Intelligent Audit: controlling freight costs by auditing parcel carrier invoices

When the national freight market abruptly tightened in the third quarter of 2017, all sides of the industry were caught off guard. Carriers who happened to have capacity committed to the spot market reaped a handsome reward, while large parcel carriers like UPS and FedEx badly misjudged the volumes they would have to handle in the holiday shipping season. Shippers, of course, felt the most pain, and FreightWaves has reported on shippers in a number of different verticals attributing narrowing profit margins to unexpectedly high freight costs.

Shippers can’t do much to protect themselves against spot market volatility. Their contracted agreements starting falling apart if the market moves too far against contract rates, and building an in-house dedicated fleet to handle their freight requirements requires a large capital outlay and comes with significant risks of its own.

A vitally important but often overlooked way that shippers can work to control their freight costs is by improving and automating the auditing of carrier invoices. An astonishing 80% of carrier invoices contain some kind of discrepancy. Intelligent Audit has released a new white paper, The Benefits of Small Parcel Contract Audit, that identifies the opportunity for savvy shippers to reduce their freight costs by nearly 10%.

Performing a thorough freight audit of carrier invoices can help a shipper improve cost visibility, reduce costs, provide leverage to negotiate future contracts, and obtain favorable pricing terms.

Intelligent Audit pointed out that freight costs can represent up to 10% of a company’s total expenses, and discrepancies between between the contract and invoice can account for as much as 8.8% of the spend. Shipping parcels is particularly complex because the pricing models are often based on dimensional weight, but other aspects subject to auditing include freight incentive discrepancies, minimum charge verification discrepancies, and accessorials and surcharges.

The white paper outlined two common scenarios involving freight incentive discrepancies. In the first scenario, a new shipper account created was improperly linked to an existing carrier agreement, and as a result, contractual terms were not applied to shipments invoiced under this account.

In the second scenario, a particular carrier did not process all of your contractual incentives. Your shipment was entitled to both a weight-based and a volume-based discount, but only one category was applied by the carrier. This can get even more complex when shippers try to develop operational strategies to reduce costs around the impact of dimensional weight effects, like cubic threshold, cubic variance, and tiered dimensional weight factors based on both cubic size and shipment characteristics.

It’s already a complex task to study parcel carriers’ pricing guidelines and then optimize your operations so to reduce costs—it’s quite another to go back and audit your invoices after the fact and see whether the carrier priced your parcels fairly.

Intelligent Audit’s software analyzes more than 150 service points, including overcharges due to late shipments, duplicate billing, loss and damage claims, manifested not shipped packages, and address corrections to recover any potential opportunity regardless of dollar amount. The software automatically reviews every package shipped for accurate billing, verifying all charges against carrier contracts and validating all potential exceptions. It can even make intelligent recommendations, for example if a large proportion of a shipper’s packages are hitting the minimum weight charge conditions, Intelligent Audit can tell a shipper to negotiate more aggressive minimum charge reductions to increase the shipper’s discount percentage.

The FREIGHTWAVES TOP 500 For-Hire Carriers list includes FedEx (No. 1) and UPS (No. 2).

John Paul Hampstead

John Paul conducts research on multimodal freight markets and holds a Ph.D. in English literature from the University of Michigan. Prior to building a research team at FreightWaves, JP spent two years on the editorial side covering trucking markets, freight brokerage, and M&A.