News / Automated invoice and payment systems in shipping could wipe out billions of extra costs

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A new white paper from Drewry claimed that as shipping costs are further squeezed more attention should be diverted to “inefficiencies” in payment processes, where it calculates some $31bn in transaction costs is incurred annually.

The maritime consultant estimated that the global container shipping industry earned revenues of $166bn in 2017, generated from the movement of 207m teu across 400 liner services, requiring the raising of a staggering 1.26bn freight invoices.

“We conclude that the prevailing inefficiencies pose a significant market opportunity for technological disrupters,” said Drewry.

It added: “In particular, we believe that tremendous efficiency gains can be achieved through technological solutions.”

It cited the “simplification and/or automation of invoicing and payment practices, especially for small and medium sized shippers and forwarders” as a prime target to boost invoicing efficiency and thus cut back administration costs.

Drewry noted that for shipping lines invoicing was still “largely a manual activity” apart from for a few large BCOs where self-billing and EDI solutions are in use.

According to the white paper survey, smaller shippers that use the spot market experience an error rate of up to 30%, whereas for larger shippers that work on annual contracts the error rate comes down to between 2% and 5%.

“Additionally, invoices from forwarders tend to be much more accurate (95 – 98%) than from shipping lines, because of more standardised pricing structures and lower freight rate volatility,” said Drewry.

Container lines generally set a target in the mid-90s for invoice accuracy, but for many carriers the actual performance is much lower.

Indeed, prolific billing errors by carriers  is a complaint often raised by forwarders in discussions with The Loadstar, along with delays in receiving invoices and a slow response to queries.

A key “pain point” for carriers, says the white paper, is the manual reconciliation of invoices when they are disputed by customers. It lists the most frequent causes of invoice disputes as: B/L fees, demurrage and detention, freight rates and surcharges such as BAF and CAF.

The subject of credit extended by carriers is also tackled by the white paper.

This ranges from zero for small shippers to 45 days or more for the large freight forwarders.

The white paper lists a selection of carriers’ average trade receivable (days outstanding), extracted from 2015 balance sheets, ranging from 37 days for CMA CGM to just 12 days for Wan Hai.

Moreover, carriers have been known to use “flexible” credit terms as a commercial tool to attract new customers.

Prior to the bankruptcy of Hanjin Shipping in August 2016, anecdotal reports suggested that the South Korean carrier was allowing credit terms of 90 days or more; although at the same time, it subsequently transpired, Hanjin was not paying its creditors on time, including shipowners who have had to write-off millions of dollars for time charter defaults.

The white paper noted that since the demise of Hanjin “shippers increasingly run credit ratings on their shipping lines” as well as following the trade news and “avoid shipping lines reported to be struggling”.