Catching the e-invoicing wave
Forwarders, ocean carriers begin paddling toward electronic invoice processing and payment.
By Chris Dupin
Electronic invoice processing and payment (EIPP) of freight charges is coming to the world of ocean shipping, as shippers and carriers warm to the idea and a variety of service providers offer products targeted at the sector.
Last year INTTRA and GT Nexus established portals for exchanging and processing shipping documentation, and announced their entry into the field of EIPP, to help automate bill-paying processes.
INTTRA has linked with Deutsche Bank, while GT Nexus is partnering with Citi Global Transaction Services, an affiliate of Citibank.
Shipping still has a long way to go to catch up with other industries and even other transportation modes in its use of electronic payments.
A survey of shippers and carriers conducted in February by American Shipper, in partnership with the Transportation Intermediaries Association, National Industrial Transportation League and Retail Industry Leaders Association, found EIPP is more prevalent in domestic than international transport in areas such as invoice receipt, validation, dispute resolution, approval, payment and auditing (See chart).
The survey found about 69 percent of all invoices, accounting for about 64 percent of receivables, are still paid for with hard copy checks across all modes.
Companies such as U.S. Bank's PowerTrack system and its joint venture with VISA, Syncata, Corcentric Partners of McLean, Va., and Boston-based ExWorks, have had success in bringing EIPP to the trucking and forwarding industry.
For example, Gregg Borgeson, president of ExWorks, said his company processed about 195,000 invoices for $28 million last year for its two primary clients, Panalpina and DHL Global Forwarding, from about 1,800 different trucking companies.
'For the maritime industry, it's an innovation,' said Mitchell Baxt, senior vice president and a member of the board of advisors of PayCargo. 'The trucking industry and large domestic companies have had systems in place for years.'
PayCargo is a joint venture aimed at the shipping industry formed by First Data, a Georgia-based leader in credit card payment processing, and a group of shipping executives including Baxt.
His company links with other companies such as Magaya that provide software to the freight forwarding and logistics industry.
'So if a company using Magaya wants to pay, they click on an option to pay and it seamlessly links to the PayCargo and they can initiate an automatic clearing house transfer.
'Europeans are way ahead of North America in terms of general acceptance of electronic transfers of money in all sectors,' said Baxt, who has 35 years of logistics industry experience and is past president of Hasman & Baxt, a nationwide freight forwarder and non-vessel-operating common carrier.
Baxt said shippers like the idea of working with a neutral third party.
'You don't want to feel as though you are giving access to your account to a carrier. It is one thing to tell a processing company, 'I approve this and go ahead and take the money.' It is another thing to tell someone you owe a lot of money to and have a lot of disputes and their viewpoint and yours do not agree,' he explained. 'It is comforting to have a neutral party in between and is scrupulously obeying instructions.'
Cindi Yamamoto, a senior vice president of product strategy at Descartes, said use of e-payment has become common in many industries as companies have adopted enterprise resource planning (ERP) integrated computer systems for accounting.
But she said two types of bills ' freight invoices and service invoices ' are usually difficult to adapt to such systems.
'This was an opportunity for companies like mine, which automate contracts and monitor all the governing charges of carriers so all of that is updated in the database and can be used for audit purposes,' Yamamoto said.
'When it comes to ocean,' said Greg Kefer, director of corporate marketing at GT Nexus, 'a lot of companies try to do auditing and hire outside third parties to do it, but they still have the same problem that guys doing freight payment have ' they lack accurate information, up-to-date rates, contracts.
'Most companies are still on spreadsheets, paper invoices,' he said. 'Firms sometimes just accept bills because they figure they are over just as much as they are under. That's not good accounting if you ask me.'
Service providers have created a variety of products that are aimed at automating pricing, billing, payment and dispute resolution.
Tim Gannon, managing director of new business at INTTRA, said the procurement process for ocean freight is different than for other products.
'There is a tremendous amount of inefficiency in actually settling your freight invoices,' he said.
Say a company orders 1,000 machine parts for a factory or a truckload of office supplies. It issues a purchase order and the company will confirm the order, providing information on the price and ship the order.
When the goods arrive at the warehouse, the receiving clerk will check the order in, comparing it to the purchase order.
A three-way match can be made between the purchase order, the warehouse receipt, and the invoice, and payment can be authorized.
'Typically with today's systems you can do that without human intervention,' Gannon said. If everything matches, 'that invoice can generally drop into the accounts payable process and be subject to cash management and be paid.'
But unlike raw materials or parts for a manufacturing company, or computers and office supplies for a service company, where prices might be easily found in a catalog or price list, ocean contracts can be extremely complex text documents that reference governing tariffs or other documents.
Contracts often include accessorial charges for bunkers, currency, terminal handling and war risks. There are peak season charges. It's not always clear what rate cargo should be subject to ' a contract, for example, may have one price for skirts and one for apparel, and the shipper and carrier may disagree on which rate should apply.
Levels of inaccuracy can range from 10 percent to 60 percent, Gannon said. The result is that demand for electronic invoicing is driven by both carriers and shippers 'because there is benefit and value to both sides. There is recognition of a known inefficiency in the business process between business partners,' he said.
INTTRA estimates 150 million invoice transactions are processed a year for ocean shipping with average costs ranging from $20 to $60 per invoice, depending on the processes used.
