A major global airline was moving large volumes of high-value, pharmaceutical freight for several customers. Due to the sensitivity of the cargo, the carrier had made significant investments in special temperature-controlled facilities that could accommodate expensive Envirotainers to keep the cold chain intact.
After some time, however, the carrier noticed that revenues from the service were underperforming, despite a good track record of shipments with few temperature incursions. The carrier turned to a consulting firm to figure out what went wrong. U.S.-based consulting firm ARG LLC, which specializes in revenue protection services. discovered that a data error had been made with the pharma shipments, most likely at the local terminal. These shipments were being mistakenly entered into the booking system as “general cargo,” rather than specialty pharma cargo. Because the booking data interfaced directly with the carrier’s billing system, more than 100 of the pharma shipments had been invoiced at the general cargo rate, instead of the high-value pharma rate.
It was a simple error. But since the airfreight industry has many moving parts, discovering such an error was hardly simple. With many airlines and forwarders still using their own proprietary legacy IT systems that are often siloed apart from the rest of the supply chain, it has become easy for billing errors to pass through quality-control efforts. Errant billing is a serious problem, industry executives acknowledged. Although exact figures are hard to pin down, ARG estimates that “there is more than $250 million in revenue leakage that direct and indirect air cargo carriers face, industrywide.” When asked about the estimate of $250 million left on the table every year, a cargo executive at an Asian carrier said he believed the number wasn’t quite that high. But after a long pause, he told Air Cargo World, “let’s put it this way, I wouldn’t be surprised if it really is that high.”
To be fair, misguided billing is not new. To help address this long-standing issue, the International Air Transport Association (IATA) set up the automated Cargo Accounts Settling System (CASS) in the 1970s, with the intention of simplifying the billing and settlement of accounts between airlines, general sales agents and freight forwarders. By 2003, IATA created the CASSlink portal used today, which digitized the process. In the United States, international carriers often use a similar, less-regulated product, Cargo Network Services (CNS), or “CASS-USA,” to perform the same function. CASS and CNS have both proven to be effective in processing air waybills (AWBs) and settling invoice disputes, but they have not prevented errors, carriers told Air Cargo World.
“CASS is not really geared to improve accuracy,” said Mark Palladino, a principal at ARG, who has worked with some of the largest international cargo carriers on revenue leakage. “It is designed to streamline the settlement of the transaction.”
By the end of 2016, CASS expanded to 93 countries and territories worldwide, handling freight-related transactions worth a combined total of US$26.4 billion in that year alone. The rates for billing disputes from these transactions are generally carrier specific and vary from one to the other, but Palladino said he has seen invoice adjustment rates for some carriers using CASS that “are nearing 20 percent.” On the U.S. side, CNS reported that an average of about 9 percent of the 2.8 million AWBs it processes each year are disputed.
And these are just the discrepancies that are being noticed. Who’s to say how many billions of dollars’ worth of over-billed or undercharged invoices have slipped past overworked accounting departments? And what toll is being taken on the billing departments at carriers, which are often flooded with so many invoice adjustments that it becomes a major resource drain?
“Although CNS is a clearing house and does not have a mechanism for reducing billing errors, the system does detect common file load data errors,” said a CNS executive, who declined to be identified. “Errors often occur when a carrier enters a new market and coding/billing does not align with the forwarding services provided, possibly because local staff is unaware of how to code for time definite guarantees or specialty products.”
The plane brain drain
This invoicing issue, ARG’s Palladino said, transcends direct carriers. “We’ve had some conversations with two top-five forwarders,” he added. “Their invoice issues appear to be even worse than what we’ve seen, on average, with the carriers. The impact of invoice accuracy affects the whole organization, including sales, finance and operations. It really is a trickle-down effect, and it not just limited to the top-line revenue.”
A U.S.-based executive for a large Asian carrier (due the sensitive nature of the subject, no carriers contacted by Air Cargo World agreed to be named for this article), said the most serious cost to airfreight operation is in manhours tied up attempting to untangle the claims and counterclaims, especially in the CNS side in the U.S. “The rest of the world uses a very simple system,” he explained. “Under CASS, the forwarder has to pay the invoice first before it can be disputed. But in the U.S., when a carrier uses the CNS version, it can file a dispute immediately, without paying first.”
This situation – the result of the deregulated market in the U.S., where carriers can work directly with forwarders – leads to accounting departments of carriers and forwarders sending disputed invoices back and forth, each insisting that their billing information is correct and resubmitting AWBs back into the system. In many cases, he added, the AWBs get so old that they are forgotten and left to clutter up the system.
“It’s a huge problem, going in both directions,” the Asian carrier executive said.
To make matters worse, any attempts that have been made to sit down with carriers and forwarders to come to a compromise on the billing issue in the U.S. have been thwarted by legal concerns over possible antitrust violations.
“I don’t see an easy solution,” he said.
Good data is hard to find
The root cause of many of these discrepancies is about as old as the first digital computers: you can only do so much with bad data.
“It’s garbage in/garbage out,” said one former airline executive. “A lot of it just comes down to sloppiness on the front end.”
While most airlines have high-tech autorating systems and other sophisticated checks and balances, the bottom line is that most invoicing errors are the result of data integrity issues. “Those IT systems are only as good as the data that feed them,” Palladino said. “Too many carriers seem to be missing the mark.”
