Ocean Cargo

Uncovering hidden revenue leaks in ocean cargo

Uncovering-hidden-revenue-leaks-in-ocean-cargo--Blog

Revenue leakage is a major problem in ocean cargo. From the moment a sale is made to an empty container being released for stuffing and its final delivery, there are multiple touchpoints where revenue and profitability are at risk. With forecasted container shipping revenues at US$327 billion for 2023 and revenue leakage estimated at 1-5% of EBITA by EY, the impact is significant.

Uncovering these hidden leaks is essential to protect ocean cargo's bottom line and sustainability. But the financial upside isn't all that's at stake. Lost revenue ultimately affects container shipping's competitiveness, increasing costs for businesses and consumers.

Common causes of revenue leakage in container shipping

Revenue leakage occurs at various stages of the shipping lifecycle, from booking and documentation processing to freight calculation and invoicing. Let's explore some of the most common causes.

  1. Invoicing errors
    Given the number of documents involved in the movement of goods, including bills of lading, supplier invoices, and shipping instructions, errors or omissions in these documents can result in incorrect invoicing. Mistakes in cargo weight, description, classification, or failure to account for additional fees and surcharges can lead to undercharging or overcharging customers, resulting in revenue loss or potential legal disputes. Additionally, a lack of transparency in the billing and invoicing process can make identifying and rectifying revenue leaks difficult. In container shipping, rates vary based on factors like destination, volume, and type of cargo. However, manual processes and lack of visibility can lead to errors in applying the correct rates. Analyzing and rectifying these inaccuracies is essential to ensure the company receives the total revenue it is entitled to.
  2. Under quoting  
    Trade managers base rates on market insights, but not having robust processes and tools to communicate pricing updates effectively to sales teams can lead to lost revenue. On the other hand, sales teams often offer discounts to convert a business opportunity, which can lead to revenue leaks if below established margins. Not having systems to spot these red flags is a significant cause of revenue leakage. With so many rates being managed to cover extensive factors, simplifying pricing structures and processes for market rates and adopting a dynamic pricing approach helps maximize capacity utilization and optimize revenues.
  3. Operational inefficiency
    Inefficient cargo handling, container turnaround delays, or underutilization of vessel capacity lead to lost opportunities and revenue. Analyzing data on cargo bookings, vessel utilization rates, and routes can help identify areas where capacity can be better utilized. By implementing strategies like consolidation, route optimization, or partnering with other carriers, shipping companies can reduce revenue leakage caused by underutilized capacity.

How technology helps identify and prevent revenue leakage

Addressing the common causes behind revenue leakage requires a proactive approach that integrates technology, streamlined processes, and effective communication. By identifying and rectifying these issues, container shipping companies can optimize revenue streams, improve customer satisfaction, and drive sustainable growth in a highly competitive industry.

Given ocean cargo's transaction volumes and complex operational processes, manual methods alone are no longer sufficient to keep track of potential revenue leaks. Technology needs to play a greater role in identifying and preventing revenue leakage.

  • Advanced data analytics

Sophisticated AI and ML-driven algorithms can pinpoint areas where leakage occurs by analyzing vast amounts of data, including pricing discrepancies, inaccurate invoicing, or fraudulent activities.

  • Real-time monitoring

Monitoring and tracking container movements in real-time provides detailed supply chain visibility to quickly identify deviations or unauthorized stops, reducing the chances of revenue leakage due to mismanagement or theft. Real-time visibility into potential risks enables immediate action, preventing escalating revenue losses.

  • Automation

Automating repetitive tasks and processes doesn´t just improve efficiency by streamlining operations. It also ensures revenue management accuracy and consistency by significantly reducing the risk of human error and inconsistencies. Automated systems enable accurate data entry and anomaly detection, timely invoicing, and efficient financial management.

  • Security

Robust control systems and checks, like digital signatures, payment gateways, and audit trails, enhance security and accountability, reducing unauthorized access or fraudulent activities. By closely monitoring every step of the shipping process, from booking to delivery, discrepancies or inconsistencies that can lead to revenue leakage can be identified early on.

While technology helps mitigate potential revenue leaks across the cargo lifecycle, robust contract management is equally important to safeguard profitability. Clear, comprehensive, and enforceable contracts with customers, carriers, and stakeholders that define pricing terms, payment schedules, and penalties are essential. Well-structured contracts minimize revenue leakage from misunderstandings or disputes, ensuring profitability in container shipping.

Author Info

Hemant Kuvar is a Lead Product Manager for IBS Software's ocean cargo solutions. With decades of collective experience as a Product Manager and a deep understanding of the shipping and container logistics industry, he focuses on improving business processes and operational areas through innovative solutions to complex challenges.Hemant is a certified Product Manager and holds a Master´s in Marketing Management and a Master's in Physics.

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