So companies are offering a variety of services to help shippers and carriers lower processing costs and improve the accuracy of the invoicing, so fewer disputes arise.
' Contract management, so that rates are more accurate and transparent.
' Systems to present and pay invoices.
' Systems to automate the dispute process.
' Auditing tools.
' Analytical tools that can help shippers and carriers figure out what the problem areas are and work on eliminating them.
Yamamoto said her company has tools to 'database' contracts.
'We could do it or the customer could. If they provide us with their contract, we input that into a system and then we also maintain links to governing rules so that if all of a sudden there is a peak season surcharge that will apply to that contract, it is automatically picked up and calculated into what the charge should be,' she explained.
Shippers can request that carriers bill them through the Descartes system, and freight bills can be compared with the database to make sure they match what the invoice says the charge should be.
The system can be used by shippers to audit their freight charges, or to 'auto rate' shipments so that transportation costs are known before a shipment is made.
GT Nexus has systems that Kefer said help shippers 'procure freight services and optimize how they allocate freight among providers. Once you award it, the contracts are managed online so there is a single version of the truth. They are managed collaboratively ' where it is not just a spreadsheet that is digitized, but an online contract that both the shipper and carrier go in and can access and update as things are executed.'
Citi and GT Nexus say they are building on Citi's experience gained in the air logistics industry, through a partnership with Cargo Network Systems. CNS, the U.S. affiliate of the International Air Transportation Association, operates the Cargo Accounts Settlement System (CASS-USA).
'It has really taken hold in the last three to four years' in the air cargo industry, said Michael Vorwerk, CNS president. CASS takes paperwork out of the cargo presentment and payment process, and has improved billing accuracy. It has also reduced the days outstanding sales (DSO) which speeds up cash flow. He said 75 percent to 80 percent of IATA member airlines use the CASS system to do business in the United States, though use varies by what region cargo is moving to and from. CASS is available in 97 countries.
'We are at DSO of 38 days within CNS at the airline environment, which is very good, compared to normal billing cycles,' he said.
CASS 'has shortened DSO by at least 10 days and reduced air carrier invoice presentment and collection costs by 18 percent,' said Brent Flynn, managing director of global logistics, sector head, for Citi Global Transaction Services, in an article for the CNS house magazine Air Cargo Focus.
Vorwerk noted that EIPP systems have become widespread in the trucking industry. Since many air cargo movements require associated truck movements, CNS has been speaking to ExWorks about the ability to use the CASS System to pay those bills as well.
If electronic billing is well established in the air industry, it is 'somewhat greenfield' in the shipping industry, Kefer said. 'There are a lot of payment platforms out there, but at the end of the day you need some sort of electronic standard of invoices to know what you are being billed for.'
'This is for Citi an expansion of a capability that we have had in the marketplace for air cargo already, with some modifications,' Flynn said.
While carriers use electronic-data-interchange message formats to transmit invoices, Kefer noted a Maersk bill of lading EDI message may be very different from one from APL or MOL.
Companies like GT Nexus and INTTRA take messages and standardize them so that they can be electronically processed and presented to customers. Both portals have features that allow shippers to dispute bills if they disagree with something they see.
'In a little more elaborate environment, it allows for that file to go against an electronic freight audit system so it can electronically determine if the correct rates have been used and take more manpower out of the system by doing an electronic match,' Flynn said.
Once the carrier and shipper agree, the payer can make payment electronically by instructing its bank to process the electronic payment.
Baxt said at PayCargo, the system is designed so that carriers and shippers are in a real-time environment and see what each other is doing on a specific transaction.
'So a shipper can take an action on a transaction and the carrier is going to know instantaneously that the shipper has taken that action. So a release of cargo doesn't have to have a next-day type of approach where you have to look for a fax or an e-mail with an attachment and say, 'I am going to trust this person.' '
Most carriers require payment of import freight before cargo is released at the pier. Baxt said PayCargo allows shippers to schedule payments on specific days so that payment can be scheduled just before pickup.
'People want to husband cash,' he said, and EIPP systems can help them accomplish that goal.
Initially, INTTRA and GT Nexus have focused on automating freight transactions between ocean carriers and forwarders, or 3PLs, but they say next they will turn to attracting beneficial cargo owners.
INTTRA's Gannon said that by having standardized dispute codes, carriers and shippers should be able to more quickly resolve differences over billing.
It will also be possible to develop metrics that allow shippers and carriers to take an analytical look at disputes and identify the root causes of problems, he said. For example, a shipper might be able to identify a problem in their contract or that they are repeatedly being charged too much for bunker fuel out of a particular port.
'The problems exist on both sides,' Gannon said. 'There are also problems with forwarders and shippers who don't know what is right and what is wrong and they make mistakes in their dispute process.'
If carriers and shippers are able to identify those problems, they should be able to eliminate them from recurring. He even holds out the possibility that data could be aggregated from multiple shippers and carriers (with no identities revealed) so that INTTRA can help the industry find common root causes of billing disputes.
Among the companies that have committed to using the INTTRA electronic invoice presentment and payment solution are CMA CGM, DHL Global Forwarding, Kuehne + Nagel and DB Schenker Logistics.
Sherrie Orzechowski, a sales consultant at INTTRA, said how quickly a company recovers its investment on INTTRA's EIPP will depend on how much volume it handles using the system. But for every company she has modeled, the investment is returned in less than 18 months.