In partnership with:
Transportation Payment Benchmark Study Paying the Price for an Outdated Freight Payment Process
Written By: Eric Johnson Research Director American Shipper
Published June 2014 Sponsored by:
Part of American Shipper’s Transportation Procure-to-Pay Benchmark Series
Executive Summary Welcome to American Shipper’s fifth annual study of transportation payment processes, policies, practices and technology. American Shipper, in partnership with the Council of Supply Chain Management Professionals (CSCMP) and Retail Industry Leaders Association (RILA), has benchmarked nearly 190 payers (shippers and 3PLs) on their transportation invoice processing and payment practices and systems. Participants completed a 20-question survey covering all modes of international and domestic freight transportation between early January and late February.
Executive Summary
ii
This is the final report in a series designed to explore the lifecycle of freight transportation spend in three segments—procurement, execution (global transportation management), and settlement. Respondents were asked about their payment process across all modes of transportation, and not any one single mode. Last year, this report set about determining the extent to which shippers and logistics service providers aligned finance decision makers with logistics decision makers in their freight payment practices. That examination continues in this year’s report, and for good reason. Mere days after the 2013 report was published, two high profile incidents involving alleged criminal activity by freight payment vendors underscored the importance of using trusted partners, and regularly monitoring those partners. Aside from examining freight payers’ strategic thinking when it comes to choosing vendors, this study also seeks to determine two key dimensions common among all three of our procure-to-pay benchmark exercises this year: the degree to which international and domestic freight payment is handled by the same person or department; and the availability for investment in freight payment technology.
Transportation Payment | Benchmark Study 2014
Around 70 percent of shipper respondents and more than 60 percent of 3PL respondents said they are responsible for both domestic and international freight payment, rather than one or the other. Those are roughly in line with response rates from our most recent Global Transportation Management Benchmark Study, and suggests that logistics managers continue to be tasked with more responsibilities, including the integration of domestic and international functions. More than three-quarters of large shipper respondents use (and thus must pay for) truckload, LTL, FCL, LCL, air, parcel, and rail. There is a particular disparity between large shipper respondents’ payment responsibility in intermodal compared to small and medium shippers. Another thing to note: the percentages in modes invoiced were higher across the board compared to the modes procured or managed in our earlier benchmark studies this year. That suggests there’s a gap (sometimes sizable, depending on the mode) between the modes shippers and 3PLs use, and the modes they use technology to procure and manage.
Freight Payment Technology Trends
More than a quarter of this year’s respondents don’t use any technology to pay freight bills, and there is an undeniable gap in terms of the use of manual processes in international freight payment versus domestic freight payment. Large shippers are twice as likely to handle international payment manually, and small and medium shippers are 50 percent more likely. Around 40 percent of domestic payment and about a quarter of international payment is outsourced, while the number of respondents using standalone freight payment systems was lower this year versus last year. Around two-thirds of respondents indicated they are happy with their current payment terms, but more than three times as many systems-based respondents will seek to extend payment terms this year compared to respondents with manual processes—an indication that shippers with an automated payment process are freer to zero in on things like extending their payment terms.
Transportation Payment | Benchmark Study 2014
iii
Executive Summary
Freight Payment Trends
Auditing practices
Use of post-payment audits has been on the rise over the past four years (very slightly), while use of prior audits has decreased slightly. Taken over a fouryear horizon, it’s fair to say 50 to 55 percent of companies audit prior, 8 to 12 percent only audit post, and around 30 to 40 percent audit both. More than two-thirds of systems-based respondents see value in their audits, compared to only 44 percent of manual respondents. This is understandable, given the laborious nature of manual audits. Sifting through reams of data to find what might be small discrepancies is the type of process that can easily be deemed unrewarding. Sixty percent of manual shippers said they either have never conducted an audit of their freight payment process, have only done so in the last five years, or are uncertain about if such an audit has been undertaken. That’s a sizable chunk that don’t understand if their process is running smoothly or is broken in some way. Juxtapose that with 32 percent of systems-based shippers who answered in those categories.
