These days, most freight brokers and carriers do not like to see the words "freight audit" in a carrier or shipper's email. The last thing anyone interested in getting paid is someone digging into the details of their freight bill payment and invoices. However, as many experts have come to agree — if you're paying freight bills without an audit, you're just handing over the money without rhyme or reason to carriers.
Let's take a closer look at what a freight audit really is and how freight audit data can be more valuable than meets the eye.
Freight audits are not meant to simply go back and check billings for accuracy (although that is an integral part of the process). An audit goes much further than that. It's almost like a detective investigation. There are several reasons for this:
For all these reasons, it's crucial to have an audit when you're receiving freight bills or paying them so the broker/carrier knows they are being reviewed. It shows transparency in your business practices and can prevent future disputes.
Shippers need access to all freight audit data to stay objective and understand what is happening, will happen, or what needs to happen to achieve the best result.
A shipper should demand to see all carrier's resources (equipment, capabilities, and drivers' qualifications) and consider using this information for future contract negotiations and billing issues.
When you are auditing your freight bills, don't just stop at the bill itself or the line items; have a look at what is going on around you - more than that - do some research and get the complete picture about the carrier partner's performance.
If shippers want to do business in the coming years, they should build effective working relationships with carriers. A good start for working together in the future starts with shippers looking at all data and analyzing more information about each carrier so the two parties may have collaboration around data, not feelings or anecdotes. Investing the time and effort to evaluate each carrier thoroughly is good for future business.
Freight audits do much more than simply provide a view into current cost expectations. It provides a comprehensive view into many factors affecting landed spend, including:
Moreover, gaining insight into the total view of freight means shippers can better prioritize shipments and leverage the most profitable (read: the best service) carriers.
For example, applied data from multiple parcel audits help shippers identify costs by zone, which shippers can use to understand where and when zone-skipping might be an option.
Remember, zone-skipping is a type of change in transportation where items can travel by ground and still arrive within an acceptable time of sending the same shipment by air. While this is a common strategy for moving parcel shipments, it can be helpful in transporting virtually any form of freight.
Furthermore, as these are shipments that cross more than one zone on their journey, zone-skipping also results in cost savings by making better use of over-the-road transportation.
The shipper saved money by zone-skipping the leg through Seattle for an additional 100+ pounds. This means that there were at least 100 pounds of savings across all zones involved — and likely many extra savings once you consider fuel and other costs, such as added surcharges in air freight.
There are a few different options available to companies when it comes to shipping freight. One of those options is airfreight, which is the most expensive way to ship something. Factors to consider in choosing airfreight:
Airfreight may also be unnecessary if customers are willing to wait an extra day or two to get their freight. Yes, Amazon and major retailers have grown accustomed to fast, free shipping, but fast shipping is costly and has a higher carbon footprint.
For example, freight shipped with a priority service level has to move, regardless of how full a cargo hold or truck is. Therefore, faster shipping means a greater risk for wasted space, increasing the environmental impact.
However, going by ground also opens the door to a new realm of possibilities in boosting transportation sustainability, especially considering the growing use of electric trucks and vehicles.
The freight industry is seeing a rapid increase in electric trucks and other vehicles. Electric trucks offer many benefits, such as lower emissions, lower fuel costs, and easier maintenance. Electric trucks are also becoming more cost-effective as the technology improves and the cost of batteries decreases.
Many companies are already investing in electric trucks, which is likely to continue. Electric trucks are an excellent solution for the freight industry's growing environmental concerns, and they offer many other benefits as well.
Planning Annual Requests for Proposals (RFPs) is a routine part of freight management. However, the days of preparing an RFP based on limited market data and forecasted freight demands are ending. Instead, shippers have access to a treasure trove of information that can help them understand what to expect and get a better deal in such processes.
For instance, consider these core data points and their use in RFPs.
Detailed freight lane data is essential for annual RFPs. By understanding the volume and shipping frequency for each lane, shippers can better understand the expected freight demand for their business. They can also use this information to benchmark proposals they receive and to select the best carrier for their needs.
Further, freight audit data is very helpful in evaluating freight contracts. Many years ago, carriers used fuel surcharges to increase their revenue (and passed that cost on to shippers). More recently, freight audits have helped companies better assess costs and keep them under control.
But freight transportation management has come a long way since then, thanks largely to freight audit data. Shippers can now make more informed decisions about carrier selection for RFPs and other freight transactions throughout the year. This information allows them to maximize savings opportunities by understanding their expected demand volumes and the current market conditions under which carriers are bidding.
When it comes to freight audit data in annual RFPs, there are a few considerations companies need to take into account. One of the most important is delivery appointment requirements. Companies need to ensure that freight deliveries arrive during regular business hours and that someone is available to receive the freight at the destination. In addition, it's important to consider shipping and receiving hours. Facility profiles are also important, as they can give companies an idea of the type of facility they're dealing with.
