The freight audit industry: Navigating complexity and maximizing savings

Maximize savings and streamline processes with a proactive freight pre audit approach. 

A supply chain is a complicated network of transportation, logistics, and customs regulations. Within this intricate network, freight costs can significantly hit a company's bottom line. So much so that industry studies show that logistics expenses can reach up to 10% of an organization's total revenue. In this regard, freight costs are one of the significant contributors to this logistics expense, which consists of fuel surcharges, brokerage fees, detention costs, demurrage charges, insurance, customs, and more. With frequent changes in tariffs, customs regulations, fuel costs, and other accessorial charges, verifying invoices manually is a daunting task. 

This is where the freight audit industry comes in handy. It provides essential services to optimize shipping costs and guarantee correctness in freight bills. This article highlights different aspects of the freight audit industry, such as its evolution from manual to automated era, core functions, benefits, processes, and future trends. 

What is the freight audit industry? 

The freight audit industry entails a thorough review of freight invoices to ensure precision, detect discrepancies, and reclaim overcharges. Freight audit providers utilize specialized software and industry expertise to thoroughly examine shipping documents, rates, and charges, ensuring that businesses are billed accurately for their freight services. 

The evolution of freight audit industry 

The freight audit industry has witnessed significant changes- from paper-based manual processes to modern AI-powered systems. 

• The manual era - Spreadsheets and paper based: In the past, businesses handled freight audits manually using spreadsheets and paper-based systems. This approach was incredibly time-consuming and prone to errors, as every detail had to be meticulously entered by hand, leading to frequent discrepancies and inefficiencies. 
• Basic digitization - On-prem freight audit software: With the advent of basic digitization, businesses transitioned to on-premises freight audit software. These systems brought more automation, reducing workload and improving accuracy, but required significant upfront investment and ongoing maintenance, and updates were often slow and cumbersome. 
• Cloud-based SaaS systems for freight audit: The shift to cloud-based Software as a Service (SaaS) systems revolutionized freight audit processes. These platforms provided real-time access to data from anywhere, improved scalability, and reduced the need for in-house IT infrastructure while also facilitating seamless integration with other enterprise systems, enhancing overall efficiency and collaboration. 
• AI-powered freight audit and payment systems: The latest advancement in freight audit technology involves AI-powered systems. These platforms leverage artificial intelligence and machine learning to automate complex auditing tasks, predict trends, and identify anomalies with greater precision, thereby enhancing accuracy and speed while providing actionable insights to optimize logistics and reduce costs. 

Core functions of the freight audit industry 

In addition to correcting individual mistakes, a thorough freight post-audit finds trends and recurring issues that lead to logistical cost inefficiencies. The freight audit sector serves mostly for: 

• Invoice validation: Verifying the accuracy of freight bills against contracts, shipping records, and rate agreements. This guarantees that the prices coincide with the supplied services. 
• Error detection: Finding freight invoice variances, overcharges, and duplicate charges. Freight auditors find possible savings and hidden expenses through a painstaking examination of every element. 
• Freight rate verification: Making sure shipments have the proper rates applied. This entails spotting differences by matching the charged rates with negotiated and market rates. 
• Cost recovery: Reversing carrier overcharges and credits. By carefully investigating these claims, freight auditors enable companies to recover lost money and maximize their freight expenditure. 

Key benefits of freight auditing for the logistics sector 

The purpose of a freight audit strategy extends much beyond that of a routine inspection. It is crucial for the efficient operation of the receiving and shipping processes. To understand why freight audits are essential for logistics precision, let's explore some of the noteworthy points. 