Executive Summary
iv
Freight Payment Strategy
Both large and small/medium shippers were slightly more likely to say finance and logistics would both be involved in the decision to invest in a freight payment system, a significant change from last year. Involving finance in such a decision is important for a host of reasons, not least of which is that most companies route all their payables through their finance department. Around 30 percent of respondents said funds are available to invest in a freight payment system. That’s marginally higher than the 27 percent who said funds were available for a transportation procurement or management system in our earlier research this year. But still not terribly encouraging.
Transportation Payment | Benchmark Study 2014
Table of Contents Executive Summary.................................................................................................................................................................................. ii Section I: Introduction............................................................................................................................................................................... 3 > Terminology.......................................................................................................................................................................................... 4
Section II: Demographics.......................................................................................................................................................................... 5 Section III: Freight Payment Trends.......................................................................................................................................................... 7 Section IV: Freight Payment Technology Trends.................................................................................................................................... 10 Section V: Auditing Practices................................................................................................................................................................. 13 Section VI: Freight Payment Strategy..................................................................................................................................................... 16 Section VII: Takeaways........................................................................................................................................................................... 20 Appendix A: About Our Sponsor............................................................................................................................................................. 21
1
> U.S. Bank............................................................................................................................................................................................ 21
> Council of Supply Chain Management Professionals (CSCMP) ....................................................................................................... 22 > Retail Industry Leaders Association (RILA)......................................................................................................................................... 22
Appendix C: About American Shipper Research................................................................................................................................... 23
Transportation Payment | Benchmark Study 2014
Table of Contents
Appendix B: About Our Partners............................................................................................................................................................ 22
Figures Figure 1: Industry Segments...................................................................................................................................................................... 5 Figure 2: Company Size............................................................................................................................................................................. 5 Figure 3: Job Titles Surveyed..................................................................................................................................................................... 6 Figure 4: Transportation Payment Responsibility ....................................................................................................................................... 7 Figure 5: Transportation Modes Invoiced.................................................................................................................................................... 8 Figure 6: Transportation Spend.................................................................................................................................................................. 9 Figure 7: Transportation Payment Platform.............................................................................................................................................. 11 Figure 8: Average Timeframe to Pay 2011–2014..................................................................................................................................... 11 Figure 9: Extension of Carrier Terms in Coming Year................................................................................................................................ 12 2
Figure 10: Method to Extend Payment Terms........................................................................................................................................... 12 Figure 11: Auditing Practices 2011-2014................................................................................................................................................ 13
Figures
Figure 12: Auditing Practices—Industry Segment................................................................................................................................... 14 Figure 13: Savings from Audits meet Expectations.................................................................................................................................. 14 Figure 14: Most Recent Independent Payment Process Audit................................................................................................................... 15 Figure 15: I Clearly Understand My Freight Payment Process................................................................................................................... 16 Figure 16: Who Makes the Buying Decision on Freight Payment Systems?.............................................................................................. 17 Figure 17: Plans to Buy, Upgrade or Replace Payment Systems............................................................................................................... 18 Figure 18: Is Funding to Invest in Transportation Payment Technology Available?.................................................................................... 19
Transportation Payment | Benchmark Study 2014
Section I: Introduction Welcome to American Shipper’s fifth annual study of transportation payment processes, policies, practices and technology. American Shipper, in partnership with the Council of Supply Chain Management Professionals (CSCMP) and Retail Industry Leaders Association (RILA), has benchmarked nearly 190 payers (shippers and 3PLs) on their transportation invoice processing and payment practices and systems. Participants completed a 20-question survey covering all modes of international and domestic freight transportation between early January and late February.
Last year, this report set about determining the extent to which shippers and logistics service providers aligned finance decision makers with logistics decision makers in their freight payment practices. That examination continues in this year’s report, and for good reason. Mere days after the 2013 report was published, two high profile incidents involving alleged criminal activity by freight payment vendors underscored the importance of using trusted partners, and regularly monitoring those partners.
This report has long argued that automating freight payment and audit functions is a no-brainer for companies seeking to make the procure-to-pay cycle more efficient. Most of the time, that means using an outside vendor to automate those processes. But, as Rick Langer, a pioneer in the freight payment space and founder of the consulting firm Quetica, once said, it’s hard to understand why companies don’t think of their freight pay spend in the same way they think of their savings accounts. That is, freight payments should be entrusted to vendors that have been well-vetted and the relationship between payer and vendor should remain tight. Aside from examining freight payers’ strategic thinking when it comes to choosing vendors, this study also seeks to determine two key dimensions common among all three of our procure-to-pay benchmark exercises this year: the degree to which international and domestic freight payment is handled by the same person or department; and the availability for investment in freight payment technology.
