News, Shipping Knowledge | No Comments

Freight contract negotiation is a prime way to improve operating expenses. Shipping is expensive and a vital function of many companies. Optimizing the transportation contract, whether with a shipowner, trucking company, or parcel carrier, means a leaner supply chain and better financial. Below we’ll cover different freight contracts and offer different freight shipping tips that will help you optimize your contract.

Types of Freight Contracts

There are various types of freight contracts. In the big picture, they detail the liabilities and responsibilities for the carrier and those of the freight broker or shipper. Freight contracts typically include information about the freight carried, the agreed-upon rate, the delivery time range, and any necessary verifications required for delivered freight. Freight contracts can be signed on a yearly basis or for a set time period, or they can be one-off contracts where you get spot market rates for less frequent or variable shipments. Volume freight shipping also impacts contracts and rates depending on if it’s for FTL or LTL shipping.  

Broker-carrier Agreement

The broker-carrier agreement (also called a motor carrier-broker agreement) includes the broker and the carrier’s contact information and corporate names, and the motor carrier (MC) number. The agreement contains the date, delivery fee, how many days the shipper has to pay, any invoicing procedures, and liability and insurance information. It may specify subcontracting rules, how to handle pricing or other disputes, and customs compliance information. This may be considered a master contract for the relationship, with details such as rates and destination changed or negotiated per shipment. That resulting information would then be on the rate confirmation and load tender agreements.

Bill of Lading

The freight broker or shipper provides a bill of lading before the cargo is hauled. It’s considered a receipt that is given to the consignee by the freight carrier. It includes details about the freight, special instructions, destination, and delivery time period. It acts as proof of delivery and is often needed to submit for payment. The bill of lading might have a separate rate confirmation page or the rate may be included on the bill of lading.

Load Confirmation or Load Tender

This type of freight contract includes logistics details like pick-up and delivery address, hours of operation, the trailer type and details (measurements), anticipated weight, and freight description. It may also include a trip number for tracking purposes. If there is a commission or brokerage fee structure, that would be included as well.

Accessorial Charges

Even if the payment is already determined, accessorial charges are sometimes added if the services exceed the transportation service scope. They might include waiting time, shipment refusal, storage, tarping, fuel surcharges, or other delivery parameters. Contract labor is not necessarily an accessorial charge, but may be an additional fee if contract laborers will be used to unload the truck at the consignee’s location. A separate receipt may be given for this.

Rate Confirmation

This confirmation can be an independent freight forwarder agreement or part of a load tender form. The rate confirmation clarifies the rate to be paid to the carrier by the shipper or freight broker, and it must be signed by the carrier to be valid.

Optimizing Your Freight Contract Through Negotiation

Negotiation is an important tool in controlling each shipping cost whether it’s pallet shipping cost or accessorial charges. If you’re asking, how much does freight shipping cost, the answer depends on each carrier’s rates. Shipping can be a huge expense for companies, and those who don’t negotiate the best rates will be hurting their bottom line. If shipping overseas, the shipper will likely negotiate through freight forwarders to get pricing from shipowners. Freight negotiation with shipping companies for larger shipments like full truckload (FTL) or partial truckload (PTL) may be separate than negotiating contracts for parcel services.

Areas to Optimize For

There are a number of areas for carrier contract optimization negotiating. Here are some of them.

Exclusivity

Parcel carriers are always trying to figure out how to get contracts with shippers, either new companies or taking away parcel shipping services from their rivals. This provides shippers with some leverage. They can promise all their parcel shipping to one carrier in exchange for lower rates. Or they can negotiate with multiple carriers, but know that the rates per carrier may be higher as a result. It may be worth it, if committing some of that capacity to regional carriers. Carriers want to qualify shippers for discounts using revenue bands, and shippers commit to a certain volume to get these discounts. Being exclusive to one freight carrier is a good way to stay in the revenue band.

Charges

Minimum charges and dimensional pricing are two areas where charges can greatly differ for each shipper. Carriers like to assess a minimum charge to ensure they are making a certain amount of money on each package, no matter the size or weight. Dimensional pricing has changed over the years. The carriers use a dimensional (DIM) weight, which is calculated as length x width x height, divided by a standard 139 divisor. That divisor is not set in stone. The number has gone down in recent years, which makes it more expensive for the shipper. The number, however, is negotiable as part of the contract freight rates. The minimum charge is also negotiable.

Accessorial Costs 

Just like accessorials are part of the freight contract for large shipments, they’re part of the parcel contract as well. Accessorials are surcharges for conditions outside of what the carrier sees as typical. They added fuel charges when fuel costs were high, and those stuck around. Carriers charge extra to deliver to residential addresses, to deliver oversize packages, those that won’t easily run through their automation equipment (e.g. additional handling), and those delivered outside the major service areas. 

Reviewing Services

A shipper might be getting services that aren’t necessary, which costs more money. For example, a shipper can opt for SurePost which charges no residential delivery fee, instead of sending residential items through UPS. They may be using air cargo instead of ground service, when ground would get the parcel to its location in a reasonable timeframe. Companies can also negotiate for faster transportation service or better customer service instead of a rate decrease.

Negotiating freight contracts is best done with an understanding of your shipping needs, your past shipping history, and your shipping characteristics. There is a lot of data to parse and analyze, and it can be confusing to know all the details are necessary for the most effective negotiation. Understanding how much of the shipping falls under DIM weight and minimum weight is key, as is understanding which accessorial charges are most frequent and driving up your freight costs. These are just a few of the characteristics that drive negotiation requests. 

Shipware, through our parcel rates negotiation consulting services, helps shippers gather and analyze the data and a negotiation plan. Our shipping consultants worked as executives at the big carriers and know what areas they can negotiate, and by how much. Some shippers go it alone and are able to make a dent in their contract rates and services, but Shipware can see the negotiations and the shipping contracts holistically. We can walk you through the process behind the scenes, guaranteeing that you will get a better carrier contract and a cheap freight shipping cost than you’d get on your own.

Optimizing your Freight Contract Through Parcel Audit

Negotiating freight cost and contracts with shipping companies is important. But ensuring you are not paying charges you shouldn’t be paying is important too. Parcel audit is sometimes called audit recovery. Carriers make promises to deliver a package by a certain time or you get your money back. Companies don’t have the time or resources to track every package and compare the delivery time to the invoice, and then follow up with a credit request. There are other charges that come through as well, that are even less obvious. That might include charging accessorial charges that are incorrect. Perhaps a package went to a business address but was tagged as a residential delivery. Your company would be paying an additional fee for that, if it’s not caught and tagged by a parcel audit.

Save Money with Shipware 

Having a team of parcel auditors will save your company money, and not necessarily cost you anything. For Shipware it starts with a free analysis of your parcel service to identify whether you are paying for services you’re not getting, or if there are recoverable mistakes on your invoices. Shipware uses a software system that combs through each invoice at the end of the day, requiring no shipper work. It identifies errors and automatically requests a credit from the carrier. The system flags any questionable items, followed up by an auditing expert who can manually investigate the charge and request a credit if needed.

Using a parcel auditing service is like finding money on the ground. It may have fallen out of your wallet when you weren’t looking, but it’s your money. The service costs the shipper nothing, and results in cost savings. The auditing fee comes from the amount saved, so the shipper comes out ahead no matter what. These shipping errors will not be highlighted by the carrier. It’s up to the shipper to find and request them. It’s a great way to lower the cost of shipping while making no effort.

Freight negotiation with shipping companies and for parcel contracts is an important way to lower your transportation costs. It can be time-consuming initially, to get ready for an effective negotiation. But the cost savings are worthwhile. Shipware can be your partner in this process, making it easy for you to negotiate better contract rates and terms. Reach out to us to see how we can help.

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What is a Bill of Lading?

By Shipware | Invoice Auditing, News, Shipping Knowledge

A bill of lading performs an outsized role when it comes to communications between the shipper, carrier, and receiver. What is a bill of lading and what is its purpose? The bill of lading has many purposes, including as a document conveying shipment details, like proof of shipment and proof of delivery. It also helps the carrier process that freight shipment. The bill of lading is a title document, showing ownership of the goods, and sharing the terms and conditions for transporting the freight.

