Shippers: How to save big by avoiding freight invoicing errors!

There is no discrimination as to who overpays freight charges. Importers, exporters and domestic shippers are all susceptible to freight payments that are not what they negotiated. And it doesn’t matter what mode of transport is used. Most ocean, air, rail and truck carriers are guilty of over-billing even though it is not necessarily intentional.

As recently as 2013, Maersk Line CEO, Soren Skou admitted that “nearly 12 per cent of ocean container invoices are inaccurate.??? Maersk, the largest worldwide ocean carrier with annual revenues in the billions, are essentially admitting that billing errors amount to hundreds of millions of dollars each year. They are not alone. Every ocean carrier as well as carriers of other modes are guilty of erroneous billing practices, regardless of their best intentions.

Most companies utilizing freight services do not have the budget to screen every freight invoice in the payables department. They conduct a pre-audit review of the invoice and if approved, it is filed away and never looked at again. Post-audits are rarely executed. Keep in mind that a significant percentage of over-payments are caused by double-billing and frequently, the freight charges for a single shipment are paid more than once.

Ocean Freight Billing

According to there are over 100 possible components of an ocean freight shipment that can be the source of erroneous invoicing. For one, the base ocean rate may not be according to the contract rates negotiated by the shipper. Other components and surcharges may be:

  • CAF, BAF, Emergency Fuel and Peak Season Surcharges.
  • Terminal Charges at port of departure and discharge.
  • Pre-carriage and on-carriage.
  • Demurrage and detention
  • Erroneous declaration of ‘class of freight’ that are set by the relative tariff bureaus in North America. (FCA-NATC)
  • Discrepancies in dimensions and weight, based on volumetric tariffs.
  • Fluctuating fuel surcharges.
  • Freight invoices are reviewed by ‘freight professionals’ from a neutral point of view.
  • Ocean freight overspend can be reviewed for up to 5 years previous.
  • Once the review is completed, trends can be established and conveyed to the payables department on what to look out for in the future.

All major ocean carriers are liable to refund proven billing errors for the past 5 years. If your budget for ocean freight is $2 million per year, there is a likelihood that a review of $10 million in invoices could produce a refund as high as 6 figures based on a 2% error ratio.

Air Freight

Most of the ocean freight errors listed above also pertain to air freight shipments. In addition, errors in the application of TACT (The Air Cargo Tariff) classification which designate the rate levels on international routes by commodity, can result in significant overpayments especially considering that air freight is the most expensive mode of transport. Utilizing an international freight forwarder’s expertise in interpreting the TACT rules can likely provide peace of mind that air freight invoices are received in good order. This is particularly important when rating dangerous cargo consignments and over-dimensional cargo.

Most airlines also offer ‘spot rates’ for particular shipments that are attractive because of their size or the routing destination. It is important to check to see if the spot rate is applied (usually lower than the TACT rate for general cargo) rather than the tariff rate.

Road and Rail

The number of domestic and international highway and rail shipments far exceed those of ocean and air. However, the unit costs are usually lower depending on the distance travelled. A few reasons that billing errors can occur are:

  • Erroneous declaration of ‘class of freight’ that are set by the relative tariff bureaus in North America.  (FCA-NATC)
  • Discrepancies in dimensions and weight, based on volumetric tariffs.
  • Fluctuating fuel surcharges.

Post-Audit Benefits

Even though most companies believe that they have caught all errors on receipt of their invoices, the likelihood is that more than 50% of the errors are missed. Often times, payable departments are not educated in international transportation and what can look like an innocent charge could turn out to be an error. Most freight forwarders offer to conduct reviews for their clients to ensure that they are paying the right amount and obtaining refunds for overcharges.

Of course, there is usually a percentage fee for conducting the post-audit but at the same time, if they do not find any errors, the audit is usually free. A few reasons for considering a post-audit are:

Few shippers want to admit that they have overpaid their freight invoices but when they start to receive refunds or credits, the pride is easier to swallow. It can be good practice to perform an in-house audit one or twice a year.

At Mantoria, our employees are either ‘certified freight forwarders’ or on the path to achieve that designation through CIFFA (Canadian International Freight Forwarders Association). If you would like to have a fresh set of eyes perform a post-audit freight review, contact us to learn more.

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