Transportation Payment | Benchmark Study 2014
3
Section I: Introduction
This is the final report in a series designed to explore the lifecycle of freight transportation spend in three segments—procurement, execution (global transportation management), and settlement. Each report seeks to highlight best practices that readers can apply to their own businesses. All reports are made available for download at www.AmericanShipper.com/Research.
Terminology The following report includes many important terms that readers need to be familiar with in order to fully grasp the concepts and suggestions. These include: Payer/Payee In the context of this study, payers are shippers and intermediaries who pay for transportation services, while payees (also known as billers) are carriers or intermediaries who collect money for their services. LSP/3PL Logistics service providers (LSPs) are companies that charge a fee for supply chain services, including but not limited to transportation, distribution, warehousing, and customs services. A third party logistics provider (3PL) is a non-asset-based LSP.
Section I: Introduction
4
Automated/Manual Many of the data points illustrated within these pages break down the differences between companies that “automate” international transportation management versus those that manually handle this process. In this context, “automated” companies employ at least one application to support their transportation invoice processing and payment function. “Automated” does not mean human interaction has been eliminated. Likewise, “manual” does not mean these firms do not use e-mail, fax and other technologies. There is an assumption that basic computing power is ubiquitous in the logistics management field. Solution The mix or combination of technology, in-house processes and outsourced services used to improve the efficiency and effectiveness of a particular business function. In the case of this report, solutions will refer to freight payment processes that leverage a mix of systems, services, and manual processes to complete the task.
Transportation Payment | Benchmark Study 2014
Section II: Demographics Nearly 190 qualified shipper and 3PL respondents took part in the study this year, with a typical breakup of shipper categories for American Shipper benchmark research. There was slightly higher representation in both the manufacturer and retailer categories this year compared to last, and a corresponding reduction in 3PL representation.
Figure 1: Industry Segments
Figure 2: Company Size
2% 2% 5% 27%
29%
5
20%
21%
25%
27%
Retail/Wholesale
More than $1 billion
Process manufacturing
Between $100 million and $1 billion
Discrete manufacturing
Less than $100 million
3PL/Forwarder/NVOCC/Intermediary Raw materials/Commodities Government/Public Sector Engineering/Construction/Energy 189 total respondents
189 total respondents
For the purposes of this report, shippers identified as “large shippers” are those with annual sales of more than $1 billion, while “medium-sized shippers” are those with $100 million to $1 billion and “small shippers” are those with less than $100 million. As with other studies this year, the percentage of shippers in the “large shipper” category grew around 10 percent relative to last year. This study makes frequent use of the comparison between large shippers and their small/ medium-sized counterparts.
Transportation Payment | Benchmark Study 2014
Section II: Demographics
44%
Nearly two in five respondents classified themselves as managers, with about a quarter at the director level and more than 20 percent at the executive or C-level. This continues a trend across American Shipper’s procure-to-pay research which shows more participation from the higher ranks at shippers and 3PLs.
American Shipper’s procure-to-pay research generally shows more participation from the higher ranks at shippers and 3PLs.