The term “bill of lading” could really be “bill of loading,” as it’s an old English term that means “list of cargo.” Just as the current English term is understood, lading is the process of loading cargo onto the transport vehicle. Originally it was a term just used for ships transporting goods in the water.

Carriers require the bill of lading, sometimes known as a BOL or B/L, to move freight. As a legally binding document, it gives the driver or shipping staff the necessary details to process the cargo or freight, and for invoicing. The bill of lading is typically given to the carrier or driver when it’s picked up and is also attached to the freight. Shippers should keep a signed copy of the bill of lading after the carriers receive the shipment for transport. It is considered proof of carrier liability, in case of damage or loss of the freight. 

Without clear understanding of the bill of lading and shipping consulting, you’re likely getting mischarged or overcharged in shipping costs. Read on as we break down the bill of lading and what’s included in this shipping document.

Breaking Down the Bill of Lading

A bill of lading should include all the details needed to identify not only the shipped freight, but the parties involved. Tracking information is included along with shipping details. More specifically, here’s what to look for on a bill of lading as the specifics could differ for FOB shipping point vs. destination.

Names and Contact Information 

The shipper and receiver, called the consignee, are both included in the bill of lading, along with their addresses. The shipper may be the freight forwarder, who is sometimes also a customs broker. It could also include contract information for the carrier, and the port of loading and the destination, if traveling by water. The vessel name may be listed as well.

Reference Numbers

What is a bill of lading number? Bills of lading carry reference numbers, like purchase order numbers, so both parties can identify the freight at pickup and delivery.

Dates

The pick-up date is noted. It is often used as a reference not only for identification and tracking (especially for international cargo), but the date is also important for financing purposes. 

Item Descriptions

The items should be described in an obvious way, including how many shipping units, their weight, dimensions and other identifying information. Packaging types might be included here as well, whether pallets, crates, cartons or drums, for example.

Instructions

The bill of lading may carry special instructions, about delivery notification or the need for specific services.

Freight Class

Carriers use freight classes based on factors like dimension, weight, storage capability, handling ease, liability, density, and others. They will be listed on the bill of lading.

Hazardous Material Designation

The Department of Transportation (DOT) requires that hazardous material shipments be identified, and the DOT rules must be followed for these shipments as well.

Charges

The bill of lading may note freight charges and whether shipping was prepaid or to be collected on delivery.

The freight forwarder and customs broker should be able to give you additional information on all sections of a bill of lading. Depending on the cost breakout, there may be an opportunity to negotiate discounted shipping rates.

How a Bill of Lading is Used?

The bill of lading serves as a receipt for the shipment, and can also serve as a commercial invoice. It is signed by the various parties, including representatives from the shipper, the carrier and the receiver, at the appropriate times. It’s a title document for the goods. The bill of lading acts as a commercial invoice, so when freight arrives in good condition, and the receiver signs for it, the seller can then be paid for the goods.

If goods are damaged or stolen during the transport, the bill of lading acts as a receipt of goods to help the shipper or receiver recover the value. It’s required when filing claims for compensation for loss or damage, but also can be used in ownership disputes.  

Carriers may use the bill of lading as a starting point for inspecting and weighing the freight. They want to ensure they have the proper information, including shipping class designation, before it is transported. If the bill of lading contains errors, it can delay the delivery and result in additional fees and accessorials. Inspection can help decrease surprises for the customs broker at the destination, and will make customs clearance easier.

Terminology for issuing the bill of lading can be confusing. The bill of lading is issued by the carrier, when the driver or authorized carrier representative signs it. It’s issued by them because it’s a receipt. However, the shipper prepares the bill of lading. It’s entered into their computer system, and may even contain a corporate logo.

Bill of Lading: Example

Let’s assume a retailer receives weekly shipments of goods to sell. The buyer chooses the goods from a specific supplier and fills out a purchase order. The manager approves the purchase, and the supplier fills the order. The supplier prepares a bill of lading, which they sign when the driver loads it onto the truck. The driver signs the bill of lading as well.

The driver delivers the goods to the retail store, and the receiving department reviews the bill of lading, to ensure that the correct number of boxes and items are there. A visual inspection shows no damage to the order, and the receiving department signs the bill of lading, as proof of delivery for the receipt of goods. The manager later reviews the bill of lading and purchase order, and upon finding a match, approves the invoice for payment.

Types of Bill of Lading 

There are many nuanced versions of the terminology used for a bill of lading. Here are some of them.

Straight Bill of Lading

This is the most common type of bill of lading, used most often to ship prepaid goods to a customer. This shipping document may also specify how the carrier limits its liability. It is also known as a uniform bill of lading.

Clean Bill of Lading

When the goods arrive and are received with no damage, it’s considered a clean bill of lading.

Claused Bill of Lading

When the goods arrive but are defective or damaged, they’re considered claused, fouled or dirty. 

Negotiable Bill of Lading

The negotiable bill of lading allows the title of the goods to transfer to the entity named on the bill, a third party. It transfers the title through a consignment process. The consignee, or expected receiver, can endorse the document so the goods are transferred to the new third party, or the new consignee. To do this, the bill of lading should be clean.

Non-negotiable Bill of Lading

The person or company claiming the goods must be the person on the bill of lading, with proof of identity. They cannot transfer the goods to a third party at the receiving port or destination.

Inland Bill of Lading

This is used when goods are sent via land first (rail or road), and then transferred to an ocean vessel. They would need an ocean bill of lading to be shipped as freight over the water.

Through Bill of Lading

This document is used when goods are transported both domestically and internationally. 

Air Waybill

So far we’ve talked about land and sea transport bills of lading. The air waybill is the air transport version, though it is non-negotiable

Multimodal Transport Bill of Lading

When goods are shipped using multiple transportation modes, you may need a multimodal transport bill of lading. Goods traveling this way may be transported domestically by air, and then internationally via ship, hence multimodal transport. 

On-board Bill of Lading

This description indicates that the merchandise was physically loaded onto the transportation vehicle, whether a ship, plane or truck.

Received for Shipping Bill of Lading

This indicates that the freight was received, but was not necessarily loaded yet onto the transportation vehicle. Often this is issued by a freight forwarder at the port of loading or at a depot.

Order Bill of Lading

If shipping freight without prepayment, a carrier is allowed to deliver the goods to the receiver.

Keeping an Eye Out for Costly Mistakes

Bills of lading are used along with the policy of insurance and a commercial invoice, to ensure the proper exchange of payments and goods. One thing to be aware of is that it can be hard to track bills of lading, along with other commercial invoices. Making mistakes is costly. Fortunately, Shipware offers LTL commercial and parcel audit services as well as parcel contract negotiation to help you avoid those costly mistakes that may be driving up your shipping costs. By auditing invoices, Shipware can easily save you money, while reducing variances in your on-time delivery performance, and retaining functionality to keep you ahead of changes. Shipware can help you negotiate better contracts with the assistance of our shipping insiders, allowing you to reduce your shipping costs going forward with no ongoing effort. 

Lower Shipping Cost

9 Ways You Can Lower your Shipping Costs

By Shipware | Contract Negotiation, Invoice Auditing, Shipping Knowledge

The freight transportation system moves over 17.7 billion tons of goods valued at more than $18.1 trillion, or an average of 54.7 tons of freight annually in the United States. About 62.6% of this cargo and about 61.9% of the value is carried by trucks, which remains the primary mode of transport for distances less than 750 miles.

Goods move using a network of truck routes, railroads, waterways, and airports. The distance from origin-to-destination and the cost to ship play an important role in determining which mode(s) of transport are used in this multimodal journey.

Within road transport, there are two main types of shipping options – LTL or Less-than-Truck-Load and FTL or Full Truck Load. LTL is a type of transportation (shipping) service that is used for shipping small loads by shippers who do not have enough cargo to ship it as a Full Truck Load (FTL) whereas a Full Truck Load is just that – a truck full of your goods.

LTL shipments are usually between 151 and 20,000 lbs and shipping carriers apply “weight break” discounts on freight as the shipments increase in weight.

