What is a Freight Audit? A Freight Audit is a project for checking whether there are any discrepancies between the consignment charges on your carrier invoice and the rate cards upon which those invoice calculations are based. Commonly the Audit is conducted after the fact, that is after the invoices have been paid and usually covers a period of 6-12 months of carrier invoices. This is not to be confused with an ongoing carrier invoice reconciliation process which happens weekly on carrier invoices that are yet to be paid.
The above Freight Audit Infographic outlines in broad strokes the way that a Freight Consultancy might conduct a Freight Audit:
- Your carrier
- Picks up your customers orders (consignments) from your warehouse
- This order is added to any others for the week on your carrier invoice
- This is imported into the Freight Audit consultancy’s systems and checked against your current rate cards with the carrier
- A Detailed and Summary Report is provided to show any potential discrepancies between what has been charged and what the audit believes you should have paid.
- Your accounts and logistics executives receive the reports; the Freight Audit consultant works with you to obtain any rebates and fix process errors uncovered from the audit
Why Should Shipping Organisations Conduct a Freight Audit?
There are several reasons why you should conduct a Freight Audit:
1. Freight Cost Reductions
Outbound freight costs can be a very significant portion of organisations’ costs and in many cases as much or even more than 10% of an organisations cost base. Uncovering the errors and overcharges through an audit enables you to drive down these costs. Credits or future savings from a Freight Audit can be invested back into the organization’s optimization goals.
2. Omnichannel and B2C Shipping
The growing trend toward Omnichannel and B2C marketing impacts operations processes by moving toward freight profiles that are more complex, with higher volume of orders/consignments, of often smaller number of items. Rather than B2B pallets deliveries, these days we have B2C carton freight, often of one item, or even split deliveries for 2 or more consignments.
3. Complex Distribution Patterns
The above trends also impact complexity of deliveries; increase in laneways; increase packaging options; increase in transport service requirements leading to a need to understand multiple modes of transportation, have multiple carriers and to the need to decipher their some times unique fee structures.
4. Expertise in Freight Charges
This order and delivery complexity flows through to complexities in fuel charges, accessorial charges, to unclear contracts with missing data in complex rate structures. Combine this with internal staff who have limited understanding of rate structures and silo issues across departments i.e. Logistics to Finance and Accounts, Operations and you have a recipe for increased hidden freight costs.
5. Supply Chain Technology
Changes in Carrier’s systems, changes to the shipper’s system can lead to discrepancies; lost and inaccurate data. For example, many carriers are upgrading their warehousing systems which has led to new manual surcharges for those items that cannot be accommodated.
Types of Freight Costing Errors
There are a few ways in which freight cost might be higher than they should be (or expected), such as:
- Human errors on behalf of the carrier’s accounting department, e.g. ‘fat fingers’ errors e.g. on dimension or weight (which affect freight calculations for pricing)
- Human errors on behalf of the shipper, e.g. warehouse staff incorrectly measuring packing; incorrectly typing in address details of receiver
- If using an independent dispatching system, the rates may not be current
- A carrier’s systems may have an error; such as an accidental change to rates
- Or a carrier system may have had an upgrade or rebuild but there is a bug; e.g. instead of charging customer 1 x 5kg satchel, charging customer 5 x 1kg satchel
- Unauthorised changes to rate cards by carrier such as increased cubic conversion leading to a 25% increase in costs
So, the fault can lie with systems and with people, with both the carrier and the shipper. In any situation it is important to find out why the problem(s) has occurred and to fix the problem(s) so you have high visibility on your freight costs and can budget for them appropriately.
At Freight Controller we have found many scenarios working with our customers as per those outlined and you can read here about some of our Freight Audit Case Studies.
It is easy to see how visibility and accuracy of freight costs can slip away from you. Leading to increased freight costs, eroded margins and poor decision making based on out of date, and therefore dangerous data.
The ‘Call to Action’ then to avoid or disentangle your business from these issues is to undertake a Freight Audit; update your procedures, freight pricing data etc., and we recommend that you follow through with an ongoing Carrier Invoice Reconciliation process to ensure you are alerted to any errors before freight costs start to incrementally increase week by week and so that you are always dealing with accurate freight data and costs moving forward.
If you would like to learn more about how to conduct a Freight Audit for your shipping business we would be happy to consult with you to assess your needs.
Related Articles:
If you enjoyed this article you may want to read the following on the same subject:
Freight Audit Checklist – 10 steps to Best Practice
Why an Outsourced Freight Audit Optmises your Results
How to Source the Best Freight Audit Companies
Freight Audit: Credit Notes, Payment Process and Logistics Errors