Figure 3: Job Titles Surveyed 1%
12%
8% C-Level (CEO, CIO, CFO, etc) 14%
Executive (SVP, VP, GM, etc.) Director Manager
6
39%
Staff 27%
Other, please specify
Section II: Demographics
189 total respondents
Transportation Payment | Benchmark Study 2014
Section III: Freight Payment Trends A key theme across our pay-to-procure research this year was determining the extent to which respondents handled international and domestic procurement, execution, and payment in an integrated fashion. As Fig. 4 shows, around 70 percent of shipper respondents and more than 60 percent of 3PL respondents said they are responsible for both aspects of the payment process. Those are roughly in line with response rates from our most recent Global Transportation Management Benchmark Study, and suggest that logistics managers continue to be tasked with more responsibilities, including the integration of domestic and international functions. It’s no surprise that more small and medium shipper respondents said they had this dual responsibility—larger enterprises are more likely to segment roles into domestic and global than their smaller counterparts. 7
90% 80% 70%
68%
I am responsible for international and domestic freight payment
78%
73%
62%
60%
I am responsible for international freight payment only
54%
50% 40% 30% 20%
18%
14%
12%
15%
10%
27%
22% 24% 12% 11%
I am responsible for domestic freight payment only
11%
0% Large Shippers
Small/Medium Shippers
Manufacturers
Retailers
3PLs 189 total respondents
Transportation Payment | Benchmark Study 2014
Section III: Freight Payment Trends
Figure 4: Transportation Payment Responsibility
Fig. 5, meanwhile, underscores the vast number of modes for which shippers of all sizes must settle payments. More than three-quarters of large shipper respondents use (and thus must pay for) truckload, LTL, FCL, LCL, air, parcel, and rail. Pay particular attention to the disparity between large shipper respondents’ payment responsibility in intermodal compared to small and medium shippers. Another thing to note: the percentages in modes invoiced were higher across the board compared to the modes procured or managed in our earlier benchmark studies this year. That suggests there’s a gap (sometimes sizable, depending on the mode) between the modes shippers and 3PLs use, and the modes they use technology to procure and manage. It’s important to remember that respondents were asked about their payment process across all modes of transportation, and not any one single mode.
Section III: Freight Payment Trends
8
Figure 5: Transportation Modes Invoiced
92%
Truckload
Small/Medium Shippers
87%
FCL Ocean
75% 87%
LTL
91% 85%
Airfreight
72% 83%
Parcel/package
79% 77%
LCL Ocean
69% 77%
Rail/intermodal
45% 52%
Ocean transport (other, non-containerized) 0%
Large Shippers
82%
37% 10%
20%
30%
40%
50%
60%
Transportation Payment | Benchmark Study 2014
70%
80%
90%
100%
168 total respondents
There was a fairly even breakup among respondents in terms of annual transportation spend, with a slightly higher representation from shippers and 3PLs in the $10 million to $100 million category.
Figure 6: Transportation Spend
29%
32%
More than $100 million per year Between $10 and $100 million per year Less than $10 million per year
39%
9
This is the first year this study has asked respondents to specify their transportation spend on an annual basis. More than two-thirds of respondents spend more than $10 million annually on freight, with nearly 30 percent spending at least $100 million. That’s a lot of spend to account for, and the assumption is that the larger the freight spend, the more likely a shipper or 3PL is to use automation to manage its freight payment.
Transportation Payment | Benchmark Study 2014
Section III: Freight Payment Trends
188 total respondents
Section IV: Freight Payment Technology Trends More than a quarter of this year’s respondents don’t use any technology to pay freight bills, and there is an undeniable gap in terms of the use of manual processes in international freight payment versus domestic freight payment. Just look at the top of Fig. 7, where large shippers are twice as likely to handle international payment manually, and small and medium shippers are 50 percent more likely.
Section IV: Freight Payment Technology Trends
10
Last year, we wrote: “Automated freight payment platforms are more plentiful and mature in the domestic space versus international. In this instance, survey responses bear out what is available in the market versus what shippers may actually want.” While that may be true, there is anecdotal evidence that more and more shippers are expecting their freight payment vendors to extend the systems they enjoy domestically to markets abroad. 3PLs, by their nature, need freight payment systems across multiple markets. Also note the breakdown of outsourced payment—around 40 percent of domestic payment and about a quarter of international payment is outsourced. A significant proportion of freight bills is being processed outside the four walls of shippers and 3PLs. That’s neither good nor bad, it just means those companies need to be monitoring those transactions to a higher degree. Meanwhile, the number of respondents using standalone freight payment systems was lower this year versus last year. Hard to explain why, other than to speculate that more respondents this year indicated they use a hybrid approach to freight payment. In our estimation, freight payment is best handled by systems designed to process and audit transportation-specific bills. General purpose payment systems, or modules within ERP or transportation management systems, get the job done, but aren’t necessarily as honed in on the process as purpose-built freight payment tools.
Also remember, this report has advocated that shippers, at every opportunity, leverage the data from their freight bills in subsequent procurement rounds. Freight payment-specific vendors are increasingly aiming to bring this data to bear in procurement.