There is a lot of demand in the market for LTL carriers as businesses are starting to realize the cost savings LTL shipping offers. But LTL shipping rates could be quite high due to demand, and all shippers need to know what affects those rates, how they can leverage this knowledge, and reduce shipping costs effectively.

There is a multitude of factors that can influence the pricing of LTL shipping such as:

Freight Classification

The Standard for Freight Identification and Classification is a standard set by The National Motor Freight Classification® (NMFC®) to provide a comparison of commodities moving in interstate, intrastate, and foreign commerce. This standard provides a basis on which freight negotiations may be carried out between the carrier and shipper. NMFC has classified cargoes under 18 different classes from a low 50 to a high of 500 – based on the cargo’s density, handling, stowability, and liability.

Lower classes of cargo are generally heavier and dense and do not damage easily, therefore lower in freight whereas higher classes of cargo are more volumetric and lighter–thus higher in freight.

Cargo Weight, Dimensions, Density

These are critical determinants of the freight class based on which the LTL rates are calculated. The freight rate increases in proportion to the weight of the shipment, the dimensions and the density of the cargo.

Zones and Transit Time

This is another critical determinant of the freight rates charged by carriers. The longer the haul, the higher the rate.

Seasonality

Seasonality influences LTL rates because of the supply and demand metrics attached to the season. Black Friday, Thanksgiving, Christmas are all heavy demand periods and shipping rates spike around the periods of deliveries for these days.

Rates

Even when there are rate negotiations with carriers, rates are not just rates. There are Tariff rates, Flat Rate, FAK, Named Account, Contracted Rates and there are several combinations of these.

Technological Advances

Incredible progressions in the transportation industry (and its many benefits) are fast catching on, but so is the cost. A carrier with the ability to provide real-time data of your cargo using IoT, Big Data, Blockchain, etc., can command a higher rate than those who are not technologically fit.

Volume-based Discounts

Along with rates, volume-based discounts are probably one of the biggest influencers of how LTL pricing is set.

Surcharges/Accessorials  

Usually termed as surprise items in freight pricing, these charges could influence the profit or loss of business quite heavily.

Due to complexities involved in understanding all the above factors, most shippers end up overpaying for the shipment of their goods. Many shippers end up overpaying because their service provider contracts disguise the actual costs and charge many fees and surcharges which are unnecessary.

Since there is no standard, it may be impossible for shippers to know the best-in-class standard costs across various transportation services. It is important for shippers, especially small businesses, to understand the freight transportation market, how it has evolved over the years, and to look for ways to lower shipping costs.

The main thing to understand here is that lowering shipping costs does not automatically mean negotiating the lowest LTL rates. You may be able to get these rates at times, but in the long run, using only this method will not be sustainable.

You’ve been shipping via less-than-truckload (LTL) carriers for years. Yes, they’re expensive, schedules are unpredictable. If you’ve thought, “I don’t have a choice”, then think again because there are definitely opportunities for you to lower your shipping costs and achieve better margins.

But, before that, it’s important to know some of the factors in freight shipping that carrier representatives don’t want you to know, such as:

  • If not handled properly, LTL shipping could cost you much more than other modes of transport or shipping
  • There could be a mid-year rate increase without notice
  • Freight rates increase every year due to capacity crunch, fuel price increase, fuel surcharge or just plain old supply and demand metrics
  • LTL costs depend on various factors and each carrier charges based on the best formula for them, making it difficult for you to forecast the costs for your shipment accurately
  • Due to rehandling, LTL cargo may take longer than expected to reach the destination and this means you need to have buffer stock to cover for any delays or may even be forced to air freight your cargo to maintain your commitment to your clients
  • Rehandling also increases the change of cargo damage which could also increase your insurance rates

But for every challenge there are solutions. Here, we give you 9 tips and strategies on how to effectively lower your shipping costs.

1. Plan your Shipments…Better

Planning is crucial when it comes to transportation because each mistake can be costly and erode the profits of not just the current shipment, but many others. One sure-fire method of reducing shipping costs is effective planning of your inventory cycle which means you only ship when you have to.

With effective inventory planning, you can avoid rush orders and express replenishment orders which will cost you much more than standard deliveries. Planning your deliveries allows you to negotiate effectively with your LTL carrier and work out a consistent schedule within the standard rates on offer.

The carrier will be happy to have a base load from you regularly. This also helps you reduce storage costs in your warehouse for excess inventory.

2. Know your Market Inside and Out

It is important to know who your competitors in the market are, not just from the standpoint of your own business, but also from the perspective of the LTL carrier you may be using. You need to know which carrier your competition may be using, and the areas where they may be better than you in terms of rates and services.

Contracting with those service providers will assist not just in reducing your shipping costs, but also in staying ahead of the competition and increasing your client base.

3. Get to Know Your Service Provider

In a lot of the cases, you as the shipper may be paying more because you did not vet the service provider and their capabilities thoroughly.

In the current freight market, it’s essential to have a service provider that can offer cost reductions on the back of their administrative capabilities and service such as:

  • A sound financial background
  • Technologically fit and capable of providing network and market analysis
  • Business intelligence which can also enhance your business acumen
  • The flexibility of service which allows you to choose the best options for your clients

Leverage the strengths of your preferred carrier and through analysis of historical freight shipping data, invoice audits, freight analysis, and contract optimization to negotiate the best possible contract rates for your shipments.

4. Make the LTL Carrier an Extension of You

By this, we mean once you have identified the best carrier for your shipments, use their strengths and resources to track, monitor and report the progress of the shipments instead of spending your resources which costs you time and money. Such tracking activity can include proof of delivery, cross-docking information where applicable, estimated shipment periods, etc.

5. Go for Speed

Time is of the essence in trade and in shipping; transit time is crucial, not just for your customers, but also you because the quicker your products reach their destination, the faster you get paid, reducing your cash outlay period and finance costs.

Negotiate early delivery discounts with your customers where possible and consider offering your LTL carrier(s) incentives for such deliveries while keeping your margins intact.

6. Negotiate Correctly

Many shippers lose out on significant savings because they don’t understand what types of rates should be negotiated. Carriers offer different kinds of rates – Tariff rate, Flat Rate, FAK, Named Account, Contracted Rate and there are several combinations of these.

As a shipper, you need to negotiate using the characteristics of your business in terms of volume, seasonality, weight, dimensions, density, routes etc and decide which type suits you best. For example, if you are a freight broker, you would definitely have a contracted rate along with a FAK angle so you can base your sell rates on those rates to your regular customers. As a broker, for certain customers with the regular volume, you may also negotiate with a carrier based on a Named Business or Named Account basis.

7. Consolidate, then Collaborate

In this huge market, you don’t need to do it alone. LTL carriers offer discounted rates based on consolidation of cargo with other shippers and this could result in huge costs savings for you.

You could also collaborate with known shippers on specific routes to combine the shipments in order to save on shipping costs. Or, if you have multiple shipments for different clients in the same area, consolidate it.

If you are a small to medium size shipper, it may be an excellent strategy to consolidate your shipments through a freight broker who may be able to help you reduce your shipping costs based on their FAK or volume-based rates that they enjoy with certain LTL carriers.

The use of FAK rates could be a game changer. FAK stands for Freight All Kinds which provides high shipping volume customers with the means to ship multiple items under a lower freight class, which in turn lowers the shipping costs.

8. Distance

While consolidating your orders, it’s wise to choose an LTL carrier that operates in most or all of the zip codes. This is important because when it comes to road freight transportation, the longer the distance, the higher the cost in general; when it comes to LTL carriers in particular if they don’t operate in certain areas, the goods may need to be transferred to other carriers which will increase your shipping costs.

This could also cause extra handling while transferring the cargo which not only leads to additional costs but could also lead to associated costs such as insurance for any damages that may happen during the rehandling of cargo.

9. Optimize Space

Pallets are designed to optimize space and dimension utilization. Select carriers that have the latest technologies for your LTL shipments. Using this, you can calculate the dimensional pricing of your palletized shipments. Palletized cargo is also cheaper to transport as the carrier can optimize the space on the truck due to the standard dimensions of the pallets.

