Companies across the globe suffer from a shipping problem; they underestimate their true shipping costs. This problem is severe, contributing to 35% higher freight spend. Such charges lead to higher costs for UPS/FedEx invoices, not to mention destroy profit margins. At the same time, the major carriers have made their rates public and easy-to-access, so what goes wrong?
The answer to that question lies in the common way that shippers manage shipping, using a TMS and nothing more. To stop hemorrhaging money, shippers to understand why only using a TMS is not enough and how they can work to ensure their actual shipping charges reflect what customers pay by either conducting improved freight invoice accounting to include auditing of freight invoices in house or with a trusted third-party logistics provider who provides outsourced freight and parcel invoice accounting services.
Why Can’t Shippers Know the Exact Rates Before Sending an Item to the Carrier?
While a TMS provides instantaneous access to carrier rates within the contracted network, mistakes still happen. While the TMS may provide the shipping cost for the specified packages, errors on the part of shippers, such as inaccurate weights, wrong freight classification, failure to consider external factors and even the risk for a missed delivery, remain. The only way to truly know an item’s delivery cost is to wait until delivery occurs. Unfortunately, this is an impractical approach to managing freight.
The Importance of Freight Accounting Management to Reduce Costs
What About Accessorials in Freight Invoice Accounting?
Accessorials refer to charges added onto an invoice after the original shipment tender. Accessorials and surcharges reflect two principles of shipping; inaccurate shipment data and fine-print policies. Common surcharges include peak surcharges, fuel surcharges and even export surcharges. While carriers announce surcharges before they go into effect, the information does not always carry over into a TMS. A lack of surcharge-inclusive data within the TMS is also more prevalent among those using outdated or limited function systems.
Take this example, published by Cerasis. LTL freight surcharges rose nearly 7.2 cents in Fall 2018. While diesel costs continued to climb, carriers subsidized the cost of higher fuel by increasing surcharges. Even new regulations may have a similar effect on surcharges. The most pressing actual surcharges of today include those affecting shipments between the U.S. and China, as well as peak season fees.
What Types of Extra Fees Do Shippers Pay?
Fuel and demand charges are only a fraction of the full lineup of charges that may be assessed for a shipment. Added, after-the-fact charges amount to 35% of the original shipment cost and include:
- Residential delivery.
- Dimensional weight versus actual weight.
- Additional handling.
- Address corrections or rerouting.
- Installation of new items—a part of specialized logistics known as white-glove services.
- Removal of old items.
- Rescheduled delivery for items that are not “just leave on doorstep.”
- Refusal of delivery.
The list goes on and on, and carriers will add the charges without blinking. To worsen the problem, some carrier fees are invoiced the week after the original shipping costs are invoiced. This leads to confusion in determining which charges were added and for which shipments.
Hold UP! Aren’t Carriers on the Hook for Something?
Yes. Carriers play a role in the added expenses of shipping freight more than just adding on extra charges. They may overbill for shipments. While instances of overbilling may seem rare, consider this statistic. Between 1% and 2% of all carrier invoices are rated incorrectly. Double billing is another issue. Although it is possible to accidentally double bill an invoice, the real cause goes back to international shipping standards. Look all the way back to 2008, as explained by Material Handling and Logistics.
If a shipper uses a third-party, such as a 3PL, freight forwarder or broker, the middleman is on the hook for freight invoice charges. However, the middleman does not usually get paid at the time of service, so until the shipper pays the invoice, third parties may actually hold off on paying the carrier. That is not the case with Cearsis customers, however. We will pay the carrier every week and send customers only one line-item invoice each week for their shipments, making freight invoice accounting, which includes the auditing of every invoice, much simpler. Such interactions have slowly retreated into the annals of shipping history, especially as new legislation has given more power to third parties. With that in mind, there is nothing that prevents the carrier from billing the shipper independently of the third party. Now, two bills exist, and the shipper’s accounts payable department completes payment for both. Thus, the issue comes to fruition and leads to higher costs.
What Can Shippers Do Guarantee Actual Costs Reflect Customer-Paid Costs?
The path to ensuring customer costs equal shipper costs can be difficult. Shippers need to audit freight invoices. Unfortunately, the cost for identifying and recapturing payment for errors sits around $11 per error. This makes it difficult to justify implementing a freight auditing program, but new services, such as outsourced transportation accounting and auditing, can help find and recapture lost revenue at a fraction of the cost of an internal auditing program.
Avoid the Hassle by Partnering with a Company Who will Lower Freight Spend with Freight Invoice Accounting Services
Instead of hoping to recover higher-than-expected charges, let someone else do the work for you. Outsource to a reputable partner for freight invoice accounting and auditing services, such as Cerasis. If you’re still not convinced that a problem exists, give us an opportunity to prove that you’re paying more than what your customers do.
Send a file containing a full list of your shipping costs, based on what you believe each shipment costs. Include the amount you charged your customer for shipping on those items as well. Cerasis will review the information and provide you a detailed report on a single line per shipment with actual shipping charges versus what you believed the shipping charges to be. Next, we will total all carrier charges for each shipment, showing how your organization is losing money with its current shipping accounting practices.