When ARG receives a new client, it runs the company’s data through its Advanced Transactional Link & Analysis System (ATLAS). Once inside ATLAS, the client’s information is compared with huge amounts of data from previous examples to spot anomalous patterns. “So, when we see that pharma freight, or that customer moving RKNs in a particular lane – say JFK to London – our analysts already know how that cargo should be billed out, regardless of what limited information our clients may have,” Palladino explained. “So, we have the luxury of having a broad-based macro perspective.” Once these methods are used, underbilling rates typically drop 20 percent after the first year and overall accuracy rates also improve, he said.
Poor communication also plays a major role. Palladino described one ARG client – a major global carrier that had been moving military cargo to Dubai and then to secondary Middle East destinations via an interline carrier. What the main carrier failed to notice, however, was that it was billing only for the cargo coming into Dubai and neglecting the additional charges for the “off-point” trips to the other destinations.
In this case, the cause turned out to be the use of an autorating system that automatically considered the off-point shipments to be “exceptions” that were incorrectly being interpreted manually by the revenue accounting staff, which assumed Dubai was the final stop. This basic accounting error was identified, but not before it cost the carrier more than $1 million in under-billed revenue.
Some other errors stem from the fact that not every forwarder can physically see the cargo, as it moves through the tendering process. A cargo executive at a large North American carrier said that, in many cases, forwarders “are not bringing the freight into their facilities and doing the consolidations, build-downs or breakups,” he said. “We have shippers giving the forwarder estimates of what they think they’re going to be bringing, and when they show up to the airlines, for the tendering process, you tend to find out that they’re not 100 percent accurate.”
Another cargo carrier implemented a new pricing and billing system that incorrectly rated shipments that required a fuel and security surcharge as “all-in” due to the pricing data being incorrectly captured. At the time, the carrier was having extreme difficulty with the new system implementation and other areas of the business were being impacted. ARG, however, was able to quickly identify the source of the error and recoup more than $1 million for the client.
In many cases, new mission-critical IT logistics systems are not flexible enough to handle today’s hyper-complex cargo market. A recent air cargo study from Accenture showed that only about a quarter of the world’s air carriers have the capability to adjust rates based upon six or more variables, including market, product, commodity, unit load device (ULD), weight/volume or market fluctuation. Therefore, the vast majority of carriers are not nimble enough to respond to rapid industry changes.
The intricacy of rating systems can also play havoc with billing. “To stay competitive, you have to be able to structure a deal that’s better than the next guy out there,” a North American carrier executive explained. “Sometimes the deals are made so complex, the systems are not able to keep up.”
He went on to describe a case in which a client had negotiated a discounted rate for a Saturday shipment, but the forwarder, which was closed on Saturdays, was not informed. So, when the shipper showed up late on Friday afternoon, the freight was tendered at the regular Friday rate. “Things like that are hard to program for,” the carrier executive said. “It’s hard to educate the operations team that they will see a lot of contradictions in the system that create billing issues down the road.”
Is there a way out?
So, what are the options for carriers and forwarders to get out from under billing-error death spiral? Palladino, for one, suggested less reliance on one-stop-shop technological solutions. “What we’re seeing is a major issue with data capture on the front end. That could be with internal staff, or it could be through the booking process. Sometimes the customer puts in incorrect information. Inevitably, what happens is, they don’t have the insight to see that this bad data then flows through the entire process.”
For carriers that ship mostly domestic freight, one solution is to bypass the automated systems altogether and go back to direct-billing forwarders. One U.S-based carrier that flies only domestic freight, said it had “cargo finance teams” that immediately identify discrepancies and contact the sales managers. “That way, most disputes are easily resolved,” he said. The solutions for those that haul much more international airfreight are not as easy, as there are more variable spot rates that can be entered improperly, and at the last minute, the domestic carrier added.
To make a real change in billing problems, carriers and forwarders must “change a lot of the process flows,” Palladino said. “We must put processes in place that would require a manual effort to really hone in on the data-integrity issues on the front end – verify the shippers are putting in the correct information during booking. That requires a bit of legwork.”
This year, Palladino said ARG has launched a new initiative called “pre-auds,” in which ARG audits all transactions before they even go out the door. “That’s one way of making the whole process transparent to the customer,” Palladino said. “That could really bring down that CASS adjustment rate.”
More than anything else, the North American carrier executive stressed that there are rarely any one-off problems that can be solved permanently. “We run into multiple billing issues every month,” he said. “You have to have that dedicated focus, day in and day out, to make a difference.”
The executive from within the CNS structure was also optimistic that digitization and new initiatives to promote inter-supply-chain communication will gradually reduce the incidence of billing errors. In the United States, for example, the Department of Homeland Security is expected to expand its Air Cargo Advance Screening (ACAS) Pilot Program. ACAS requires shipment information to be submitted to U.S. Customs and Boarder Protection (CBP) prior to an aircraft’s departure for the United States. Once billing inaccuracies begin to threaten the ability of shipments to enter the U.S., carriers will definitely be incentivized to improve their data.
Achieving perfect billing accuracy is a long, painstaking process to which few carriers must devote resources, the North American executive said. “When it’s an industrywide problem,” he added, “it’s hard to stand here and fix it alone, as a single airline.”