To build sustainable logistics processes and systems it is important to build a healthy ecosystem of carrier stakeholders. Are we creating a win-win scenario? The spotlight in this blog is on freight service providers, who are by far the largest stakeholders in the logistics ecosystem.
The freight market is extremely fragmented. It broadly consists of
- Large players (5-6% of the market) : Own fleet (100-300 trucks) to meet about 40-50% of business and utilize market-sourced trucks for the rest of their business. Rivigo, Varuna Logistics, Blackbuck, Delhivery - all fall in this category.
- Medium players (10-12% of the market) : Own a small fleet (<50 trucks) to meet 80% of their business
Who should we ship with? Which transporter shall we choose for
Small players (83-88% of the market) : Own <5 trucks. In most cases they also drive the trucks. They are heavily dependent on brokers for business
Working capital management is a big pain point for the freight providers, especially for the small and medium ones. Timelines from delivery to payments are quite long. The proof of delivery, critical to raise an invoice, can take about 1-5 days (for short haul deliveries) to anywhere between 15-45 days (for long haul deliveries) to reach the transporter, post which hard copy invoice generation by the transporter takes about 10-15 days. Manual processing and reconciliation of invoices takes another good 30-45 days. The payment credit cycle kicks in post the invoice processing, adding another 30-60 days in the payment cycle. Adding it all up, the payment timeline from the delivery day can be anywhere between 75-180 days. The best we have seen so far in the industry has been 15-30 days payments for short haul, and 75-90 days for long haul deliveries.
If there are claims in the invoice, it adds to the delay!
While the long-drawn payment cycle is a pain point, payment defaults and other market factors like increased competition, arm-twisting by the brokers, tighter margins make it all the more challenging for freight providers to run the business.
To hedge for these factors and to cover for the working capital, freight providers bake these costs into the contractual value. This leads to higher costs for the shippers. There is huge loss of value for the shipper, also caused by invoice duplication and manual errors.
Today, technologies enable reduction in payment cycles by digitizing and automating freight audit, reconciliation and payments. This essentially means that the payment cycle could be brought down to as low as 3-4 days!
This kicks off a virtuous cycle : Faster and accurate audit and payment leads to healthy cash flow management for the freight providers, which in turn further leads to happier carriers, increasing the likelihood of reliable placements and timely deliveries - resulting in happier customers as a result of improved service levels. And isn’t that what every company wants today?
Freight audit and payment automation also paves way for invoice discounting. Shippers significantly benefit from faster payments by getting discounts at an invoice level to the tune of 1-5%. Contract level discounting is a common practice and works on a blanket percentage discount. But invoice discounting leverages the cash appetite of the freight providers time-to-time resulting in higher benefits for the shipper while providing the cash cushion for the freight providers at the right time.
Time and again, as we implement Pando TMS for our customers, we have seen a significant uptick in freight provider adoption once Pando freight audit and payment solution is implemented. Value drives adoption, and this is enough proof that a win-win situation is created for both shippers and freight providers.
Explore our freight audit and payment solution here.