Accounts Deceivable: Inaccurate billing is costing carriers millions

A major global airline was moving large volumes of high-value, pharmaceutical freight for several customers. Due to the sensitivity of the cargo, the carrier had made significant investments in special temperature-controlled facilities that could accommodate expensive Envirotainers to keep the cold chain intact.

After some time, however, the carrier noticed that revenues from the service were underperforming, despite a good track record of shipments with few temperature incursions. The carrier turned to a consulting firm to figure out what went wrong. U.S.-based consulting firm ARG LLC, which specializes in revenue protection services. discovered that a data error had been made with the pharma shipments, most likely at the local terminal. These shipments were being mistakenly entered into the booking system as “general cargo,” rather than specialty pharma cargo. Because the booking data interfaced directly with the carrier’s billing system, more than 100 of the pharma shipments had been invoiced at the general cargo rate, instead of the high-value pharma rate.

It was a simple error. But since the airfreight industry has many moving parts, discovering such an error was hardly simple. With many airlines and forwarders still using their own proprietary legacy IT systems that are often siloed apart from the rest of the supply chain, it has become easy for billing errors to pass through quality-control efforts. Errant billing is a serious problem, industry executives acknowledged. Although exact figures are hard to pin down, ARG estimates that “there is more than $250 million in revenue leakage that direct and indirect air cargo carriers face, industrywide.” When asked about the estimate of $250 million left on the table every year, a cargo executive at an Asian carrier said he believed the number wasn’t quite that high. But after a long pause, he told Air Cargo World, “let’s put it this way, I wouldn’t be surprised if it really is that high.”

To be fair, misguided billing is not new. To help address this long-standing issue, the International Air Transport Association (IATA) set up the automated Cargo Accounts Settling System (CASS) in the 1970s, with the intention of simplifying the billing and settlement of accounts between airlines, general sales agents and freight forwarders. By 2003, IATA created the CASSlink portal used today, which digitized the process. In the United States, international carriers often use a similar, less-regulated product, Cargo Network Services (CNS), or “CASS-USA,” to perform the same function. CASS and CNS have both proven to be effective in processing air waybills (AWBs) and settling invoice disputes, but they have not prevented errors, carriers told Air Cargo World.

“CASS is not really geared to improve accuracy,” said Mark Palladino, a principal at ARG, who has worked with some of the largest international cargo carriers on revenue leakage. “It is designed to streamline the settlement of the transaction.”

By the end of 2016, CASS expanded to 93 countries and territories worldwide, handling freight-related transactions worth a combined total of US$26.4 billion in that year alone. The rates for billing disputes from these transactions are generally carrier specific and vary from one to the other, but Palladino said he has seen invoice adjustment rates for some carriers using CASS that “are nearing 20 percent.” On the U.S. side, CNS reported that an average of about 9 percent of the 2.8 million AWBs it processes each year are disputed.

And these are just the discrepancies that are being noticed. Who’s to say how many billions of dollars’ worth of over-billed or undercharged invoices have slipped past overworked accounting departments? And what toll is being taken on the billing departments at carriers, which are often flooded with so many invoice adjustments that it becomes a major resource drain?

“Although CNS is a clearing house and does not have a mechanism for reducing billing errors, the system does detect common file load data errors,” said a CNS executive, who declined to be identified. “Errors often occur when a carrier enters a new market and coding/billing does not align with the forwarding services provided, possibly because local staff is unaware of how to code for time definite guarantees or specialty products.”