Startups, 3PLs improving freight payment efficiency

Alan M. Field, Special Correspondent | Mar 25, 2016 9:28AM EDT

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Once dominated by paper documentation and the Excel spreadsheet, invoicing and freight payment is on a relentless march toward electronic data interchange as a new group of autonomous startups and large 3PLs enter the business.

In the U.S., where third-party logistics providers now spend more than $86 billion annually on transportation, most 3PLs provide some sort of automated transportation management system or some electronic means for shippers to pay their freight bills or at least audit their freight bill process, according to Evan Armstrong, president of Wisconsin-based consultant Armstrong & Associates.

Traditionally, these 3PLs would do a pre-audit on freight bills, he said, and then do an automated clearing house payment or cut a check to the trucking company that provided the service.

NFI Industries was having a difficult time adjusting to its strong growth, according to David Broering, senior vice president of integrated solutions at the Cherry Hill, New Jersey, company. NFI, which manages transportation on its own trucks and those of outside providers, had a “mature group of freight bill auditors, who were doing the traditional bursting of envelopes, stamping of paperwork, scanning and batching of paperwork. It was a very manual process,” Broering explained.

The process involved the company’s seven distinct divisions. Each had different needs, and most of them were using different systems. So the interconnectivity of those systems was “pretty much impossible. We had 10 auditors who sat in a room together and all audited and batched paperwork. The efficiency level was just not getting it done,” he said.

NFI faced an even bigger challenge because its domestic, non-asset business was bursting at the seams. When Broering joined the company in 2012, NFI was moving about 11,000 shipments a year. By 2015, it was moving about 105,000. “This accelerated the need for a much swifter freight bill audit and payment process that related to paying our carriers,” Broering said. “Our brokerage business is built on the paradigm of servicing our carriers in as efficient and cost-effective manner as possible and providing them with swift and efficient payment for their services. We really understand, because we are also a carrier, what it means to be a carrier and how important cash flow is.”

With so much expansion in its shipments, NFI was unable to scale and grow “without adding body after body after body.” As a self-described ‘efficiency nut,’ Broering thought, “there had to be something else out there,” he recalls.

So NFI went looking for an outside provider of automated services to process the payments on those 105,000 shipments, almost all of which NFI was running on its own trucks. “We wanted a simpler, more logical way to scan, index and pay carriers,” Broering said. He also wanted to be able to “scale our business faster and more efficiently; a logical process that was not cost-prohibitive to the business. To do more and pay less.”

So NFI chose HubTran, a Chicago-based provider of automated back-office services, including electronic invoicing, auditing and payments. Launched in 2015, “HubTran provided us also with a couple of things that were prescient for the present and future world,” Broering said. The first thing was eliminating paper altogether, and “HubTran helped us motivate our carrier base by creating a system that works fast with e-mail invoices” for the carriers’ services.

In the process of implementing this system, NFI converted a majority of its carrier base into electronic invoicing to facilitate a swifter payment process. “Now we are getting 90 percent less paper than we were getting six months ago. This is a huge benefit,” Broering said.

As Armstrong explained, “Usually there is more automation and electronic bill processing on domestic shipments than (there is on) ocean shipping or air freight. For the 3PLs that are managing a lot of transportation, freight bill payment now comes along with the turf. If you are going to offer a ‘gain share’ shipment basis (for your customers), and if your system can do that, it also can handle pre-audit, based on what your (market) share was before automation.

“If I am going to work with C.H. Robinson (or another service provider) and let them manage my transportation, they are going to get to pay my freight bills as part of it,” Armstrong said. “What we are seeing is the transition from an era when there were a lot of freight bill payment companies to now, when a lot of those freight bill payment companies have moved up ‘the food chain’ and are offering more advanced services.”

Among independent standalone providers of such services, Armstrong singles out two “neat applications” as especially innovative: HubTran and PayCargo. Armstrong describes newcomer HubTran as “essentially a bolt-on application for transportation management applications. Geared toward domestic transportation managers and freight brokers, HubTran allows carriers to fax their freight bills, and then does an optical character recognition process on the bills, and employs machine learning technology to fine-tune its effectiveness over time.

“This technology pulls the information out of the documents.” HubTran CEO Matt Bernstein explained. “It recognizes a document, for example, as a bill of lading, and it groups the documents appropriately. It then assigns a load to each group of documents. It confirms and submits the invoice, and validates the documents by matching it against the contracted rate for the shipment. It auto-generates an e-mail to a carrier, and waits for the carrier to reply. We call this (process) ‘mutually exclusively, completely exhaustive.’”

He added that this workflow platform “reduces a lot of manual documents. All these documents are associated with the load number and the carrier invoice number forever.”

With the PayCargo System, carriers can enable their customers to view their receivables online, and approve or dispute any invoice or bill of lading. PayCargo works with different shipping lines to set up various electronic payments. Shippers go online to view the invoices loaded by participating carriers, or work with any non-participating carrier by loading invoices from their payables. Shippers can leverage multiple payment options, and approve or dispute any transaction before making a payment.

“It is a way to get it done without having to cut checks,” Armstrong said. “With Pay Cargo, you can also establish credit, which allows you to pay your ocean carriers.”

The slowdown in global economic growth, especially in China and Europe, hasn’t had any negative impact on Cass Information Systems, one of the biggest providers of electronic invoicing services, because of growing recognition among international shippers that these kinds of tools can cut their costs and improve their efficiency.

On the contrary, Tom Zygmunt, manager of marketing at Cass, said that “2015 was one of our best years. There was very strong demand for (our) services. Companies that had done (their invoicing and payments) internally are looking more toward outsourcing in order to gain cost efficiencies. This is happening for the full gamut of firms — including consumer goods firms, retailers, oil and gas — if they have a lot of transportation costs.”

Bernstein explained that there are two sets of HubTran users — freight brokers and 3PLs, on the one hand, and transportation factoring companies, on the other.

Unlike HubTran’s customer base, Cass’s users tend to be companies that handle at least 100,000 invoices annually and ship at least 1 million packages, Zygmunt said. However, “we are starting to see companies that have as little as 25,000 to 50,000 transactions as even smaller companies come to appreciate the convenience of electronic auditing and payment systems, and their ability to generate analytical reports from the raw data about invoices.”

Safety concerns compel a growing number of companies to outsource their non-critical information in such sectors as manufacturing and oil and gas, he added.

Beyond that, people are more used to outsourcing services such as in back-office IT services, Zygmunt said. Automated electronic invoicing and payment tools also enable shippers to slice and dice their data to derive business intelligence that they can leverage to gain competitive advantages by understanding their transportation management efforts more fully.

“People want to see the data visualized on dashboards, and providers offer Internet portals from which they can download data onto their office computers, and then use the data,” he said, to derive insights about the cost-effectiveness of their transportation management efforts.

HubTran’s customer base consists of brokers and transportation management companies, while Cass’s customers are mostly large shippers such as Mars Petcare, which handle tremendous volumes of invoices and work with broad rate schedules.