Transportation Payment | Benchmark Study 2014
Figure 7: Transportation Payment Platform 9%
Manual/ Spreadsheet-based
11%
Outsourced to 3PLs
9%
Outsourced to another service provider
14% 16% 31%
15%
21%
8% 4% 3% 5%
0%
Large Shipper Domestic Small/Medium Shipper Domestic
3% 2% 4% 2%
Standalone non-bankbased system TMS-based system
2%
ERP-based system
Large Shipper International
15%
5% 4%
Small/medium shipper international
9% 9%
5%
17% 19% 20% 17% 1%
0%
6% 5%
9%
10%
5%
15%
20%
25%
30%
35%
40%
45%
158 total respondents
It’s hard to draw any sweeping conclusions from this year’s research on timeframe to pay. As Fig. 8 demonstrates, there’s not much movement year to year in terms of when shippers expect to pay their freight bills. If anything, a slightly higher percentage of respondents this year expect to push their payables out into the 45- to 60-day window, while fewer expect to pay within the 30- to 45-day window.
Figure 8: Average Timeframe to Pay 2011–2014 50%
46% 46%
45%
2011
38% 38%
40%
2012
37%
35% 28% 24%
30% 25% 20% 15%
15%
17%
13%
2013
28%
2014
17%
14% 8%
10%
14% 9%
5% 0%
2% Fewer than 15 days
11
12%
A mix or hybrid of all of these None of these
42%
15–30 days
30–45 days
45–60 days
0%
3% 2%
60 days or more
167 total respondents
Transportation Payment | Benchmark Study 2014
Section IV: Freight Payment Technology Trends
Standalone bank-based system
28%
19%
And the idea that shippers aren’t too concerned with changing their payment terms is further reflected in Fig. 9, where around two-thirds of respondents indicated they are happy with their current terms (there were about four systems-based respondents for every manual respondent to answer this question). Note, however, that more than three times as many systems-based respondents will seek to extend payment terms this year—an indication that shippers with an automated payment process are freer to zero in on tactical measures like extending their payment terms.
Section IV: Freight Payment Technology Trends
12
So how are those shippers and 3PLs that plan to extend their terms going to execute that strategy? Three-quarters plan to simply renegotiate with their carriers and 37 percent plan to use new carriers. A much smaller percentage will use a financing solution or upgrade to a newer payment tool. These somewhat analog measures to extend terms fly in the face of the automated tools payment vendors have developed (and are still developing) to help shippers finance their transportation spend. The reality, however, is that shippers and 3PLs simply lean on their carriers, or get new ones, when they want better payment terms.
Figure 9: Extension of Carrier Terms in Coming Year 90%
Systems-based Shippers
78%
80% 70%
Manual Shippers
64%
60% 50% 40% 30%
22%
20% 10%
15% 6%
4%
8%
4%
0% Seeking to significantly extend payment terms
Seeking to moderately extend payment terms
Happy with current payment terms
Uncertain 168 total respondents
Figure 10: Method to Extend Payment Terms Renegotiate contracts with current carriers
77% 37%
Contract with other carriers 12%
Use a financing solution Purchase a new freight payment tool or upgrade my current one
13% 22%
Other 0%
10%
20%
30%
40%
Transportation Payment | Benchmark Study 2014
50%
60%
70%
80%
90%
113 total respondents
Section V: Auditing Practices Auditing is a core function of a best-in-class freight payment process. Without the ability to audit all invoices against what was actually paid, a shipper or 3PL cannot be sure it has accurately paid what is owed. The key here is “all.” Manually auditing, either prior to payment or post payment, is a labor intensive undertaking that is inefficient, and in many cases, impractical. Automation enables freight buyers to, in effect, audit every invoice and manage by exception.
Auditing before and after a payment virtually assures payment accuracy.
One of the key markers of best-in-class freight payers throughout our payment benchmark studies over the years is the ability to audit both prior to and post payment, not one or the other. Auditing before and after virtually assures payment accuracy. This year, we see that the percentage of respondents who audit both before and after waned a bit from last year, but was still higher than in 2012. What is interesting is that use of post-payment audits has been on the rise over the past four years (very slightly), while use of prior audits has decreased slightly. Does this say something significant about the way shippers and 3PLs handle audits? Perhaps, but it’s more likely that these relative variances are factors of slightly different respondent pools. Taken over a four-year horizon, it’s fair to say 50 to 55 percent of companies audit prior, 8 to 12 percent only audit post, and around 30 to 40 percent audit both.
