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Parcel Shipping & Distribution
Don’t Be Blind to Real Costs
Parcel Audits
By Harold Friedman

With constantly changing carrier policies, accessorial charges, fuel surcharges, ZIP Code exclusions, the carrier bill can be cumbersome to determine if charges are in line with your contract. Compound this with using multiple carriers and the task becomes daunting. Yet some of you have been slow to react to the necessity of auditing your parcel shipment costs. Companies often just see the dollar signs associated with incremental cost, but they do not realize two compelling reasons why parcel bills must be audited.

First, Sarbanes Oxley legislation requires that a company maintain an adequate system of internal controls. This would include verification that carriers are billing parcel shipments in compliance with negotiated contracts. Second, there is a significant opportunity for savings, with an excellent return on audit costs. Some audit firms suggest that bills be audited on a percentage of recovery basis, while others audit on a per-transaction basis. An analysis should be done to determine which gives you the better return.

Package by Package
To adequately audit a parcel bill, transactions must be processed at package-level detail (by tracking number) and should not be processed at an invoice level because invoices do not provide the detail required to audit a shipment. Since parcel shipments tend to be high-volume, low-dollar-value transactions, the cost of a complete parcel shipment audit should be minimized by, as an example, performing audits via EDI (audited and processed electronically).

There are many components associated with a comprehensive audit. Typical audits will, at a minimum, cover the following areas:

Audit the Base Charge
Shipping rates can be either flat rate or zone based. Charges for the former are determined based on the weight of the package shipped regardless of the distance moved. On the other hand, zone based rates have two characteristics that must be considered to determine the appropriate charge — distance and weight. Your distribution pattern will dictate the approach that best meets your needs. If a majority of your packages move within zones two through four, generally you will be best served with zone-based rates. If you have broad distribution patterns or equal amounts of packages in all zones, flat-rate pricing may be best. Carriers use zone five as the breakpoint in determining the pricing to offer flat-rate shippers. The key issue is for you to know your distribution patterns and either request a specific basis for rates or analyze current costs against the carrier proposals received.

The charges cited above represent the base charge. Negotiations with your carrier will determine the level of discount you will receive based on mutually agreed upon bands of business volumes. It should be noted that most carriers have an absolute minimum charge to which no discount will be applied. This is typically one pound zone two. If you are a shipper with a concentration of short-distance, lightweight packages, this is important to remember: Your base rates will be audited for the application of the appropriate discount.

Audit Accessorial Charges
Accessorial charges are an ever-increasing cost for shippers. Just a few years ago, there were only 20 to 25 accessorial charges. Today, there are over 100 different accessorial categories. They need to be audited and monitored to minimize their impact on your transportation costs. For example, you may have agreed to waive all claims for loss and damage. If this is the case, then you want your audit to verify (regardless of the notations on an air bill for declared value) that the insurance amount should not be paid. Similar actions should be taken where you have negotiated away other accessorial charges such as out-of-area delivery charges, hazardous material, etc.

Audit Fuel Surcharges
Today, fuel surcharges are typically the largest percentage of all accessorials, and these surcharges are negotiable. Fuel surcharges should be audited for compliance to the agreed upon threshold and monitored for the agreed-to fuel cost index.

Audit for On-time Delivery
Guaranteed service refunds (GSR) are available to shippers when their packages are not delivered on time. The process to claim a GSR will vary by carrier. Since most carriers claim 98% on-time delivery, there is an opportunity to reduce your transportation costs by at least 2% for late delivery claims. Some carriers will offer an additional discount if you waive your rights to GSRs. This approach should be looked at on a case-by-case basis. Shippers should carefully determine the value of waiving claims versus its historical claims history. We have worked with shippers who have agreements with their carriers to waive the first 2% in service failures, but if the carrier performance does not meet their 98% threshold, a refund is paid for all late shipments or only those that exceed 2%.

Audit for Non-shipped Parcels
For most shippers, approximately 1% of their transactions are manifested, but the packages never leave their facilities. This may occur because the order is not complete at the pick-up time. However, once manifested, the carrier will electronically receive the transaction and bill for it. The manifested (not shipped) transactions can and should be claimed for a refund of the full amount charged by the carrier.

Audit for Customer Accounts
One of the basic tenets of auditing requires that you determine if the bill you receive is your liability. To be your liability, the package should be delivered on time and undamaged. Verification for proof of delivery should always be required. These procedures will vary by carrier. You also need to determine that you are responsible for payment by one of two ways. First, ask your carrier for a current list of all customer account numbers for which you are being billed. Review the list carefully. Determine that all of the locations are yours. Be careful to identify any business unit that may have been sold or locations that have been closed, and then have these account numbers deleted. Also, ask your carrier to close any account number that has not had any transactions in the past three to six months. The updated list should be used to verify that the transactions presented are yours.

Audit for Collect Shipments
If you have a manifest system and frequently ship collect, it is important to identify those outbound collect shipments that are not your liability. This can be done by electronically matching tracking numbers and authorizing only those shipments that should be paid. On occasion, a parcel carrier will bill the shipper if the consignee does not have an inbound program or is on credit hold. Unlike the motor carrier environment, there is no way to limit the recourse that a carrier has to the shipper on outbound collect movements.

Audit for Duplicate Billings
Identifying duplicate billings are among the basic actions that should be included as part of any audit. The carrier should only bill you once for the cost of shipping a package. Subsequent billing for customs and duties may reference the original tracking numbers but most sophisticated systems can differentiate between a duplicate bill and a subsequent bill that should be paid.

There is no question that audit recoveries can provide a healthy return on the cost of the audit, but only if your audit covers the gamut of charges in which billing errors can occur.

Harold B. Friedman, Senior Vice President of Sales and Marketing for Data2Logistics, has more than 30 years of experience in the freight payment industry, including as a Senior Vice President at CorPay Solutions, a Principal in CTI Logistics and President of Chase Trans-Info. He can be contacted at 239-936-2800.