Final Thoughts on Shipping Cost Reduction

Shipping costs are the single largest logistics cost component in a supply chain. Therefore, for any shipper, optimizing logistics by controlling and lowering shipping costs should be a priority.

In summary, there are several ways in which you can effectively lower your shipping cost. Forget the “this is how it’s always been done” and follow the above tips to reduce shipping costs and make your business profitable.

What is parcel auditing

What is Parcel Auditing?

By Shipware | Invoice Auditing, News, Parcel Market Trends

The rise of e-commerce and changes in consumer trends are driving massive increases in parcel shipping volume worldwide. Between 2015 and 2017, global parcel shipping volume increased by nearly 50%. Over $95 billion was spent on parcel shipments in 2016 in US markets alone.

On an average day, FedEx can expect to ship over 14 million parcels to 220 different countries and territories, while UPS delivers another 19 million per day. That’s nearly 9.5 Billion shipments annually, between only two common carriers. Amazingly, almost all of these deliveries are covered by the carrier’s service guarantees. These guarantees are detailed in each carrier’s Service Guide. They ensure that a package will be delivered on time, without so much as 60 seconds delay for express services and one day ground services, or the costs and fees will be refunded in full. The companies are contractually obligated to repay expenses for undelivered services.

Parcel Shipping Today: By The Numbers

Today’s parcel carriers pride themselves on their rates of on-time deliveries, and shipping companies pay for these guarantees at the time of shipment, not the time of delivery. Mistakes happen, and, in reality, between 1 and 7 percent of all FedEx and UPS shipments are delivered late. A late delivery usually results in a violation of the Service Guide that the carrier has with the shipping company. Therefore, the shippers of each package are entitled to refunds on their shipping charges. That could amount to a savings of up to 7% of a company’s shipping costs per month! That is why parcel auditing should be an essential part of any company’s operations.

So, how does a company discover a service violation after delivery and recover the refund they deserve? To put it simply, most do not. While carriers will honor valid requests for refunds, it is the responsibility of the shipper, not the carrier, to review shipping invoices for errors and then submit these errors to the carrier as proof of a violation of the service guide. The carriers are contractually obligated to refund costs paid for service failures.

What is Parcel Auditing?

One thing that a smart business should not neglect is the last stage of the traditional shipping lifecycle. Parcel auditing is, quite simply, reviewing all of a company’s shipping bills and invoices to locate instances of overcharging and service failures due to late delivery. A business could see 5% decreases in shipping costs on these refunds alone. Parcel auditing would be considered a best practice and should always be performed.

A proper auditing process will leverage software technology for a thorough audit of every charge, a refund request, and carrier credit issued. Every shipment should be reviewed for errors or violations of service standards. Carriers will issue refunds on service failures and overcharges, some of them including:

  • Late Deliveries: The parcel was delivered past its guaranteed delivery time and date.
  • Non-Shipments: The parcel was entered into the carrier system and billed, but never shipped from the shipping company.
  • Incorrect Saturday Charge: The parcel was supposed to be picked up on a Saturday, but was not.
  • Duplicate Charges: A parcel was billed more than one time.
  • Incorrect Address Corrections: The carrier charges fees for an address correction that was not necessary or was initially correct.
  • Incorrect Dimensional Weight Charges: The carrier used the wrong dimensions or applied an incorrect DIM factor.
  • Incorrect Rate: The carrier did not apply the correct discount which is stipulated in the shipper’s carrier agreement.

When a company finds a valid problem, the tracking number for that delivery and a request for refund must be submitted to the parcel carrier. When the carrier approves the refund request, the cost of shipment is credited to the shipping company’s account. If all service failures and overcharges are credited, that could mean a significant reduction in overall shipping costs.

In addition to saving shipping costs up-front, completing a parcel audit on all shipments allows a company to better understand where the carriers are failing to deliver on time. A manual audit is a costly, intrusive process that interrupts regular workflow and often results in a net loss due to labor cost versus what is actually recovered. But in modern shipping, effective parcel audit technology can break down carrier invoices into clear, essential performance indicators. Data collected through a parcel auditing processes will allow companies to better evaluate shipping costs, and to make much more informed decisions regarding carrier choice and shipping options.

Manual Parcel Auditing

Traditionally, parcel auditing would not be done at all. If an employee were tasked to each shipping invoice line-by-line, it would be challenging to identify all billing errors and oversights are certain to occur. As the volume of individual small package shipments increases so too does the number of invoices to review, as well as the complexity of various fees charged on top of base shipping costs. At a certain point, the number of work hours needed to process the information will cost more than the savings gained.

For an internal auditor working for the company to be cost-effective, they need to handle thousands of pages of paperwork, documents, and spreadsheets from various carriers and shipments. They would need to discover enough opportunities for refunds to not only reduce the costs of shipping for the company but to cover the additional expenses of hiring employees to do the labor-intensive auditing work. Due to the sheer number of shipments on invoices, human auditors can hardly expect to review 100% of the invoices hoping to find billing errors and service failures. This results in less than optimal returns on costs, as human auditors will not be able to analyze 100% of a company’s shipping bills. Not only does this effectively lead to fewer refunds, but it also results in limited information about the nature of all the billing errors and service failures. This is no longer cost-effective.

Software-Assisted Parcel Auditing

As worldwide shipping volume increases and e-commerce drives small-parcel delivery growth, companies must recognize the need for innovative software and technology to optimize their operations and maximize profit while reducing costs. Parcel auditing software enables shippers to review their invoices electronically and compile data that a human auditor would not be able to analyze alone. This increased efficiency leads to increased refunds, as well as a reduction in tedious, labor-intensive analysis work.

It reduces the effect of human error. As the number of opportunities for refunds grows, so does the cost of shipping decrease. The company is also equipped with better data and information to analyze and optimize shipping methods that will reduce costs and maintain a competitive edge in the market. While returns increase and data is more readily available for analysis, additional labor is still required to implement new technology.

Outsourcing Parcel Auditing

What does a parcel audit company do? Basically, they do all of the work for you! They are equipped with a dedicated staff as well as the proprietary software and analytical expertise to recover the refunds you are entitled to.  

There are billing errors, overcharges, mistakes, and late delivered packages on every invoice. If a company can get back any amount of money spent on shipping, that means lower overall shipping costs. Small parcel auditing is the most effective way to receive money back efficiently, but it is clear that carriers do not want to make it easy for businesses to identify and receive the refunds to which they are entitled. But most companies do not have the resources to audit these deliveries themselves. 

An effective audit firm will have state-of-the-art software and a recovery team dedicated to identifying and recovering refunds from parcel carriers due to billing errors, service failures, and service guide violations, and, just as valuable, analyzing and reporting on massive amounts of data collected from these errors.

All of this is addressed, typically without any upfront costs whatsoever. In return for a percentage of the refunds, the parcel auditing company does all of the work. In contrast to other methods of reviewing parcel invoices, there is no risk involved in hiring a professional parcel auditing company. A qualified firm will identify and recover all shipping charges that would have otherwise been unnecessarily paid to the carrier. They provide the leverage needed for companies to hold their parcel carriers accountable for unmet service standards and ensure that the relationship between the shipper and the carrier is transparent.

Which Type of Parcel Auditing Should I Use?

Parcel auditing should be a regular part of every company’s operating procedure. However, the company will need to carefully consider the different options available to them.

Will the benefits of performing audits in-house outweigh the costs of hiring or training employees to undertake the auditing? Does the organization have the time and resources?

Is the company willing to part with a percentage of the refunds recovered if a parcel auditing company does all the work for them? Would the company be able to produce the number of audits and quality of analysis that a professional parcel auditing company provides?

Parcel auditing reduces shipping costs and proper reporting improves the quantity and quality of business intelligence, which should empower the shipper to make additional cost savings decisions. These benefits can provide  a competitive advantage to any company. The rapid growth of global e-commerce and development of shipping technologies, has created an increasingly complex web of fees, agreements, and guarantees. Specialized companies have filled the niche of parcel auditing to provide vital cost-saving services to small and large shipping companies alike.

