Maritime Transport invoicing & payment processing are costing the industry $34.4bn annually

Rolf Bax

Rolf Bax

May 4, 2018 - 18:28

Maritime Transport invoicing & payment processing are costing the industry $34.4bn annually

Based on Drewry's latest white paper, large costs, inefficiencies, pain points and lack of automation results in the total cost of invoicing and payment processing to the maritime industry of $34.4 bn annually. The smallest players are most affected by this. Of all goods moved internationally by sea, container shipping industry carries about 60% (by value). This results in more than 5000 containerships worldwide. The global container shipping industry generated revenues of $166 bn last year requiring 1.26 billion freight invoices to be issues, verified, paid and reconsiled.

Current invoice and payment processing

The total costs of process inefficiencies and lack of trust represents 34.4 billion dollars annualy. See below:

container freight cost market

The larger the stakeholder, the more the impact of the costs and inefficiencies. Smaller stakeholders tend to be more relient on spot markets. Processes are more manual, freight rates are most volatile and most of the invoice errors occur. Larger stakeholders rely more on the long-term contracts and better IT solutions can be developed. After the initial setup costs, software provides frictionless freight invoicing, checking and settlement processes.

The current key issues in invoicing and reconciliation

For shipping lines, invoicing is mainly a manual activitiy, except for a few large BCO setups where self-billing and/or EDI solutions are in place. The most used payment methods are bank transfers and cheques. Credit card payments are rare and the use of payment platforms is spreading, but are still in early stage phase.

Reconciliation between bookings and invoices is partly or fully manual and is a costly manual process overall. The chance of errors is high and checking the freight invoices for spot shipments manually and printing the cheque may take between 2 and 15 minutes per invoice. (if the invoice is correct). When invoices are not correct this takes a lot more time. Smaller shippers experience much higher invoice rates (up to 30%) than larger shippers working on annual contracts. Automated reconciliation via EDI can be much more efficient.

For carriers, manual reconciliaton of their invoices is a key pain point when they are disputed by customers. A lot of shippers use third-party auditors to audit carrier invoices. 

level of time freight invoicing reconciliation

Common invoice deputes are BL fees, demurrage and detention, freight rates and fuel surcharges.

‘Cash Against Documents’, the standard payment arrangement for new commercial relationships and for destination charges, increasingly looks like an antiquated way to manage the question of trust and payment risk in container shipping. The ‘Cash Against Documents’ payment arrangements cause extensive manual verification of ‘hard copy’ payment and shipping documents, and are responsible for a substantial part of the $30bn in transaction cost inefficiencies that they identified. The underlying industry issue which causes ‘Cash against Documents’ payment arrangements, is the lack of trust between providers and their customers in the context of global and ever changing trading arrangements

Bankruptcies and bad debt have a different impact depending which part of the supply chain is affected. In general, it affects smaller companies more than larger ones. Bad debt represents 0.5% of revenue for large sipping lines, going up to 1% for small ones. Among forwarders, it ranges between 0.2% for large forwarders up to 2-3% for small and medium size ones. If shippers go bankrupt, then they might not pay the freight to the shipping line. According to a top three shipping line, the cost of bad debt (from shippers and forwarders) is about 0.5% of revenue. Shipping line bankruptcies are rare. Roughly one large shipping line goes bankrupt every 20 years and one small shipping line every five to ten years. When a shipping line goes bankrupt (such as Hanjin Shipping in 2016), the impact on shippers and forwarders can be very severe: usually one of them will have to pay a second time for the ocean freight, or spend money to correct the problems (re-stuffing of containers). Sometimes, forwarders can recharge the additional costs to the shipper, but this can be commercially difficult.

What to do

In Drewry's opinion there has to be a better way, especially with new technology, to resolve the sector problems. To take away the pain points technical solutions should take care of :

  • Simplification and/or automation of invoicing/payments (small and medium sized forwarders & shippers)
  • Prevend CAD by creating trust and guarantees between stakeholders
  • Streamline the workflows of quotation requests, quotations, booking requests and confirmations, fullfilment and all in line with invoicing and payments without errors and extra work

Large container shipping players could take the lead to simplify and standardise of the complex processes, but some new parties have developed common platforms or technology-based services which shipping lines or forwarders cannot provide on their own like:

  • Online marketplaces that are able to simplify/automate invoicing, bookings requests and confirmation for spot shipments.
  • Technology-driven providers that provide platforms ro reconcile bookings, invoices by linking all stakeholders. To reduce the number of disputes, this should include not only the sea freight but also audits and payment of surcharges, detention and demurrage. The automated reconciliation and payment can be a key benefit for checking ancillaries, surcharges, inland haulage, D&D, Invoices/PO references match, based on near real time shipment tracking and cargo monitoring. Indeed part of the issue with invoice auditing lies in these additional amounts which may be cumbersome to check, and labour intensive.
  • Financial or insurrance companies working for the shipper or the NVOCC should provide automated payments guarantees to the providers.
  • Financial firms could collect the freight payment from small shippers more efficiently and then take care of payment
  • A shipping capacity platform, centralized, operated by shipping lines or by an independent party and updated realtime. This should provide full access and realtime bookings to customers to all ships. Pricing would still be determined by the provider probably.
  • Rate audit firms or financial companies working for the shipper or NVOCC should provide payment to the providers, reducing long or late settlement.

International shipping news quotes : "There will be other technology solutions which Drewry has not envisaged and which innovative start-ups will bring to the market, but the space for disruption in the booking, freight invoicing and freight payment practices is wide open".

Source: International Shipping news 5.4.2018

About Drewry

For more than 45 years, Drewry has been charting and analysing the world's maritime markets. Drewry has established itself as one of the most widely used and respected sources of impartial market insight and analysis. Their depth of industry knowledge and market understanding provides the foundation for everything they do. www.drewry.co.uk

About ControlPay

ControlPay is the largest European Freight Audit & Pay service provider. We operate on a global and EMEA scale. Over the last few years, we have grown to a company with more than 200 employees. ControlPay is not a traditional Freight Payment provider as we are Dutch company and always had a very strong international focus and we focus on the logistics part of the business. Please take a closer look at our unique way of working and our service portfolio below. www.controlpay.com

More ControlPay content that could be useful