Freight Payment 2020: Data rules

The freight bill payments industry is rapidly changing to adapt to shippers’ needs as they strive to control carrier expenditures. The collection and distribution of data is at the heart of the changing nature of the business.

Harold Friedman, senior vice president of global corporate development at Data2Logistics, a freight bill payment company, says that business is booming because of it. “I’ve been in this business for 50 years, and I’ve never had so many unsolicited calls in my life,” he says. “And it’s all about how data can make a difference in their businesses. If shippers have data, they can make more informed decisions, not just locally, but globally on all modes of transportation.”

Jeff Pape, senior vice president of product and marketing at U.S. Bank Freight Payment, certainly agrees with Friedman, adding that the boom will continue, even now that freight imbalances of the past year have evened out. “What we’re seeing in our freight payment index is a market that’s still growing, but just at a slower pace,” he says.

The freight bill payment executives add that even though they’ve made progress in eliminating paper from their processes, the rate of changes is stunning. “Customers are asking us: ‘What can we do with artificial intelligence and modeling?’ It used to be: ‘How do we get the right data?’ Now shippers want to understand in real time and how they can predict what’s going to happen in the future,” says Pape.

Mike Regan, co-founder and chief relationship officer of TranZact, says that overall sentiment is “very positive” in this new era of freight bill payment companies. “In real estate, the three most important words are location, location, location,” he says. “In the freight payment industry, it’s data, data, data.”

And the cost of obtaining, keeping and analyzing that data has never been lower, Regan adds. Still, he says that there’s some pushback from shippers living in the good old days of regulated rates, reams of paper tariffs and green eyeshades. “The cost is nominal, pennies per record, and that information is being used to manage millions of dollars of freight transportation spend,” he says. “The challenge for a lot of people becomes the stepping over dollars to pick up pennies.”

Over the next few pages we’ll take a deep dive into the data-dense world of freight audit and payment and discover why the keys to data management in this ever-evolving segment continue to be control, accuracy and visibility.

Day-to-day data control

In the era of regulated surface transport prior to the Motor Carrier Act of 1980, the old Interstate Commerce Commission set rates. The role of the freight bill payment industry was as a glorified bookkeeper and check-writer to carriers.

The industry was dominated by heavyweights with heavy banking backgrounds such as Cass Information Systems (founded in 1906, the year before UPS began), Cleveland-based CT Logistics (founded in 1923) and a handful of others.

“When I first started in this market, the business was a settlements function because the business was regulated—everybody paid the same rates,” says Friedman. “Then, after deregulation, the focus went from payment to access to information. Then the next thing people began looking for was getting some data and basic reporting.”

Today, Friedman explains, the situation has evolved where the driving force is now the data itself. “The audit and payment business is secondary,” says Friedman. “The freight bills must be done and analyzed correctly. But the real opportunity for saving comes from the data—and the analysis of it.”

That analysis often finds shippers using the wrong carrier, not utilizing preferred carriers with whom they have long-standing contracts, choosing incorrect modes or service levels, not consolidating shipments, and not identifying all of the overcharges and accessorials that might be hidden deep in the freight invoice.

“In the past, people made decisions by the seat of their pants, but those days are over,” Friedman explains. “Now people are accustomed to making decisions based on data to optimize their shipping situations, and the way they get informed is by receiving data and controlling that data.”

U.S. Bank’s Pape said criticality and importance of data is “more significant than ever.” But it’s more than just data. “It’s what data can be provided in real time and what data is foundational to the freight audit space,” he says. “Our customers are really asking for a holistic view, not just the freight payment information, but across their entire supply chain. And they want it in real time. Those are fun conversations to have with shippers.”

Accuracy, accuracy, accuracy

That brings us to the second key element of modern freight payment: assuring that all this data that’s being churned and analyzed for potentially millions of dollars of freight expenditures is accurate. “Accuracy of data is everything,” says Regan.

But there’s a problem. Regan estimates that as much as 15% to 20% of data collected is wrong. “When you throw out that much data, it skews analysis of the actual freight spend,” Regan says.

And while accuracy of data is paramount, Friedman says that it also has to be consistent. A carrier’s fuel cost should be a simple item to discern. But instead of calling it fuel, some carriers prefer to call it a “fuel surcharge,” while others list it as “FSC.”

