Moore On Pricing: Progress check for freight settlement

Prior to the turn of the century, the standard practice in freight pre-audit and payment processes was to distill the invoice down to the minimum number of fields of data needed to do a match with the bill of lading or accrued freight payable amount. If the total costs were within tolerances (usually $50) of the projected amounts, the invoice was sent through for payment. The documents were then physically or digitally filed away without further concern for their content.

A robust post-audit business was relied upon to look for payment overcharges, usually through manual auditing. Again, no data was collected beyond that which might be needed for actual overcharge claims. Post-audit firms routinely withheld found patterns in erroneous billings so that they could collect more in future audits from this client.

We now know that the audit and pre-audit processes were a strategic loss to the shipper as they failed to avail themselves of the rich information routinely captured in freight transactions. This freight transaction data today is used to make changes in routings, consolidations, timing of shipments and even warehouse locations through modeling that can save millions annually for smart shippers.

Today, the term of art is “freight settlement,” which is meant to include the delivery of clean, usable transaction data in addition to delivering the freight itself. Shippers should not be satisfied with only proof of delivery and a correct freight invoice. Capturing all of the value for both the carrier and shipper or 3PL means service and the digital element in a usable format.

The digitization of logistics has affected freight settlement’s data mining potential for cost reductions. We have seen rapid development in six key areas that enable both cost and service improvements based upon operational factors. Here is an update as we end the second decade of digital logistics.

Data collection is more robust than ever. Even the smallest service providers have access to scanners and Cloud-based operating systems that routinely collect financial information as well as detailed time-stamped tracking data. Carriers need to have the means to assemble data and deliver it at the time of invoicing or upon an API call from the shipper’s computer.

Data management has finally turned the corner and both shippers and carriers are spending on business intelligence systems that can index, store and retrieve historical data for key stakeholders. If a shipper does not have the means to data warehouse, a 3PL can provide this service for a nominal fee

Distribution network modeling has been robust for decades, but with ready access to clean, indexed freight transactions the cost of developing models has dropped precipitously. Large shippers trying to re-engineer distribution or sourcing are able to run models several times a year rather than every few years.Post audit has morphed from a paper-based process to a digital analytics process where anomalies from overpayment to routing guide violations are caught. The best of these services have begun providing counseling to shippers on how their data reveal the weakness in a shipper’s operations management.

Intermediaries and 3PLs have grasped quickly the value of digitization and of transaction data collection and use. Many offer consulting to C-level executives on market and financial cost and service improvements using the aggregated data for industries served.

Autopay is the holy grail of transport providers. Settlement without invoice matching reduces costs for both shippers and carriers. This step is still a dream for the market, as shippers have to accept a situation where there is one system of record outside their organization (think airline tickets) and that the payment happens as a result of a secure ledger confirming delivery of freight and data. If you think this sounds like blockchain, you’re right.

The next decade will see each of these areas become more digital, more secure and more valuable—not only to transportation managers, but also to all supply chain participants on the whole. •