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How to keep tabs on accessorial freight costs in the chemicals sector

05.09.2017

With the value of the global chemicals market forecast to double by 2035, already intricate supply chains are likely to become hugely more complex. Transportation is a very significant cost element, so efficient management and control of freight spend, with its associated ‘accessorial’ costs, will almost certainly become a major focus for companies seeking to improve operational performance and margins.

Accessorial costs are those additional charges to the basic shipping cost per tonne per kilometer and, partly because of regulatory requirements, the chemical industry has a greater level of such costs than most. Some are regular and predictable items where costs are known or can be contracted for and thus planned in. Examples would be the costs of tank cleaning, along with the drive time to and from a cleaning station, and then there is the cost of supporting certification, and the many regulatory costs, such as certificates of origin or ADR surcharges. Other charges are less predictable, such as waiting times and demurrages.

But whether based on fixed fees, negotiated rates or otherwise, such costs only become visible during or after execution. An invoice for transport may include many such line items and the items relating to a particular movement may not all appear on the same invoice. Many or all of these items should be backed by supporting documents such as weighbridge tickets, proofs of delivery or cleaning certificates, possibly in varying currencies and languages. What’s more, it may not be clear on the invoice what formula or agreed rate is applied.

 

Manual processes are prone to errors

The scope for error, inadvertent or, sometimes, deliberate, is considerable. Yet the typical chemicals sector company still uses highly inefficient, essentially manual, invoice and audit processes. Invoices and supporting documents are received by post or email and are checked, discussed and perhaps disputed both internally and externally. As data is rekeyed, further errors are introduced. At best, considerable administrative cost is incurred and the payment even of compliant invoices is delayed in the inevitable backlog. At worst, the time and cost penalties of fully reconciling invoices may be such that a proportion of doubtful payments are simply let through.

Again typically, many accessorial costs stay ‘buried’ at local operational level and are not visible to the company – even if they are moved up, ERP systems may not support the booking of accessorial costs in a detailed and itemised manner. Analysis, understanding and improvement of these significant costs are impossible.

 

TMS solutions for an automated workflow

It doesn’t have to be like this. Solutions are available, such as Transwide TMS, that create an automated and standardized workflow, integrating accessorial cost claims to execution and billing processes.

All the cost types are pre-defined and linked to the agreed rates or other contractual provisions and, where necessary, the appropriate formulae applied. Supporting documents can be uploaded by the carrier directly to the system and the process is supported through event management. Completion of a claim by the carrier notifies the user to review the item on the web portal and, of course, issues can be discussed. Crucially, if there are disagreements, both parties are looking at the same claim documents in the same format, which itself removes a major cause of dispute.

In addition, approved claims are automatically sent to the ERP system, and accruals reports are created that provide detailed insights into costs – to the level of the individual lane or carrier, if required. These provide a firm basis for future budgeting and continuous improvement processes.

 

Effective freight cost management

This level of insight is critical to achieving effective freight cost management. With it, you can assure and improve carrier performance and compliance, identify and eliminate the causes of unnecessary cost and manage and improve commercial relationships – not just with carriers, but with customers too. Without it, how can you know the true cost of fulfilling a given order? And how can you make informed decisions on what business to accept? The choice is simple – be informed.

 

To learn more about how Transwide TMS can help you solve the accessorial freight cost riddle, please visit www.transwide.com