“We normalize that, as well as accessorials, modes, service levels and locations,” say Friedman explained. “Those things the client had to clean up themselves are now being done by us in a consistent manner.”

Ross Harris, CEO of A3 Freight Payment, says that his company’s niche is large volume shippers with complex supply chain networks with “lots of funky needs.” And, of course, data accuracy is critical to his customers.

“How we keep our data clean is through a front end resolution process,” says Harris. “We don’t process balance due and past due invoices and include that in the freight bill analysis. It pollutes the data. We clear all of those issues prior to settlement, and the shipper sees one and only one record.”

The reason those balance dues and past dues skew things is because of penalties associated with loss of discounts due to overweight shipments, incorrect addresses, accessorials or perhaps 100 other reasons carriers might cancel a shipper’s hard-earned discounted rate.

“That’s where the savings come from, showing an LTL shipper where the accessorials are,” says Harris. “Also, there’s a tremendous amount of parcel spending that represents some low hanging freight for us to show shippers how to save. Sometimes, it’s as simple as telling them: ‘Hey, stop doing this and that. It’s a people problem.”

But those savings begin with the quality of data associated with input at the freight bill payment company. Some common mistakes can be incorrect origin or destinations, wrong weights, wrong classifications, failure of account codes. Those mistakes could be because of what’s inputted from the carrier or shipper source file, or a combination of both. But it hardly makes any difference.

“At end of day, the data has to be perfect,” adds Regan.

The visibility problem

How data is controlled from a security perspective is another concern to shippers. After all, there’s confidential information they trust to freight bill payment companies. Most of the reputable companies are now using General Data Protection Requirements (GDPR), which are mandatory for any shipments to or from Europe and are quickly being adapted by U.S. shippers as well.

Harris of A3 says that shippers are asking for more and easier visibility of data in order to find where there are more opportunities for cost savings. “I call them the 3PL generation,” he says. “Our typically larger shippers will use 3PLs strategically, but what they’re looking for from us is to provide them with good visibility so they can point, click and see where the savings are.”

One area where data visibility can easily pay dividends revolves around minimum shipment charges. If a carrier is charging a $75 flat-fee minimum, that minimum charge is fully in effect regardless of what overall discount this shipper may enjoy on routine, non-minimum weight shipments.

Data standardization and normalization is prerequisite in order to compare freight rates. According to Harris, A3 offers three levels of data applications: high-level for the 30,000-foot view; mid-level for whose who want the same data on a regular basis; and what Harris called “data jocks” who want to slice and dice data to extract data and create any situation for freight deliveries.

According to Regan, how shippers incorporate visibility capabilities into their data warehouse search engines is a growing trend. Again, standardization of data reporting is critical as well as the source of that data. “There’s a lot of technology originating around data visibility,” he says. “The freight payment engine needs data so that it can basically tell me where I have issues associated with performance capabilities.”

Are shippers willing to pay for this? “Of course not,” Regan jokes. “The difference depends on whether you’re a strategic or transactional shipper. If you’re a strategic shipper, you understand the value of the process and the data. If you’re not, then good luck.”

What’s down the road?

Based on these trends, it’s clear that the future of freight payment and audit services will be big data, high tech-driven and flexible enough to adapt quickly to emerging digital trends and needs.

One new niche is the rise of newly automated mobile electronic payment systems that offer digital invoicing for drivers, carriers and brokers. For example, Road Sync is a four-year-old platform that accepts payments anytime, anywhere to simplify fee collection, increase speed and security.

According to CEO Robin Gregg, it’s designed to optimize business operations and is specifically designed to handle payments for truck drivers. “Our mission is to make it easier to move and manage money throughout the transportation industry,” she says, adding that the platform is similar to Square, but purposely built for the trucking.

Road Sync can also make sure that everyone’s rate schedules are clear and that they’re charging the right amount to the right person, making payments easier to manage. “There is no reason these things should be done on paper,” says Gregg. “We help get drivers back on the road, we reduce congestion at the warehouses and we make sure shippers receive a professional invoice that clearly shows what they’re paying for.”

No matter how shippers are paying, experts say that now is a great time to rethink future strategies because of the decline in overall freight volumes in the past six months or so.

“Everybody is dealing with a challenging economy with some softening in the market,” Harris added. “That gives time for everyone to take a breath and see how we can help align their networks more efficiently. This is the pause that refreshes.”