From economic fluctuations to capacity constraints and unforeseen crises, freight forwarders find themselves navigating through a myriad of challenges. Amidst this turbulence, an alarming reality emerges: freight forwarders are inadvertently leaving significant revenue on the table, to the tune of approximately 15%. This loss stems from a variety of factors, primarily the need for more rigorous checks on carrier invoices. In an industry already grappling with thin profit margins due to intense price competition, this revenue gap represents a substantial missed opportunity, especially considering the absence of digital contract rate management systems in many firms, leaving them reliant on inefficient spreadsheets and manual correspondence.
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Revenue Leakages In Carrier Invoicing: Discrepancies In Charges:
Mistakes like duplicated charges, mismatched contract rates, and incorrect DnD calculations can eat into profits. However, the most substantial revenue leakage occurs in the realm of surcharges and ancillary fees. Common errors include the misapplication or omission of charges related to transit through the Panama or Suez Canals, peak season surcharges, and overlooking negotiated General Rate Increases (GRI) on carrier invoices. Additionally, the imposition of unexpected accessorial charges, necessitating an audit on the initially requested Bill of Lading, compounds the issue. Alarmingly, up to 50-60% of carriers, particularly among the top 20, commit these errors, often escaping the scrutiny of forwarders. A case in point is Interra International, an Atlanta-based food shipper, which dedicates considerable resources to auditing its freight invoices. However, for small to medium-sized freight forwarders already contending with slim profit margins, dedicating resources to full-time auditing staff presents a considerable challenge
Inaccurate Classification of Cargo:
Misclassification of cargo or improper measurement and declaration of cargo information can result in erroneous charges. A leading BCO's decade-long loss of tens of thousands of dollars due to incorrect measurements in bill of lading serves as a cautionary tale. Neglecting to prioritize accurate labelling of shipments, including NMFC numbers, descriptions, and freight classes, further exposes forwarders to the risk of overcharges. In addition to that, the improper measurements and classifications still go unchecked by the respective professionals at the carrier’s end. Unfortunately, this issue still stands.
“Fast turnaround times in ports put crews under immense pressure, leaving little or no time to complete critical checks and verifications,” agrees Captain Nitin Chopra , Senior Marine Risk Consultant at AGCS. “Crews often work around malfunctioning instruments or make assumptions in order to keep to schedule, while there are also gaps in maintenance due to time constraints.”
Missed Fees due to Amendments:
On average, there are a minimum of 10-15 amendments for every filed contract. Universal tariffs like amendment fees, booking cancellations or overlooked surcharges contribute to billing inaccuracies leading to revenue leaks.
Unchecked Invoices and Manual Mayhem:
A staggering 30-40% of manual freight forwarder invoices to their shippers necessitate re-work, a figure that rises to nearly 10% even for larger players in the industry. In addition to that, a approximately 60-70% of carrier invoices go unverified, especially when profit margins are high and attention is diverted towards operational tasks like securing Bill of Lading releases and facilitating shipment movements.
An NVO doesn’t have a lot of time to vet the invoice,” notes John Wierzbicki, vice president of sea freight for Hellman Worldwide Logistics. “Billing accuracy is a cost driver. Our resources are people. Every time they touch a file, there’s a cost to that. And that’s just reviewing it a second time. No one quantifies how much time is spent resolving that. It’s usually six to 10 phone calls in our experience to resolve that. It’s often the lag between what was negotiated and what was entered into the system. That drives a lot of time spent that’s not quantified. “It’s nothing to do with the complexity of business,” he added. “It’s incorrect invoices. Each phone call can take 10 to 15 minutes. That’s a tremendous loss of resources and that drives cost that is eventually passed on to customers.”
Strategies to Reclaim what is yours: Need for Rate Management System:
A well-defined rate management system plays a pivotal role in aggregating your SPOT and contract rates, staying on top of all negotiated contract buy rates, and their associated amendments with carriers and partners. Beyond simplifying the rate search process, this system facilitates effortless comparisons of historical rates and enables the application of margins tailored to specific customers. From the creation of quotations to the execution of bookings, every step of the rate management process is streamlined for maximum efficiency. Moreover, by eliminating the need for cumbersome manual filing systems, the rate management system ensures smooth operations throughout the entire lifecycle of contracts. From initial negotiation to ongoing updates and amendments, the system simplifies the filing and updating process, ensuring accuracy and compliance at every turn. Furthermore, seamless integration with Transportation Management Systems (TMS) enhances transparency by providing visibility into rates throughout the entire customer lifecycle. This integration ensures consistency in rate application and fosters trust and satisfaction among customers and partners alike. With 4.8 star rating on G2 (a neutral software marketplace), Freightify's Rate Management System stands as a leader in the industry, earning the trust of over 200 and counting freight forwarders across more than 45 countries.
Freight Rate Audits:
Implementing and auditing freight rate audits presents a viable solution to address revenue leakage. These audits not only help identify billing errors but also facilitate cost reduction, recovery of overpayments, data accuracy improvement, contract optimization, and operational efficiency enhancement.
The Freightify Surcharge Suite:
In response to these challenges, Freightify is developing a comprehensive "Surcharge Suite" tailored to empower customers to navigate ancillary charges effortlessly. By leveraging digital platforms and sharing contract terms and conditions, forwarders can mitigate the risk of revenue loss associated with surcharges.
In conclusion , the revenue leakage plaguing freight forwarders underscores the urgent need for systematic solutions to address invoicing discrepancies and surcharge management. With proactive measures such as freight rate audits and innovative solutions like the Freightify Rate Management and Surcharge Suite, forwarders can reclaim lost revenue and foster greater financial resilience in an increasingly competitive landscape.
Stay tuned for more insights on freight audit and surcharge management as we continue to navigate the evolving landscape of global logistics.