• Improved cost accuracy: Every penny saved in the course of auditing directly hits the profitability of the business. Can you imagine the amount you will pay due to errorful freight invoices? It's almost 5%-10% annually. Freight auditing works as a financial checkpoint that identifies and rectifies billing errors, ensuring that companies pay the correct amount for their freight services. This precision in billing can lead to significant cost savings over time. 
• Reduced billing errors: Billing errors cost money in several ways, from extra resource allocation to direct extra payment. As per the American Journal of Transportation reports, about 25% of freight bills contain some form of error, resulting in businesses overpaying by at least 13% annually.  By detecting and resolving discrepancies, freight audit providers help to minimize the risk of overpayments and underpayments. This not only saves money but also streamlines the accounting process. 
• Optimized carrier performance: Analyzing cargo data helps companies assess carrier performance, spot underperforming carriers, and negotiate better rates. Understanding the performance of several carriers helps businesses to maximize their shipping plans and lower expenses. 
• Improved contract compliance: Freight auditing guarantees carriers follow all the contractual terms and conditions that include agreed rate concessions, service level agreements, and payment terms. This guarantees that companies get the specified services and save unneeded expenses. 
• Enhanced visibility and control: Lack of visibility could cause logistical nightmares. Freight audits provide a transparent perspective of expenses and openness to the financial side of shipping. Not only is internal financial control dependent on this transparency, but it also helps to establish confidence among carriers and stakeholders. 

Freight audit processes in the industry: a breakdown 

The freight audit process is not a complex one. Eventually, it helps your organization in many ways. However, to perform the audit correctly, you need to follow the steps below. 

• Data collection: This process includes gathering pertinent shipment records, invoices, and carrier rate agreements. This phase is vital to guarantee that analysis can access all required data. 
• Rate verification: Commercial prices or rates are the financial backbone of shipping transactions. Verifying the rates charged by carriers to negotiated agreed-upon rates. This step helps to identify any instances of overcharging or non-compliance with final agreed rates. 
• Accessorial and special charges review: The devil usually lurks in the details, and this is appropriate when it comes to freight bills, accessorial and special charges. This review phase entails a careful inspection of extra fees outside of regular shipping rates to guarantee they are legitimate and compliant with contracts. Check the validity of accessorial and special charges and make sure any extra services or specific conditions that call for extra costs are well documented. 
• Invoice matching and error detection: Matching invoices with shipping records helps verify accuracy and completeness through error detection. Cross-referencing these records helps auditors to guarantee correct and justified charges. This phase examines overcharges, duplicate charges, excess taxes and duties, and invoice variances. This stage calls for both a strong awareness of freight business practices and a sharp eye for detail. 
• Reporting and analysis: Creating thorough analyses on freight expenses, carrier performance, and cost savings calls for reporting and attention. These studies give insightful analysis of a company's shipping activities, therefore supporting informed decision-making. These audit results can guide strategic decisions made during the next freight procurement, including the continuation of business or blacklisting unreliable carriers. 

The role of digital transformation in the freight audit industry 

By allowing automation, artificial intelligence, and machine learning to simplify operations and increase accuracy, digital transformation is transforming the freight audit sector. 

• Faster dispute resolution: Digital tools enable quicker identification and resolution of discrepancies in freight billing and payments. Platforms like Pando ensure 100% accuracy through a 4-way match audit with contracted rates, shipment data & PO. Drive productivity and 100% audit accuracy. Automated systems streamline dispute processes, reducing the time taken to resolve issues and improving overall efficiency. 
• Improved carrier relationships: Enhanced transparency and communication facilitated by digital platforms lead to stronger relationships with carriers. Real-time data sharing and automated updates help build trust and collaboration, ensuring smoother operations and fostering long-term partnerships. 
• Enhanced accuracy in rate validation: Digital transformation allows for precise and automated rate validation. Advanced algorithms and real-time data integration ensure that rates are accurately calculated and applied, minimizing errors and ensuring compliance with agreed terms. 
• Real-time data accessibility for decision-making: With digital systems, stakeholders have instant access to up-to-date information, enabling informed decision-making. Real-time data analytics provide valuable insights into freight operations, helping businesses optimize routes, manage costs, and improve service delivery. 
• Predictive cost management and optimization: Leveraging artificial intelligence and machine learning, digital freight audit systems can predict cost trends and identify optimization opportunities. Predictive analytics assist in proactive cost management, allowing businesses to plan effectively and reduce unnecessary expenses. 

By automating chores, including data extraction, invoice matching, and rate verification, advanced software solutions help to minimize errors and manual work. 

Globalization and its impact on the freight audit industry 

Globalization has significantly increased the complexity of logistics operations, making freight auditing even more critical. Businesses face difficulties such as cross-border shipping, different international rules, and changing exchange values of currencies. 

