April 2006 | Commentary | 3PL Line

Freight Payment: Getting Back to Basics

Tags: 3PL

At the beginning of the new millennium, many freight payment companies added the latest "whiz bang" gadgetry to their information systems or freight payment products. Now, those companies' disappointed customers want their providers to get back to basics.

Although information tools remain important, freight payment basics are now the priority. Today, shippers seek a freight payment company that pays their bills quickly and accurately, and provides solid customer and carrier service.

The freight payment industry is no stranger to fads and trends. In the early 1980s, bank-based freight payment was all the rage. Interest rates allowed banks to earn large amounts of interest from "float"—customer funds that float in and out of a freight payment company for paying invoices. As interest rates declined, banks left the industry and were replaced by independent service bureaus.

The 1990s brought the importance of information systems to the forefront of the freight payment industry. The systems deployed by providers started out as standalone systems with data updates provided on magnetic media.

In the mid 1990s, information systems went online through dial-up connections, which were abandoned several years later in favor of web-based access.

Push-Button Reporting

As the industry entered the new millennium, the latest fad was offering customers a pre-programmed set of reports rife with charts, graphs, colors, and, unfortunately, little real value. Providers looking to differentiate themselves from competitors promulgated these canned reports with flash and pizzazz.

Shippers were dazzled by the idea that they could produce such great works of desktop publishing with the push of a button. They expected these tools to help them monitor costs and reduce expenses, especially as the economy softened.

Unfortunately, the promise of this reporting tool never lived up to reality. The data mined by the reports was inaccurate and, overall, the reports lacked flexibility, rendering them worthless. Without a robust query tool to complement them, the canned, one-size-fits-all reports could not help shippers with complex transportation networks.

The reports did show some promise, however, pointing to one key component of freight payment companies' value proposition: information.

The information contained within shippers' freight and logistics transactions should not be underestimated. With that information, logistics professionals can obtain detailed visibility of their costs—and the drivers of those costs—by location, business, or even product.

Information is not a fad; it is the reality of the freight payment value proposition. This proposition, however, pre-supposes that freight payment providers have a well-controlled process affording high data integrity.

Many shippers are frustrated by their providers' data integrity issues, and are now looking for providers that can build a data warehouse containing reliable information. Without data integrity, information tools of all stripes are basically worthless.

Over the last 10 years, a spate of freight payment providers have offered the promise of a complete Electronic Data Interchange (EDI) process, which does away with paper invoices. They call themselves "all-EDI" providers. Deploying this process for a shipper, however, means eliminating control points that cover proper shipment authorization and auditing.

The work of these all-EDI implementations is under greater scrutiny thanks to the rise of Sarbanes-Oxley, and serious audit and control deficiencies that have been brought to light. In their rush to be all-EDI, some providers take auditing and data integrity shortcuts.

Although converting paper invoices to EDI is a laudable pursuit, the reality of modern logistics transactions is that such conversions are complex implementations.

Invoicing: Paper or Electronic?

In the end, some paper processes will remain in order to preserve a comprehensive audit and ensure proper control of freight payment processes. A freight payment provider must have a solid method for handling transactions, regardless of whether they are paper or electronic.

The majority of trends and fads that popped up in the freight payment industry over the past 10 years did not deliver on many of their original promises. A number of shippers that used multiple freight payment companies during that time have reassessed their priorities in choosing a freight payment provider.

They now seek a provider that excels at the basics: on-time payment, accurate auditing, solid customer service, and data integrity.