Freight bill audit

How to Audit Your Freight Bill: Helpful Tips

By Shipware | Invoice Auditing, News, Shipping Knowledge

Although we are less than two decades into the 21st century, those eighteen years have seen a rapid and radical turn in the commerce landscape. The internet boom and the birth of e-commerce signaled the decline of the retail outlets and shopping malls across the country with companies such as Amazon leading a push into new, modern, online markets. Because of this seismic shift within the industry and the emphasis placed on rapid home deliveries, sellers of goods or products are regularly shipping in astronomically higher levels in both frequency and volume.

As a result, retailers and vendors are more reliant upon their freight carrier than ever before. So, it follows that shipping rates have risen in response to that demand. Further, supply chains are longer, lead times shorter, which means freight costs account for an ever-growing share of a business’s total overall costs.Consequently, we see enterprises emerge within the world of freight whose sole focus is on helping vendors manage their freight and look for ways to optimize and lower costs. Such supplementary businesses include freight forwarders, freight brokers, and third-party logistics companies.

Whether or not you utilize any or all of these services, there are certain critical aspects of your logistics that you should not only be aware of but be able to handle yourself. One of the tools you should have at your disposal is the ability to audit your freight bill to identify opportunities to cut costs, increase efficiency, and keep your carriers honest and accountable. 

What Is a Freight Bill Audit?

At its essence, a freight audit is the process of examining and validating a freight carrier’s invoices. Through this careful process, a shipper can verify the accuracy of their bills. Conceptually, it is quite simple; your goal is to pay the freight charges you owe and not a single cent more. While it is quite popular these days to utilize software to do much of the legwork, some freight bill audits can only be done by hand. Regardless of the method, an audit will only occur after the freight invoice is received and payment should only be made after you have confirmed the accuracy of all charges.

The Difficulty of Freight Audits

Freight audits are a complicated process, made only more difficult by volatile fluctuations in global fuel prices. Very few industries’ rates are as inextricably linked to one factor as the transportation industry is to the cost of fuel. Because of this, your freight cost will rise and fall with the cost of transportation, which is directly tied in with the current price of oil. Because of these regular and rapid fluctuations of fuel costs paired with the unpredictability of forecasting oil price, your freight costs may vary wildly. As you might imagine, when you have a host of different costs of service, verifying that you are being charged correctly becomes an even more challenging task.

Calculating costs manually can be an even more daunting undertaking when you are handling hundreds of shipments each and every month. Consequently, such freight invoices are increasingly susceptible to human error on either the part of the carrier or the shipper. This is especially true on the part of the shipper (read as auditor) when considering how convoluted freight invoices can be. Therefore, to avoid such processing errors and overpaying a meticulous freight bill audit must be carried out.

Freight Bill Audit Software, Shipware

Beginning the Freight Bill Audit

These days, freight audits are typically categorized as pre-audits, which means the bill is audited prior to payment. This allows shippers to have greater leverage and an surer way to pay the proper amount.  Upon receiving a freight invoice, your first task should be to input that data into your system either manually or via EDI (electronic data interchange). This allows you to have instant visibility and gives you an easy way to check that bill or to compare it to past invoices. Once this information is uploaded, your goal is to verify the validity of the invoice.

Some things worth checking when auditing your freight invoice include:

  • Are there duplicate invoices? – Were you double charged for a freight shipment? Did your carrier count one shipment as two separate shipments? Such a phenomenon is more common than you might think, especially when using electronic services. Multiple invoices can result from different options for receipt and payment of invoices, lack of rigid controls in accounts payable, or unethical carriers. To prevent such a thing occurring search for the following:
    • Invoices with identical or similar dollar amounts
    • Invoices that have identical invoice and vendor numbers, but have received payment from separate accounts  
    • Invoices paid to similar vendors with the same address, bank account, and routing number
    • Invoices with closely matching invoice numbers, which could be a result of errors in data entry
    • Invoices made to the same vendor from varied source documents
  • Was the proper classification applied? – The National Motor Freight Traffic Association (NMFTA) regularly updates and publishes the National Motor Freight Classification. This sets a universal standard that allows companies to compare commodities. The Commodity Classification Standard Board groups commodities into one of 18 subclasses, ranging from 50 to 500. Classes are based on four factors, density, liability, handling, and stowability. Classes have different rates, so it is vital that you ensure your freight is being appropriately classed and charged accordingly.
  • Have all discounts been applied? – Do you have agreed upon discounts with your carrier? Do you consolidate shipping with other shippers, or ship on off days, or not need your products delivered as quickly? If so, be sure to check that each and every one of these discounts have been deducted from the total freight invoice.
  • Were accessorials billed correctly? – A freight carrier will often charge for services that they consider above and beyond the call of duty, these include delivery area surcharges, additional handling charges, weekly pick up fees, residential delivery, and other such accessorials. Such charges can be exceedingly difficult to examine and confirm, especially since you generally remain unaware of them until after the shipment is made. Regardless, confirm that you not being incorrectly charged for accessorials, and if prior agreements have been made that included the waiving of certain accessorials, be sure to verify that those too are being honored.  
  • Are you using the correct base rate? – Each carrier has their own base rates, but frequently, shippers will have all their carriers use a 3rd party base rate.
  • Does the math add up? – After confirming that you have been charged for all of these categories correctly, make sure that the figures add up correctly. Again, human error is not at all uncommon, so it is entirely possible that everything listed above was applied correctly and yet a simple mistake of addition or subtraction, or the wrong number input, can lead to incorrect charges.
  • Are the freight taxes billed correctly? – Are the most current tax laws being employed and are the rates accurate? If you ship internationally, this is especially important since different taxes or regulations apply to different regions, states, or even countries. So, although countries within the EU or Asia may lie in close proximity to one another, their rules and regulations may vary wildly and thus you will be charged different rates.

Means of Freight Auditing 

If you are looking to have regular freight audits, there are three basic models available to you.

  1. Audit internally – A shipper will perform audits in-house and pay staff to provide oversight required for manually processing invoices and then conducting freight audits. While this is a possible route, it is likely the least cost-effective/efficient model. Manually comparing invoices and performing audits can be an exceedingly tedious affair. The likelihood of mistakes occurring or errors missed grows in proportion to the number or freight invoices received and is compounded if you are regularly shipping internationally.  
  2. Outsource your audit – If you do not want to deal with the logistics and costs associated with internal invoice audits, you may contact a third-party freight audit company to focus on sifting through invoices, checking for discrepancies and recovering costs. In many cases, this may be a more cost-effective method, since it allows you to focus on your specialties rather than waste your time or your employees time on tasks they are not ideally suited. Most third-party firms will use a freight audit system, rather than dealing with freight invoices manually.
  3. Buy invoice audit freight system – You may wish to pay a software licensing company to help you handle your invoices in an in-house manner. Such software allows you to audit bills and track payments seamlessly, however, they do come with extra costs associated with maintaining the system as well as training staff in how to use it.

Benefits of Freight Auditing

Apart from saving your company on costs, a freight audit also supplies you with data that you can study and analyze in order to break down your shipping practices. Such introspection can identify weak spots, logistical breakdowns and highlight ways to improve as a company. While the initial costs recouped are great in the short term, finding areas where you have room for improvement can be far more beneficial in the long run. Doing so allows you to make better choices when it comes to your transportation and shipping practices, which in turn, affects not only your company’s bottom line but your customer’s satisfaction as well. Having such data can also provide you with plenty of leverage when it comes to your freight contract negotiation, and it would be foolish to not use these tools to negotiate discounts and lower rates.

Whether you chose to utilize an in-house audit, a third-party audit team, or a freight auditing system, auditing your freight shipping, odds are you will not only recoup the cost of auditing, but you will likely make more money when all is said and done.

Freight Bill Audit

freight audit

Why You Should Consider a Freight Audit Software Solution

By Shipware | Invoice Auditing, News, Shipping Knowledge

Handling the massive task of processing, organizing, auditing, and paying the carrier companies that deliver your goods is not only time-consuming and requires a dedicated internal staff, but the opportunity to maximize your profit margin through data analysis will be missed if your company does not take advantage of the intelligence gained from the data.