• Increased regional complexity in freight audits: Globalization has led to more complex freight audits due to differing regulations, taxes, and compliance requirements in various regions. This complexity necessitates specialized knowledge and tools to ensure accurate and efficient audits. 
• Multi-currency transaction issues: Handling multi-currency transactions has become more prevalent, creating challenges in exchange rate management and currency conversion accuracy. These issues can complicate financial reconciliations and require robust systems to manage effectively. 
• Growing volume of invoices due to expanded carrier networks: As businesses expand their carrier networks globally, the volume of invoices has increased significantly. This growth necessitates more efficient processing and verification systems to handle the larger workload without compromising accuracy. 
• Increased risk of errors in cross-border dispute resolution: The complexity of international shipping increases the likelihood of errors in cross-border dispute resolution. Differences in legal systems, documentation standards, and communication barriers can complicate the resolution process. 
• Limited visibility and data gaps in global freight operations: Global operations often suffer from limited visibility and data gaps due to disparate systems and lack of real-time information sharing. This lack of comprehensive data can hinder decision-making and operational efficiency, necessitating improved integration and data management strategies. 

Freight audit providers have to be knowledgeable enough to navigate these challenges and guarantee correct billing and compliance. 

Challenges facing the freight audit industry 

Though technological development, integration of technology, and advanced transportation management systems have streamlined the freight audit strategy and industry operations, new challenges are evolving with rising complexities. Some key bottlenecks are: 

• Handling large volumes of data: The rising load of freight data can be overwhelming and calls for effective data management and analytical solutions. Inaccurate or incomplete carrier data can produce faulty audit findings that might cause missed billing disparities. Strong data verification tools built into Pando automatically cross-check carrier data to guarantee accuracy and lower the possibility of overlooked problems. 
• Managing complex contracts: Accurately auditing freight bills can be challenging due to complex rate contracts and service level agreements. Pando's sophisticated algorithms are developed to manage complex rates of structure easily. Its rate management systems provide a flawless audit procedure by precisely interpreting several fees and discounts. 
• Adapting to dynamic market conditions: Changing carrier rates, varying fuel prices, and changing international business policies can all affect freight costs and call for ongoing observation of dynamic market conditions. 

Selecting a freight audit provider: industry considerations 

Consider the following elements before choosing a freight audit supplier: 

• Industry expertise: Search for a provider with particular knowledge in your sector and thorough awareness of the logistics sector. 
• Global reach: Choose a company with a worldwide presence and capacity to manage cross-border shipments if you have worldwide activities. 
• Technological capabilities: Review the provider's IT platform to assess its capacity for advanced analytics and process automation. 
• Reporting accuracy: Evaluate the provider's history in spotting overcharges and correcting mistakes. 
• Customer service and support: Think about the provider's prompt support capacity. 

Considering the benefits of control mechanisms, real-time data availability, and hidden costs, modern organizations are transitioning to hi-tech in-house FAP solutions.

Freight audit industry trends: what's next? 

The freight audit sector has a bright future due to various trends. Let's explore these developments that will transform freight auditing: 

• Real-time data validation: Imagine being able to validate invoices and spot problems instantly. Real-time data validation is that powerful. Real-time data can help you avoid overpayments and improve efficiency by verifying invoices and catching errors. To save money and strengthen carrier relationships, this proactive strategy ensures openness and correctness in all transactions. 
• AI-driven error detection: AI can spot trends and irregularities in freight data to streamline freight auditing. AI systems can find flaws in massive data sets that auditors may miss. This improves audits and reveals strategic insights. That said, AI-driven error identification can make your freight auditing process efficient and accurate, improving your business's finances. 
• Sustainability initiatives: Sustainable practices are spreading across all industries, including freight audits. Sustainability in freight auditing means measuring your logistics operations' carbon impact and adopting green logistics techniques with the help of fuel-efficient routes, eco-friendly carriers, and energy-efficient technologies.

The way forward 

Businesses must keep ahead of the curve by using cutting-edge technologies and working with trustworthy freight audit providers as the sector changes. Adopting data-driven insights, artificial intelligence, and automation will help you maximize operational efficiency, save freight expenses, and develop a competitive edge. 

Consider leveraging Pando's advanced platform to simplify your freight audit strategy and release notable cost savings. Pando's AI-powered system guarantees accuracy and efficiency by automating invoice validation, rate verification, and payment reconciliation. 

Curious to learn more? Book a demo today.