Section V: Auditing Practices
13
Figure 11: Auditing Practices 2011-2014 70% 60% 50%
2011 58% 59% 53%
2012
51%
2013 38% 36%
37%
40%
2014
29%
30% 20% 8%
10% 0%
9%
9%
12% 2%
Prior to payment
Post payment
Both
4%
1%
None
1% 164 total respondents
Transportation Payment | Benchmark Study 2014
Looking at this same question by industry segment (Fig. 12), we see a continuation of results from last year. 3PL respondents continue to be more likely to only audit prior and retailers post than their counterparts. A key result of auditing regularly (if not always) is return on that investment. Simply put, if audits are not turning up significant savings, there’s less motivation to keep auditing so frequently. Fig. 13 shows that more than two-thirds of systems-based respondents see value in their audits, compared to only 44 percent of manual respondents. This is understandable, given the laborious nature of manual audits. Sifting through reams of data to find what might be small discrepancies is the type of process that can easily be deemed unrewarding. A further 44 percent of manual shippers were uncertain if their audit savings were meeting expectations, an indication that handling this process manually leads to uncertainty as often as dissatisfaction. 14
Section V: Auditing Practices
Figure 12: Auditing Practices—Industry Segment 70%
50%
Manufacturers
63%
60%
Retailers
53% 48%
3PLs
40%
36%
20%
14%
10% 0%
33%
31%
30% 16% 4% Prior to payment
1%
Post payment
Both
0% None
0% 164 total respondents
Figure 13: Savings from Audits meet Expectations 47%
50% 40%
Manual shippers
33%
35% 30% 25%
Systems-based shippers
44%
45%
23%
21%
20% 15% 10%
11%
8%
7%
5% 0%
1% Strongly agree
Agree
Uncertain
Disagree
Transportation Payment | Benchmark Study 2014
4%
Strongly disagree
163 total respondents
A new dimension to this year’s report was a look at how recently companies conducted an audit of their freight payment process. This is not audit in the way we normally discuss freight pay audit, but rather a third party assessment of a company’s ability to accurately pay its freight bills. The question produced some interesting results.
Sixty percent of manual shippers said they either have never conducted a third-party assessment of their freight payment process
Sixty percent of manual shippers said they either have never conducted such an audit, have only done so in the last five years, or are uncertain about if such an audit has been undertaken. That’s a sizable chunk that don’t understand if their process is running smoothly or is broken in some way. Juxtapose that with 32 percent of systems-based shippers who answered in those categories. This makes sense. Systems-based shippers are likelier to have a more recent handle on their process, and would be more inclined to audit that process. The rest of the data in Fig. 14 bears that out. Nearly 60 percent of systems-based shippers have conducted such an audit in the last year (with a healthy 38 percent saying that audit was conducted in the last six months), compared to 37 percent of manual shippers.
Figure 14: Most Recent Independent Payment Process Audit 40%
38%
Systems-based shippers
35%
30%
30% 25%
19%
20% 15% 10%
17% 11%
7%
Within the last six months
Within the last year
Within the last two years
Manual shippers
19%
11% 4%
5% 0%
30%
11%
4% Within the last five years
Never
Uncertain 164 total respondents
Transportation Payment | Benchmark Study 2014
Section V: Auditing Practices
15
Section VI: Freight Payment Strategy In qualitative discussions with shippers and 3PLs about their freight payment procedures, it is clear that no two of these freight buyers handle things the same way. Some companies use in-house tools to manage their payables. Some use payment vendors. Some use payment vendors to manage the bills, but insist on writing the checks themselves. Sometimes, it’s the logistics department that’s responsible for freight payment, and sometimes it’s finance.
Section VI: Freight Payment Strategy
16
So an important dynamic to examine is whether those people tasked with freight payment feel as if they have a good handle on their freight payment process. The good news is that 90 percent of shipper respondents and 85 percent of 3PL respondents feel they have a good or very good grasp of this process. It’s worth noting here that only those that said they are responsible for either international, domestic, or both international and domestic freight payment were eligible to participate in the survey, so the audience was predisposed to understand the dynamics of this process. Yet it’s still comforting to know that few of the people entrusted with this role don’t understand it well.