Charges from transporters are negotiated and impacted by the oil market, among other factors. Without a firm grasp of all the intricacies of the shipping industry, an unquestioning company is at risk of being consistently over-charged. That is why many businesses turn to a freight audit software provider or a freight audit and payment company to handle the arduous undertaking of auditing their freight bills.

The Importance of FBAP

Freight Bill Audit and Pay (FBAP) is an essential component of any business that sells products, yet an astonishing 25% of companies do not utilize technology to pay and manage freight bills, resulting in a lost opportunity for cost savings.

The old school way of manually processing freight bills and hoping for the best overlooks many important and potentially expensive factors. With some companies shipping and receiving hundreds of shipments or more every month, paperwork (in different formats from carriers) can become overwhelming, and errors — either from human inaccuracy or a processing mistake — are inevitable.

In fact, some companies report as much as 1 – 2 percent on outbound shipments, and 2 – 4 percent on inbound shipments being miscalculated.

That might seem like a small amount, but if your company is being regularly mis-billed, the costs add up quickly. Most companies do not have the resources to devote to auditing every single bill, so some will resort to a random check, giving the organization only a sample of the entire picture, and risking the forfeit of any lost capital due to overpayment, errors, hidden fees, or redundant costs.

Options for Freight Bill Audit and Pay

It should be clear that a sound strategy is a priority when it comes to Freight Auditing and Freight Bill Payment. Experts estimate that a company can expect freight charges to typically represent up to 10% of a company’s total cost of goods, a significant enough portion to pay attention to and to apply the most effective tactics to minimize. So what options are on the table for a business to not only eliminate over-billing but also to take advantage of an ever-changing market?

In-House FBAP

The first option is to handle the FBAP internally. It requires a dedicated and well-trained staff to

  • go over each freight invoice and bill payment line-by-line,
  • execute proper data filing,
  • resolve disputes,
  • manage optimal transportation routes,
  • contact and negotiate a new freight rate and pricing with shippers to optimize logistics,
  • have a pulse on market trends and oil pricing,
  • and ensure that all charges made to the company are legitimate as the terms and rates continuously fluctuate.

Paper invoices run the risk of becoming lost, and a company loses the ability to analyze bills and data. The cost to internally process and pay freight invoices can be measured at around $11-$12 per invoice. Along with the cost of allocating manpower to perform this laborious task, human inaccuracies or inattention to unforeseen factors may stifle even the most well-intentioned internal FBAP department. Also, the opportunity to file a claim for reimbursement for any error is typically 180 days and must be handled in a timely manner.

Transportation Management System Software

There is also software available for purchase which can calculate the most cost-effective way to optimize your shipping, commonly known as a Transportation Management System, or TMS. TMS software can be a useful tool in selecting the most effective carrier for your product, but like any computer program, it must be appropriately configured to suit a particular organization’s rules and values.

Furthermore, trusting these types of systems may lead to the potential for the same errors that will occasionally occur, as information is entered into the system by hand. Rate increases must be implemented directly into the system while any caps, freezes or adjustments based on fuel, fees or other factors must be accounted for. Competent knowledge of the essential data to be captured is not the least of concerns when depending on an FBAP administrator in-house. A high level of technical skill and industry knowledge is required when employing any TMS system.  

Outsourcing FBAP

The third option is to outsource your FBAP with a freight audit and payment company. Devoting company manpower to the tedious effort of performing a proper freight audit will usually end up being more expensive in the long run. The $11-$12 spent to internally process and pay each freight invoice can be reduced by around 7-10% by utilizing a freight audit software company and decreased further by approximately 4-8% in recuperation as a result of the audit of freight invoices.  

Besides saving cost, an FBAP company will provide a business with detailed analysis which will allow it to interpret national and international markets and shipping routes. These crucial analytics add substantial value in addition to cost-saving measures. A company can leverage this data to make sound business decisions with the assurance that the most optimized network was utilized.

Freight Bill Auditing Process

When hiring a freight audit company to handle the essential responsibility of freight bill auditing, a specific process is followed to confirm all inaccuracies are noted and corrected, as well as to provide the client with a detailed evaluation of their shipping and receiving procedure based on ad hoc data. The process begins when the shipping invoice is received either manually or through EDI (electronic data interchange). The freight audit company will then verify the bill, inspect for errors or inaccuracies, and ensure that:

  • The carrier invoice has not been previously paid or is not a duplicate
  • Is indeed the responsibility of the shipper to pay
  • Any tariffs were calculated correctly
  • Accessorial charges are legitimate
  • All necessary documentation such as Bill of Lading and purchase order numbers are included.

If any inaccuracies are spotted, they will file a claim to be reimbursed for the mistake or oversight. If they are assigned to make the payments as well, they will handle the processing of the bill to ensure that it arrives as scheduled.

Instant Analysis

The essential data is then gathered into the system for instant analysis. This benefit of utilizing a freight audit company is the most advantageous element for most businesses, as through detailed interpretation of shipping data and trends, an organization can maximize trade routes, plan for future freight costs, and provide concrete data when negotiating terms and rates with shipping and receiving companies.

This is a feature that would not be available using simple accounting from an internal accounts payable department. The insight gained from such relevant and specific data is crucial in maintaining a competitive edge and anticipating cost-saving measures.

Not only are billing mistakes a common headache for companies but due to the nature of the industry, price is always changing. Fuel price has the highest inconsistencies, and shipping charges will reflect the cost of oil on the international market.

With the high fluctuation of fuel cost and the potential unforeseen expense of accessorial charges (charges made for executing services outside of standard pickup and delivery such as waiting-time, inside-delivery, storage charges, fuel surcharge, etc.), rates can sometimes change on a weekly basis. This leads to a complicated outlook when trying to evaluate future costs of shipping your product. A freight audit company will provide information and trends to supply a business with the ammunition to negotiate with the shipping companies and ensure the best rates.  

These companies also serve as the primary communicator with the carriers, providing a service that can help maximize a productive working relationship and hold shippers responsible for agreed-upon terms. Freight bills are never straight-forward and are created individually for each client.

Therefore, two identical shipments of the same size and weight transported from the same city to the same destination can have very different rates. A freight audit company can negotiate on an organization’s behalf to ensure they are receiving the best possible price for the service provided.

Current Trends in Freight Auditing

Today, more and more businesses are shipping directly to consumers, bypassing the retail stores. Once a shipment reaches port, transportation cost depends on volume and distance. This is where the “Hub & Spoke” operations begin.

Think of it like the spokes on a bicycle wheel. The large central stations are the hubs (or DC’s – Distribution Centers), and the small local terminals at the end of the line are the spokes. Getting your shipment to its destination on time takes a well-coordinated effort.

Full Truckload Freight

Hiring a Full-Truckload Freight (FTL) to transport your goods will be costly; therefore most companies will capitalize on an option known as LTL, or Less-Than-Truckload. At the port or at the hubs, truckloads are consolidated to maximize a truck’s capacity.

If a shipment is between 150 – 20,000 pounds (or less than 14 pallets), LTL’s rates are much more desirable. Not only will a shipment be dispatched for a fraction of the cost, but LTLs also have the added benefit of such services as residential pickup or delivery, inside delivery, and reaching destinations that may not be on an FTL’s mainstreamed express route.

Parcel Services

Using a parcel company such as FedEx, UPS or the US Mail Service will be even more customizable, and will deliver packages that weight less than 150 lbs. Delivering through a parcel company is significantly more expensive than bulk freight, and must be factored into the cost. An auditing company can significantly reduce a company’s transportation expense by maximizing travel routes and coordinating with shippers to improve operational efficiency.

Where Do I Start?

Deciding on a course of action for an FBAP strategy takes careful deliberation and an evaluation of the specific needs and goals of the company. Documenting specific requirements and preparing detailed questions for a freight audit software provider will help bring a plan of action into focus. Furthermore, it will help quantify the company’s ROI for hiring a freight audit and freight payment company.

