In times of crisis and upheaval, a win can mean simply keeping the boat afloat. It’s about steering out of the stormy skies and choppy waters of a volatile, constrained market and waiting until the sun rises over calmer conditions and better terms. That was very much the MO for every shipper in 2020 when doing business was all about simple survival. Nearly two years later, expectations have already reset across the industry where there’s a headlong rush for the kind of growth to counterbalance pandemic pain points and a global drive to buoy sunken bottom lines again.
While all of that may sound like a positive – an industry pulling together to reboot for growth – currently, the realities of doing business in 2022 and delivering on those targets remain very different. In a market where capacity, even today, remains severely constrained and there are multiple demands on every dollar, shippers and carriers alike are in a head-to-head fight for better terms and greater control over their working capital which ultimately holds the key to the kind of liquidity needed to effect real change in the ways they do business and perform. So as we barrel into Q2, what, then, can be done to optimize cash flow on both sides of the transportation coin? What will drive improved performance across the supply chain? What are the transportation payment strategies and steps to right the ship for the remainder of 2022 and beyond? Let’s take a closer look.
Carrier
If you’re a carrier right now you’re holding the golden ticket, or it may look like that on the outside. You control the currency every shipper wants. Capacity. The vehicles, the personnel, and the expertise to get products, the lifeblood of every shipper, to the end-user or customer. There’s a huge upside opportunity for carriers who can consistently tap the demand – and more critically – are able to provide high-quality service in a market still buffeted by global Covid-19 impacts and the massive logistical shock waves of California wildfires, ports of entry congestion, interruptions of global shipping lanes and the Russian invasion of Ukraine. For carriers able to stay in the driver’s seat doing this can and will open the door to long-term and highly profitable relationship-building with global enterprise scale shippers.
The downside for carriers is quite simply the cost and the timeline of doing business. Razor thin margins worn down by competition, the never-ending cost of fleet maintenance, escalating fuel prices, and vehicle expansion opportunities all require a healthy cash flow and ongoing liquidity of working capital. Think about it. A 30,000-mile route might mean three or four oil changes for every single truck plus other maintenance costs and fees. And although carrier leverage in commercial negotiations has never been greater, that leverage won’t last forever. As capacity constraints ease, enterprise shippers will return to requiring payment terms closer to 60, 90 or even 120 days as they seek to drive greater cashflow control. How then, does a carrier with long-term vision balance attractiveness to shipper clients, expansion of their own capacity, daily cash-flow, and long-term working capital needs in an industry where credit availability is often only available at exorbitant rates from banks and factoring companies?
Shippers
In the average shipper’s world, there is a similar opportunity to grow profits and their businesses. The pandemic rapidly accelerated online purchasing and e-commerce as a lead retail venue, but with that came sky-high expectations - consumers who demand same-day or fast turnaround deliveries wherever they may be located. Failing to meet those expectations in an almost zero-tolerance customer market will very quickly impact orders and ultimately brand reputation. The answer is finding and securing air-tight, reliable carrier partnerships that can scale with the shipper’s growth. But when delivery is the only priority and capacity is limited, shippers find themselves agreeing to aggressive pricing and payment terms from carriers just to get the product to market. It isn’t uncommon to hear of shippers suffering from logistics cost increases of more than 50% year on year. And when your carriers are demanding 15 day payment terms, this then places additional strain on cash flow. Add to this the highly pressurized environment of corporate-mandated cost control and demand for higher returns and the average head of logistics finds themself battling a transportation logistics environment that presents demands from every angle: expectant consumer, cost-conscious management, and cash-strained carrier partners.
What can be done to break the deadlock for shippers, carriers, and the vast networks of 3PL/4PL providers who experience the challenges of both sides of the transportation logistics marketplace day in, day out?
Avoid Historical and Flawed Financing Products
Traditionally both carriers and shippers have sought to ease the pressures on their respective businesses and working capital by doing two things. Firstly, the critical cost reduction process of looking for errors and duplications in freight invoicing which can be both common and have a long-term impact on cash flow. And secondly, seeking third-party financing to improve access to capital. Ensuring accurate invoicing is a good best practice endeavor, of course, but incredibly time-consuming when repeated manually each month.
Third-party financing, in theory, is an excellent strategy but in practice historically, has presented problems for many shippers and carriers. For shippers, these programs often come in the context of traditional supply chain finance programs offered by many of the major financial institutions. However, these programs primarily focus on only the largest suppliers to the broader supply chain and rarely extend to the long tail of the shipper’s LSP network. This leaves transportation costs out of most supply chain finance programs.
