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.”