Things to Consider:

  • What are the company’s expectations when hiring a Freight Audit (and Freight Payment) Company?
  • What is the volume of transactions and what are the geographical locations that will need to be maintained?
  • What modes of transportation will be needed, and can the provider handle everything under one umbrella?
  • What is the time frame to process the audit and the payment of each invoice?
  • How are payments handled?
  • Is the process transparent for both the shipper and the carrier?
  • How big is the provider’s reach across the globe? What specific relationships with carriers will your company benefit from? How do they communicate with the carriers?
  • What is the FBAP provider’s financial strength?
  • What software does the provider use? Is the data compatible across all platforms?
  • How close to real-time are alerts and analytics?
  • What types of analytics are available and how will that help optimize the supply chain?
  • Is the FBAP provider investing in technology to stay on the cutting edge?
  • Is the company’s data and intelligence secure from competitors?
  • How will the company’s ROI be measured for outsourcing freight payment?

When examining how to best handle FBAP, consider that saving time and human resources has become secondary in recent years to the value of the data provided to increase business intelligence. By reducing costs and optimizing the supply chain, an effective freight bill management system can secure a competitive advantage that will benefit any business, big or small. With the high volatility of an unpredictable transportation sector, there is a great benefit to have a freight audit and payment company in your corner to ensure that every dollar you spend on transporting goods is maximized.

Why Shipware?

With over 200 collective years of pricing and supply chain management experience from a team of former carrier executives, Shipware is a preferred choice and top leader in the industry. Our invoice audit software does not require any training or installation on your part. We handle everything as a done-for-you service, resulting in a 1-5% weekly savings for your company!

Freight invoice audit checklist

The Ultimate Freight Invoice Audit Checklist

By Shipware | Invoice Auditing, News, Shipping Knowledge

In the not too distant past, malls and retail stores were booming public marketplaces; gathering places for Americans to browse, shop, eat, hangout, or maybe catch a movie. At that time, when brick and mortar stores and large retail outlets dominated the American commerce landscape, a retailer or vendor’s sales hinged upon a variety of factors and their costs were multivariable.

Although there were catalogs such as those regularly released by Sears or Victoria Secret, most companies aimed to entice customers to come into their physical store. While purchases could be made through the mail, a customer did not know what they were getting until the package arrived and if that item did not fit or was not what they expected, the customer would then have to go to the physical location to return the item. In these pre-internet days, the shopping experience was a drastically different and more time-consuming affair than the one we now know.

These days, however, thanks much in part to the e-commerce boom, customers expect a radically different shopping experience than what they would have two decades ago, with retail outlets and malls increasingly abandoned in favor of the ease and expediency of online shopping.

Because of these changes, today’s customers not only expect their goods to be delivered to their home, but to be delivered as quickly as possible, if not on the same day. As a result, a company’s success is increasingly more reliant upon the efficacy of their shipping network. 

Now that a company’s freight services are not only more vital but also costlier than ever, it is crucial that shippers have precise and wide-ranging data to measure their successes and failures of their freight services. To obtain these numbers, any savvy company will regularly perform freight audits. Freight audit services used to be a rather cut and dry way of amending and recouping erroneous shipping invoices, but has evolved to include a greater emphasis placed on data analysis. Having precise data allows a company to thoroughly analyze their procedures and systems, which in turn will enable them to make smart business decisions, grow their company and increase profit margins.

If you are shipper who desires payment accuracy, supply chain visibility, and data analytics, it would greatly benefit you to audit your freight invoices regularly.

Types of Freight Audit 

Auditing a freight bill before paying it can be a powerful means of cost savings and the ideal way of ensuring that all parties are honoring their contract. Before you begin, however, it is essential that you are aware of your options for audits. Traditionally, shippers can audit their goods in one of three different ways:

  1. Manually – In this case, a shipper performs audits internally. This can be done by whomever is in charge or by hiring an in-house specialist or assigning a staff member to handle invoices manually and then audit them. As you might imagine, manual audits are time-consuming and tedious affairs that are quite prone to human error. Further, the likelihood of mistakes being made increases in proportion to the number of invoices or complexity of routes. Because of this, manual audits are usually only recommended for companies that do not ship in high frequency or volume.
  2. Freight Invoice Audit System – Another option at a shipper’s disposal is to buy a license for auditing software that will help your in-house team manage invoices. This software allows your team to easily audit bills, track payments and gather data on your processes. On the surface, this is a more expensive route to take than manual audits, since you have to license the freight system and train your staff in its use. However, the cost savings in the long run is more than worth it, especially if you are a medium sized shipper.
  3. Third-Party Auditors – 3PLs and freight brokers allow shippers to focus on what they do well – the creation and sale of products – and not on data analytics. For such shippers, a third-party firm will be brought in to handle invoices review, logistical analysis, and recouping costs. Outsourcing this function allows a company to optimize and not spend money on internal audit teams, freight audit systems, or staff training.  Third-Party Audits are ideal for medium to large sized companies.

Regardless of which option you select, the actions taken during the audit are relatively similar.

Freight audit checklist

Freight Audit Checklist

Step 1: Collect Invoices  

In the unlikely case that you have never performed a freight audit, it would be wise to collect all invoices from the past year. (Note: you can only go back 180 days for claims). Ideally, invoices should be logged and uploaded online the moment they are received. Doing so allows you the ability to pull them up at a moment’s notice. So, if you want to see a bill you paid six months ago, instead of sifting through a pile of papers, you should be able to sort by date, company or any other factor in order to examine that information.

Step 2: Categorize Expenses

After logging your information, you should group invoices by vendor and range according to date from oldest to newest. This gives you an easy method of comparing old charges with new charges and analyzing whether you are paying more or less for your shipping. 

Step 3: Determine Benchmarks

Once you have all your information logged and categorized, you can begin the data analysis portion of your freight bill audit. By establishing benchmarks, you can see where and how you are spending money. This allows you to examine the numbers and set corresponding usage or reduction goals according to the benchmarks.

Step 4: Look for Overcharges or Errors

This is what most people think of when they hear the phrase freight audit. There is a variety of ways you may be overcharged or mistakenly charged, and you should be aware of all of them. When reviewing your documents, look for the following:

  • Accessorials – Freight carriers regularly charge for additional (accessorial) services. While it is hard to analyze accessorials, especially since they are charged after the fact, verify that you are not being charged wrongly for additional services or for services that were reduced or waived in your freight contract.
  • Discounts – Shippers will often negotiate for shipping discounts, so, if you have settled upon discounts with the carrier, be sure to validate they are applied and deducted from your freight invoice.
  • Duplicate Invoices – A duplicate charge can occur for a variety of reasons, including improper controls when it comes to accounts payable, unethical carriers who want to take advantage of shippers, the carrier accidentally counting one shipment as multiple shipments, multiple options for receipt and invoice payments. To prevent duplicate invoices from going unnoticed, look for invoices with: closely matching invoice numbers, matching vendor numbers that have been paid from different accounts and matching dollar amounts.
  • Freight Classification – Products are classified into one of 18 classes. Such classes are determined by a freight’s density, stowability, liability, and handling. Certain classes are easier to ship or less expensive for carriers to handle and so the shipper is required to pay less. If your goods have been categorized in the wrong class by the carrier, you may be charged too much for the service provided. Many shippers negotiate their class to a freight of all kind status, where their shipments are rated at a different class from the actual class of the product.  So, if you have an FAK clause in your freight contract, be sure to check and see that it is being properly applied.
  • Late Delivery – While this depends on your freight contract/carrier, a late delivery can either mean a voided shipment charge or a reduced rate. Odds are, you will experience a late delivery at one time or another. When it does happen, be sure to make a note of it and immediately alert the carrier of the issue.
  • Taxes – Taxes and tax laws can drastically vary from state to state, and this is especially true if you regularly ship internationally. Be sure that the proper taxes and regulations are being applied to your goods.

Step 5: Review Current Rate of Service  

After checking all of these possible error spots, add up the costs to confirm that you are being billed at the right rate and that all discounts were applied.

Step 6: Consider Autopay

Some carriers reward customers for pre-payments or on-time payments.