So, too, are challenges for carriers. Most major banks and financial institutions typically limit lending to all but the largest logistics operators. And carriers who can’t meet the credit requirements of banks and other lenders often turn to factoring companies. These can be extremely expensive and inefficient relationships, but it’s big business too with more than 80% of U.S. logistics companies accelerating payments through factoring for at least some of their receivables. Fees can account for as much as 20% of every invoice, and here again, invoices are factored without any auditing and approval by each shipper. This means in a market where shippers are actively examining invoicing for errors, duplications, and cost-saving potential, invoices may be paid by the factoring company without shipper approval and when this occurs, carriers end up paying back charges, creating headaches and insecurity on the reliability of those funds.
Adopt Best Practice Strategies
There’s been a rush of technological development and rise of highly specialized transportation logistics payment partners in the past decade to try and solve the inefficiencies and difficulties of working with major financial lenders. Whether you’re a shipper looking to rein in costs and drive better returns or a carrier looking to optimize capital, there are new strategies designed to help. Consider all as you begin the process of evaluating what must change and why:
Digitized Billing and Invoice Payments – the transportation logistics world has, for too long, been mired in outdated, inconsistent and error-prone paper billing. In a truly best-in-class approach designed for efficiency and cost savings, automated and digitized billing and invoice payment based on standardized data and terms across shipper and all carrier partners is essential. It’s a foundational first step toward building a comprehensive, labor-efficient, and data-driven operation from finance to in-the-field operations.
Work, at minimum, with a Freight Audit and Payment (FAP) partner – a good global FAP partner is the first step toward establishing better, standardized, and more efficient billing, payment, and overall cash flow control. Careful screening and selection of an experienced partner here is essential. Avoid smaller or family-run FAP companies that may provide attractive pricing for freight audit and pay services, but do so without investing in the global service teams and big-data technologies required to deliver best-in-class service. Instead look for established, larger-scale partners with global reach and deep technological capabilities that can manage payments at volume, guaranteeing service quality and security. Make sure to check references and all certifications.
Implement a Transportation Spend Management (TSM) approach – a strategic partnership with a TSM partner is the new horizon in our industry and one that for every successful shipper, is critical for realizing both short-term efficiencies and long-term business growth opportunity. The best TSM partners provide seamless, global strategic spend management services and true end-to-end visibility across your entire supply chain that includes a regulated payment process with guaranteed practice standards. TSM partners act as regulated invoice auditors and payment providers ultimately establishing a lower risk, lower cost, and lower effort environment. Attempting the same with a non-regulated partner actually increases risk.
Establish best-in-class relationships – the best TSM partners will help initiate and build appropriately collaborative partnerships between shipper, carrier, as well as 3PL/4PLs and themselves, helping to create a strategic advantage by aligning the operations and interests of all parties for optimal performance, maximum visibility and full control of every financial aspect of the operation.
New Financing Strategies: The New Horizon
New solutions in working capital optimization, move beyond traditional debt products offered by banks and at much lower, fixed costs to the borrower. The strategy is simple and surprisingly effective. With the same TSM partner, it’s now possible for shippers to optimally manage the entire process from invoice receipt to payment under the most advantageous terms. Invoices are audited in near real time to resolve data inconsistencies and charge discrepancies, creating a financial process that dramatically reduces risk for both shipper and carrier. With a holistic solution in place, carriers receive early 15-day net payments on their audited and approved invoices and shippers receive extended payment terms increasing working capital DPO by as much as 120 days, without incurring debt on their balance sheet. The entire process is supported by a streamlined back-office function to reduce effort, risk and make fast, accurate, efficient payments that further cement business relationships in a difficult industry.
Three Things about Supply Chain Financing Options
It’s fast
Designed by experts who understand industry nuances, new options are designed to be a streamlined, efficient part of overall Transportation Spend Management and easy to secure from trusted best-in-class TSM partners. Unlike banking products that can be slow, process-driven, and non-tech-friendly, options like this are for speed in the digital payment age, reducing work, administration, and time spent on payment.
It’s integrated
All financial processes are tied into overall spend management, creating greater, streamlined visibility. Cash flow advantages, invoice auditing, and fast, accurate payments are all part of one efficient system resulting in better terms for shippers and both reliable and fast payments for carriers that leads to stronger, long-term relationships.
It’s effective
Over time, new financing options will reduce the costs of transportation spend management programs, increase ROI and improve carrier infrastructure and performance.
Josh Bouk is the president for Trax Technologies, the global leader in Transportation Spend Management solutions. Trax elevates traditional Freight Audit and Payment with a combination of industry leading cloud-based technology solutions and expert services to help enterprises with the world’s more complex supply chains better manage and control their global transportation costs and drive enterprise-wide efficiency and value. For more information, visit [url=http://www.traxtech.com]http://www.traxtech.com[/url].