In my previous blog (https://www.dantranscon.com/index.php/blog/entry/where-is-the-freight-transportation-industry-headed-in-2020), I outlined some of the forces shaping the freight transportation industry in 2020. This will likely be another year of upheaval.

In brief, the current “manufacturing recession” is restraining freight volumes. There will likely be a removal of a glut of fleet equipment. This coupled with the ELD compliance requirements in the US and Canada, and high insurance costs, may push out more poorly financed carriers. Political instability in the Middle East may drive up fuel costs. The maintenance of tariffs, even after the signing of the phase 1 China / US trade deal, will continue to drive up costs of supplies from China. This will likely make this a challenging year for shippers and carriers. It is very likely that shippers will face rising freight rates in 2020 to offset rising costs.

What can shippers do to restrain freight costs in 2020? Here are a few thoughts

1. Reevaluate your network and shipping practices

Many manufacturers and retailers throughout North America spend millions of dollars a year on freight transportation. Freight costs can represent between 1 and 10 percent of a company’s operating revenue, one of the largest cost items.  They are often treated as a necessary evil. From time to time a shipper may try out a new mode of transport, a new carrier or conduct a freight bid. Other than that, freight programs tend to remain fairly static from year to year.

During our years of consulting with shippers all over North America, we have observed a pattern of Best Practices that elevate certain shippers and companies above their peers. Employing these Best Practices allows these companies to reduce freight costs and improve profitability. One of the best ways to find out where a company stands in the area of Freight Management is to conduct a Transportation Audit. It is our view that shippers with a freight budget in excess of $1 million should periodically conduct an independent audit of their freight programs. Just as businesses audit their accounting practices, looking for opportunities for improvement, Transportation departments should do so as well. You might be amazed at what you find.

For the past several years, American Shipper, in partnership with the Council of Supply Chain Manage­ment Professionals (CSCMP) and Retail Industry Leaders Association (RILA), has successfully benchmarked more than 250 payers (shippers and 3PLs) on their transportation invoice processing and payment practices and systems. Participants completed a 28-question survey covering all modes of international and domestic freight transportation.  The report focused on transportation spend in three segments—procurement, execution and settlement.  Here are some of the major findings and recommendations.

The 6 Key Invoice Processing Functions

The report looked at the six key functions of invoice processing.  They include Invoice Receipt, Validation, Dispute Resolution, Approval, Payment and Audit.  The study found that about a quarter of the respondents outsourced the receipt and validation functions while over 40 percent use automated tools; the remaining 30 percent of the respondents process their invoices manually.

Two thirds of respondents use manual processes to resolve billing disputes.  Forty-five percent of respondents approve invoices manually while 42 percent approve them electronically.  The remainder are approved through a third party.  In fifty-three percent of the cases, the invoices are paid electronically while about a quarter are paid manually and another quarter are paid through an outsourced provider. 

Forty-five percent of the invoices are audited manually while 29 percent are done electronically and 26 percent are audited through a third party. The majority of shippers automate, or outsource the receipt and validation of invoices while dispute resolution remains highly manual.