Step 7: Analyzing the Data

There is a variety of data points you can include in your freight audit checklist, all in the name of increasing efficiency or cutting cost. Such analysis can also aid you in your future decision making. Factors to consider include:

  • Capacity Utilization – Carriers charge by either full truckload or less than truckload by verifying the weight of material in comparison to payment to carriers. By finding means to better utilize capacity, a shipper can reduce the number of required freight runs. There are various standard truck capacities, be sure that your carrier is using the one that optimizes your shipments.
  • Turnaround Time – Turnaround time is the total time taken by a freight company to load and unload your goods. If turnaround times are low, you will pay less since the truck is not sitting there idly. Because of that, your goal should be to do everything in your power to lower turnaround times. This can be done by being prepared for your carrier’s arrival and having your goods ready and properly palletized. If a carrier is slow through no fault of your own, this can be used as leverage in future freight contract negotiations.  
  • Price Hikes – Pricing for shipping can be rather volatile, especially since some costs are often directly tied to the cost of fuel. While there are reasons for price hikes such as annual rate increases, toll charges, duty increases, seasonal rates, or fuel, any unusual hikes found in an audit should be noted and then discussed. If possible, look for ways to minimize being hit with price hikes.

While freight audits are not exactly the most exciting of affairs, they are hugely important. By regularly and dutifully auditing your invoices, either via internal manual audits, a freight audit system, or a third-party auditor, you can ensure you are paying the correct amount for your shipments and also glean valuable insights into your shipping patterns. By following the steps of this freight audit checklist, you set your company up for future success.

Freight audit checklist

why-should-you-audit-your-invoices---shipware

Why Should You Audit Your Freight Invoices?

By Shipware | Invoice Auditing, News, Shipping Knowledge

As a business, your first priority is to make sure that the correct product gets to the customer on time, thereby developing trust between your company and consumer. The next priority, then, should be making sure it gets there in the most cost-efficient manner possible to maximize your company’s bottom-line. There are several factors that influence your company’s bottom-line, but one not to be overlooked is the cost of shipping.

Factors That Affect Shipping Rates

Rates in the LTL industry are very complex. They are calculated by a range of factors including mileage, cost of diesel, type of product being shipped, as well as other fees associated with the pickup and delivery of your product. Some of these fees and charges are negotiated with the shipper, but carriers can add new charges or increase existing ones at any time. For this reason, it is very difficult to track a company’s freight bills to ensure that they are accurate.

Making matters more difficult is the fact that a company almost certainly uses more than one carrier, and each carrier’s invoices are presented in different formats. With potentially hundreds of items being shipped each month, the task can become challenging to manage. Errors will occur, and when those errors are undetected, the company’s bottom-line is impacted.

Outsourcing Freight Invoice Auditing

For all of these reasons and more, auditing each and every freight bill is necessary to ensure charges are legitimate and justified. The simplest and most cost-effective way to audit your invoices is to outsource with an experienced provider.

A freight audit company, such as Shipware, is equipped with the tools, expertise, and access needed to monitor all freight invoices and resolve any discrepancies. Not only that, but a good freight audit company utilizes technical data and analytics to interpret the most effective shipping routes, market trends, forecasting outlook, and strategies that will help lead to substantial savings.

Using this intelligence, a company is equipped to make solid business decisions to maximize their transportation tactics. Another benefit of collecting this data is that it becomes a very useful tool when negotiating with carriers – supplying leverage to garner better terms and rates. These are features that are not easily available when handling a freight audit as an accounting procedure. The insight obtained from such pertinent data is crucial in maintaining a competitive edge and anticipating market trends.

In-House Auditing

If a company decides the best course of action is to handle the invoice audit internally, there are several things to consider. For one, a dedicated and well-trained staff will need to focus on handling all the freight invoices with a keen eye for detail and must be able to cross-check every line with the contractual terms of the agreement. Variable and accessorial charges must be deciphered and validated, and data must be gathered and stored for analysis.

Additionally, the bill of lading and the freight bill must be properly filed and advisably consolidated into an electronic system, and any mistakes, overcharges, or errors must be submitted as soon as possible to avoid forfeit (within 180 days according to 49 US Code 13710).

The cost of a company to process a freight bill audit internally has been estimated to be about $11-$12 per invoice. Therefore, if the audit does not produce adequate savings, the cost of processing the freight bills in-house could work against you.

Freight Bill vs. Bill of Lading: What’s the Difference?

To begin to comprehend the audit process and what to look for, you must first understand the difference between a freight bill (or invoice) and a bill of lading. A bill of lading is a legal document given to the carrier which outlines the specifics of the shipment, including the exact weight of the shipment, the value of the shipment, and a detailed description of the product(s) being shipped.

The bill of lading is a legally-binding document between the company (or provider) and the shipping company. Therefore, it is vital that all the information is accurate and nothing imperative is omitted as it outlines the original service agreement, provides proof that the goods have been loaded and shipped, and can be used as a title of collateral for the buyer. If there are any inaccuracies in the bill of lading, a legal dispute could occur.

A freight invoice is not a legally-binding document, but merely reflects the original accord to provide clarifying information and includes any supplemental charges.

Most freight bills include the following:

  • Names and addresses of both the consignor and the consignee
  • Purchase order or reference number
  • Date of pickup and delivery
  • Origin and destination of shipment
  • Description and quantity of shipped items, including freight class, weight and value of items
  • Shipping rates
  • Accessorial charges
  • Total Charges due, including special instructions
  • The route of each carrier and any transfer points through which the shipment travelled
  • Signatures by the carrier and receiver to confirm the delivery

The freight bill and the bill of lading work together to give all parties a clear understanding of the service agreement between shipper and carrier. Where the bill of lading is focused on the original agreement between the companies, the freight invoice constitutes the financial aspect of the arrangement and details the conditions on which the charges were applied.

Freight Bill Auditing Procedure

The audit begins when the freight invoice arrives either manually, via email, or through EDI (electronic data interchange). When analyzing the freight bill, comparing it to the bill of lading is a good place to start, but it doesn’t give you the entire picture.

Other factors to inspect are:

  • Discount Verification: do your charges reflect any agreed upon discounts?
  • Any math errors made by the carrier.
  • Is this a duplicate invoice and therefore have you been charged twice?
  • Was the wrong party charged?
  • Did the shipment arrive on time? If not, are you guaranteed a refund?
  • Incorrectly charged accessorial fees
  • Correct calculation of taxes and/or tariffs.
  • Correct application of mileage.
  • Description or NMFC freight class classification error.

Overcharges can happen in a number of different ways, and a thorough auditor must know what to look for. Pricing in the LTL industry is complex, and it is easy to make a mistake or neglect prior service arraignments. Your freight bill auditor’s goal is to make sure your company pays only for the charges they owe.

Dispute Procedure

When a mistake is found, immediate action must be taken to recoup the charges. Remember, the US Code states that “A shipper must contest the original (freight) bill or subsequent bill within 180 days of receipt of the bill in order to have the right to contest such charges.” A carrier may opt to pay a claim beyond this period in good will but is not required to do so.

  • Documents for filing a claim include:
  • Original paid invoice
  • Original bill of lading
  • Weight certificate if the claim is based on weight
  • Agreed upon tariff that was not applied to bill
  • Any other information that supports the claim

If you choose to outsource, your auditor will contact the carriers on your behalf and provide the necessary documentation for your claim. The carrier will then issue a corrected invoice.

Because of the complexity of the LTL industry, it is easy for errors to occur. No two shipping bills are the same, even if the same product is shipped from the same city to the exact same destination. A firm strategy for Freight Bill Audit and Payment (FBAP) is necessary for any company to ensure that they are receiving the correct price and are never overcharged.

That is why most companies choose to outsource their FBAP to an experienced vendor. A freight bill and audit company will provide you with peace of mind knowing that your freight charges continue to remain legitimate at a fraction of the cost that it would require to conduct in-house.

Not only will the audit and payment of freight invoices be one less burden your company will need to concern themselves over, but the intelligence a provider includes in their service is invaluable. Detailed analytics specifically created for a company’s shipping patterns will become the basis for a durable transportation strategy – adding a competitive advantage and improving cash flow.

Using data will unlock cost-saving measures, provide leverage in negotiations for better rates, and give you the confidence to make better long-term business decisions.