Figure 15: I Clearly Understand My Freight Payment Process 50% 45% 40%
46%
44%
48%
Shippers 3PLs
37%
35% 30% 25% 20% 15% 10%
6%
5% 0%
Strongly agree
Agree
4%
Uncertain
7% 2% Disagree
Transportation Payment | Benchmark Study 2014
1%
4%
Strongly disagree
164 total respondents
Last year, we attempted to ascertain the degree to which logistics and finance were involved in buying decisions on freight payment systems. More than half of respondents last year said it was the logistics department only making this decision, with nearly 40 percent saying it was a joint decision. This year it’s encouraging to see more companies veer into this being a joint decision. Both large and small/medium shippers were more likely to say finance and logistics would both be involved in such a decision, a significant change from last year. Involving finance in such a decision is important for a host of reasons, not least of which is that most companies route all their payables through their finance department. Not involving that department in such a key technology buying decision might cause inter-department friction, at best, and serious systems conflicts, at worst. In next year’s report, it might very well be worth exploring the extent to which the IT department is involved in such decisions.
17
50% 45% 40%
45%
43% 38%
Large Shippers 37%
Small/medium shippers
35% 30% 25% 20%
14%
15% 10%
8%
7%
3%
5% 0%
Joint decision between finance and logistics
Logistics Finance department operations
3%
Uncertain
3% Other 164 total respondents
Transportation Payment | Benchmark Study 2014
Section VI: Freight Payment Strategy
Figure 16: Who Makes the Buying Decision on Freight Payment Systems?
Simply put, few respondents are in the market for a freight payment system. Eighty-four percent of large shippers indicated they either outright aren’t in the market for a system, are uncertain, or that it’s on the company’s five-year plan. In our experience, a company that puts technology on its five-year plan has little actual hunger to invest.
Few respondents are in the market for a freight payment system.
For small and medium shippers, the number is 89 percent in those three categories. In fact, only roughly one in 10 large shippers and one in 20 small or medium shippers plan to invest in freight payment technology over the next year (a horizon that we see as realistic for actual investment). Considering that around a quarter of shippers handle freight payment manually, and that many more are likely in need of an upgrade, this is somewhat sobering. It also speaks to other IT investment priorities, a recurring theme across our procure-to-pay series. Because these functions can be considered niche among the varied technology needs of a retailer or manufacturer, the priority to invest can be low.
Section VI: Freight Payment Strategy
18
One other thing to note: The respondent pool for American Shipper research tends to be involved in international transportation. Given that the vendor landscape for international freight payment is not yet as developed as the domestic landscape, it’s possible companies that need freight payment tools that work across modes and borders have not yet found those tools on the market.
Figure 17: Plans to Buy, Upgrade or Replace Payment Systems 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
56%
Large Shippers Small/medium shippers
47%
25%
11%
No plans to buy or replace
6%
6%
22%
12% 11% 5%
Budgeted within Budgeted within the next the next 12-24 12 months months
On our company’s 5-year plan
Transportation Payment | Benchmark Study 2014
Uncertain 165 total respondents
The answer to the question of whether freight payment is a technology investment priority comes in Fig. 18. We’ve asked this question across our procure-to-pay research and the results have been consistent throughout. In the case of freight payment, around 30 percent of respondents said funds are available to invest in a freight payment system. That’s marginally higher than the 27 percent who said funds were available for a transportation procurement or management system. But still not terribly encouraging. The reality is that the vast preponderance of people tasked with domestic or international freight payment feel they don’t have the financial backing to invest in process technology.
Figure 18: Is Funding to Invest in Transportation Payment Technology Available? 19 12%
14%
19%
18%
Likely available Uncertain Likely unavailable Definitely unavailable
37% 163 total respondents
Transportation Payment | Benchmark Study 2014
Section VI: Freight Payment Strategy
Definitely available
Section VII: Takeaways There’s a natural progression when it comes to modern freight payment strategy: 1. Recognize the need to accurately pay freight bills 2. Realize that freight payment is not the same as other payable categories 3. Strive to automate (either in-house, through a logistics services provider, or freight payment software vendor) the process 4. Audit prior to and post payment, and audit by exception 5. Use payment data to inform the procurement process But there are problems that shippers and 3PLs face when it comes to automating this process. For one, fewer than two in three shippers and 3PLs even have the
Section VII: Takeaways
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funds available to invest in payment technology, as seen in Fig. 18. Most shippers, for whatever reason, still don’t perform audits prior to and post payment, as seen in Fig. 11-12. And most freight buyers have little interest in extending their payment terms, as seen in Fig. 8, despite tools in the market to allow those buyers to pay their carriers early and hang on to valuable cash for extra weeks. Automation is the first step, but realizing the importance of audits, and the availability of tools that allow shippers and 3PLs to preserve cash is the next step, followed by feeding that rich payment data back to subsequent rounds of transportation procurement.