To ensure that freight audit data is useful when preparing annual RFPs, shippers need to have clear insight into their carrier cost structures. In addition, freight pricing templates need to be transparent and easy to understand to promote fair competition in the market.
There are a few different ways freight shipping carriers can price their services. One common pricing model is to charge by weight or volume of the shipment; this is called a tariff rate. Other carriers may use a pricing model based on the shipment's distance, called a mileage rate.
Flat-rate pricing models charge a set price for a shipment regardless of its weight or distance. Ultimately, shippers need to understand their freight audit data to make intelligent decisions about freight shipping.
One of the most important aspects of freight management is freight audit data. Shippers can use freight audit data for carrier selection criteria and KPIs to manage carrier performance. Audit data helps you identify and quantify saving opportunities, measure freight spend against budget, benchmark freight rates, and identify areas for process improvement. When used correctly, freight audit data can help you make better-informed decisions about your freight program, leading to cost savings and improved efficiency.
Shippers can use freight audit data to continuously improve network performance beyond zone skipping and hub injection. While those strategies both rely on understanding where opportunities to streamline shipping execution exist, the use of data is also an excellent way to understand which carriers are fulfilling their contractual obligations.
For instance, carriers that do not adhere to shippers' requirements may be bypassed for business in favor of those that do. Additionally, freight audit data can help identify when to use spot versus contract carriers.
Shippers and freight forwarders use spot freight service providers to handle freight movement when demand exceeds capacity and prices become attractive. Conversely, contract freight service providers offer pre-determined transportation services that the shipper can depend on as business needs arise. And recognizing those differences is critical to tracking and improving carrier performance.
As a further explanation, consider these uses:
Speaking of market differences, freight audit data can be useful in comparing original shipping spend projections against actual costs.
Shippers need to keep track of their costs, and cost control is integral to keeping product price points low. However, low pricing also amounts to improved customer experiences for end-users.
To remain competitive, it's no secret that businesses must provide excellent customer experiences. In the freight world, this means not only keeping transportation costs low but also ensuring that freight is delivered on time and in good condition.
In addition, freight audit data can help shippers know when they overspend on freight transportation.
There might be a misconception around the use of freight audit data during periods of decreased disruption. While the industry has experienced more than its fair share of disruption since the start of the COVID-19 pandemic, there will inevitably be a cooling period in the market. Moreover, multiple market variances could compound this cooling period.
For instance, market volatility in one location might vary drastically to others, and shippers operating in low-volatility markets can often find themselves overspending on freight transportation. There are a few reasons for this. First, because freight rates are relatively stable in these markets, shippers might not be as diligent in comparing rates and securing discounts. Second, because freight volumes are lower in these markets, carriers might be less inclined to offer volume-based discounts.
This can lead to shippers paying more for freight than they need to, especially if they are not closely monitoring their spending. Shippers should use freight audit data to track their transportation costs by service level, mode, and carrier to avoid overspending.
Together, this is more the lion's share of the value of actionable insights, using data to stay strategic and keep total freight costs in check. Of course, that opens the door to the next question, "should shippers conduct an audit in-house or use a third-party service?"
This is a loaded question. As the volume and demands of shippers have increased, it has become impractical to try to manage freight audits in-house. The short answer is that it's too expensive to conduct a freight audit in-house. Assume a shipper sent 600 loads across 200 carriers. Each load potentially requires 10 minutes to audit. Assuming no inaccuracies are found, the auditing process would still require 100 hours of work.
Now imagine that the 100 hours are per warehouse or distribution center, and as ones network grows, the demands on auditing increase. Even if workers were making $15 per hour for auditing, it would still amount to an extra $1500 in costs per 600 loads. Even worse, that example doesn't include potential overtime and other expenses associated with back-office management.
Outsourcing freight auditing alleviates this issue and lends itself to several core benefits, including:
In September 2018, well before the pandemic hit, reports surfaced that Amazon had spent $28 billion on shipping just during the previous year alone, according to FreightWaves. Amazon also earned over $11 billion from those expenses in that same reporting period. Now consider all the other companies worldwide that have been paying more and more as the pandemic-influenced rates rose and capacity grew tighter.Ultimately, freight audit data is vital in managing shipper spending and business profitability. By tracking cost by carrier, mode, and service level, shippers can better understand where they are overspending and make changes to their transportation strategy as needed. Meanwhile, dedicated freight auditing service businesses, such as Intelligent Audit, have the experience and resources to audit freight bills quickly and accurately, saving time and money. Shippers deserve to have access to both the insights and facts behind their freight audits; that is of the essence to make the most of current technology. Intelligent Audit makes this possible. Connect with Intelligent Audit to get started today.
Set up a call with one of our experts to discuss how Intelligent Audit can help your business uncover opportunities for cost reduction and supply chain improvements through automated freight audit and recovery, business intelligence and analytics, contract optimization, and more.
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