Why Is Freight Accounting Important?

Why Is Freight Accounting Important?

freight accounting

“When will it end?” Many shipping companies ask this question to lament the current containerized logistics situation. On March 14, 2022, McKinsey and Company proposed four future recovery scenarios, summarizing that, “Container freight rates will remain elevated throughout most of 2022 while the containerized logistics disruption persists.” While one can only guess which of the four scenarios will be most accurate, shippers need to use the elevated rates as fuel to learn what freight costs are in accounting.

What Are Freight Costs in Accounting?

Freight costs are the overall expenses accumulated while transporting an amount of material from one location to another. While all businesses that require the transportation of goods engage in freight accounting, the counting of freight costs is especially important to those whose complete job is to ship the material. Freight costs might include fuel, carrier employee salary, warehousing costs, and expedited upcharges. Accounting software for transport companies can help to navigate these charges with fine-tuned functional features such as GL coding support. 

Common Challenges of Freight Accounting 

Although there have been many advances in supply chain tech, shippers must stay strategic to overcome common freight accounting challenges. Some of those challenges include:

  • Limited Visibility – Lack of omnimodal transportation visibility prevents shippers from having the tools to optimize freight contracts to understand how their customer’s products get delayed and delivered. 
  • Problems Knowing Which Carrier Charges Go Where – While this might seem comical to a Type A personality, shippers deal with a vast number of carriers. It is easy to lose sight of who operates where and allocate costs, whether per-mile rates or accessorials, to the incorrect carrier, mode, or shipment. 
  • Inability to Track Shipment Costs on a Granular Level – Although parcel fuel surcharges may start small, item-based costs quickly increase when they are not adequately recorded and understood. 
  • SKU Proliferation – Although SKU proliferation satisfies a rocketing demand for an item, it can complicate the accounting for the individual and collective shipment order.

These operational costs are vital to the successful transfer of goods in the hands of a shipping company. So how can freight accounting help overcome them?

Proactive Accounting Yields Visibility and Cost-Savings in Transportation Management 

Most challenges in life are best dealt with proactively instead of reactively, and freight accounting is no different. Virtual finance and accounting tools are more readily available today than ever before, but where does one start? To properly budget baseline operational costs, shippers must find and resolve any inaccuracies of core functionality. Integrating all lines of payment and business processes into a single source of truth prevents inaccuracies from falling by the wayside. A freight auditing service can be that source of truth to singlehandedly analyze freight costs and provide the next cost-saving step. 

Freight network optimization is a second vital component of proactive freight accounting. Freight network optimization happens when shippers analyze service levels and customer satisfaction, even after delivery. This analysis can provide blanket data on which carriers are underperforming or are consistently hitting the mark to make a successful transport. In addition, it can give a breakdown of patterns of avoidable costs such as accessorial charges or layover fees. 

Gain Control Over Freight Accounting With Intelligent Audit’s Single Source of Truth 

When common or uncommon freight accounting challenges arise, shipping companies must have the tools to address and resolve those said challenges. An international freight audit software can provide a proper grasp of what freight costs are in accounting to uncover cost reduction and workflow improvement opportunities. Intelligent Audit has spent over twenty years providing shippers with the tools they need to work smarter, not harder, and overcome inefficiencies. To start a conversation with the #1 global logistics and freight audit company, start a conversation with Intelligent Audit today

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