There’s a reason, after all, this is called the procure-to-pay cycle.
Transportation Payment | Benchmark Study 2014
Appendix A: About Our Sponsor U.S. Bank U.S. Bank Freight Payment improves control and reduces costs for shippers and carriers with a global transportation payment system that automates invoice auditing, processing and payment; integrates trade finance, and provides powerful business intelligence. As a leading freight payment provider, U.S. Bank Freight Payment processes millions of freight invoices annually for some of the largest corporations and government agencies in the world. See how U.S. Bank Freight Payment can help strengthen your physical and financial supply chain. Learn more at www.usbpayment.com/freight-payment.
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Appendix A: About Our Sponsor
U.S. Bancorp (NYSE: USB), with $371 billion in assets as of March 31, 2014, is the parent company of U.S. Bank National Association, the 5th-largest commercial bank in the United States.
Transportation Payment | Benchmark Study 2014
Appendix B: About Our Partners Council of Supply Chain Management Professionals (CSCMP) Since 1963, the Council of Supply Chain Management Professionals (CSCMP) has been the leading worldwide professional association dedicated to education, research, and the advancement of the supply chain management profession. With more than 9,000 members globally, representing business, government, and academia from 62 countries, CSCMP members are the leading practitioners and authorities in the fields of logistics and supply chain management.
Retail Industry Leaders Association (RILA)
Appendix B: About Our Partners
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The Retail Industry Leaders Association (RILA) is the trade association of the world’s largest and most innovative retail companies. Retail executives choose RILA’s unique collaborative forums, effective public policy advocacy, and premier educational events to advance excellence throughout the retail industry. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, provide millions of jobs and more than 100,000 stores, manufacturing facilities, and distribution centers domestically and abroad.
Transportation Payment | Benchmark Study 2014
Appendix C: About American Shipper Research Background Since our first edition in May 1974, American Shipper has provided U.S.-based logistics practitioners with accurate, timely and actionable news and analysis. The company is widely recognized as the voice of the international transportation community. In 2008 American Shipper launched its first formal, independent research initiative focused on the state of transportation management systems in the logistics service provider market. Since that time the company has published more than a dozen reports on subjects ranging from regulatory compliance to sustainability.
Scope
Methodology American Shipper benchmark studies are based upon responses from a pool of approximately 40,000 readers accessible by e-mail invitation. Generally each benchmarking project is based on 200-500 qualified responses to a 25-35 question survey depending on the nature and complexity of the topic. American Shipper reports compare readers from key market segments defined by industry vertical, company size, and other variables, in an effort to call out trends and ultimate best practices. Segments created for comparisons always consist of 30 or more responses.
Library American Shipper’s complete library of research is available on our Website: AmericanShipper.com/Research. Annual studies include: • Global Trade Management Report • Global Transportation Procurement Benchmark
• Global Transportation Payment Benchmark • Import Operations & Compliance Benchmark • Export Operations & Compliance Benchmark
• Global Transportation Management Benchmark
Contact Eric Johnson Research Director American Shipper
[email protected]
Transportation Payment | Benchmark Study 2014
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Appendix C: About American Shipper Research
American Shipper research initiatives typically address international or global supply chain issues from a U.S.-centric point of view. The research will be most relevant to those readers managing large volumes of airfreight, containerized ocean and domestic intermodal freight. American Shipper readers are tasked with managing large volumes of freight moving into and out of the country so the research scope reflects those interests.
Copyright© 2014 by Howard Publications, Inc. All rights reserved. No part of the contents of this document may be reproduced or transmitted in any form or by any means without the permission of the publisher.
Transportation Payment | Benchmark Study 2014
