Five Ways Payment Programs and Regulations Preserve Carrier Capacity

Jan 27, 2020 | DTJ Online

The partnership between the military and the freight carrier industry is stronger than ever. It spans from the branches of military service and multiple government agencies to providers around the globe who all play important roles in support of the Department of Defense (DOD) mission. 

Without carrier capacity, everything from delivering military vehicles and equipment stateside and overseas to the movement of household goods for those who serve our country would be impacted. That’s why efficiency and collaboration are so very important.

Successful cross-industry collaboration depends on all parties working together toward a common goal, and everyone has a role to play. What many may not realize is there are programs and regulations involving carrier industry payments that are vital to maintaining carrier capacity. Let’s take a closer look at five of the key ways carrier capacity is supported in the payment process.

Collaboration across all modes
The DOD operates an increasingly complex supply chain that must reach around the world. Typically, no singular mode whether rail, surface, ocean, or air, transports a shipment from origin to destination. Rather, it is the collaboration amongst providers and in various modes of transport.  

Without capacity and an efficient supply chain, the ability to fully supply and support the DOD’s more than 800 military installations in more than 70 countries across the globe would not be possible. While there are more than 130 different DOD systems used to order, transport, track and account for transportation payments, the DOD’s use of a third-party payment system (TPPS) provides a streamlined audit and payment process to:

  • Connect with true local resources who understand the local regulations and logistics industry
  • Support readiness with multi-currency and multilingual capabilities
  • Provide the right data in the right format by capturing all relevant data and ensuring data harmonization for important information such as currencies
  • Properly control access to data. While not all users need access to all data, they do need access to the right information—which may include data across several entities for analysis.
  • Efficiently allow access to reporting and business intelligence

By utilizing a TPPS with these attributes, the DOD can better manage freight spend, regardless of geographic or divisional boundaries. 

Payment laws and regulations
All carriers depend on timely payments to keep their businesses moving and cash is king to maintain their fleets. Before those payments can be made on behalf of the DOD, there are numerous laws and regulations to follow, with just a few featured here:

  • The Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) have strict guidelines to govern the transportation and payment processes. Staying abreast of changes is critical to ensuring carriers remain compliant. Carrier associations and online resources such as the Federal Register are a good way to keep current on ongoing updates and changes. When a carrier is not compliant, it risks losing its government business, but the government also risks its dependence on those assets to keep the supply chain intact and provide competitive, affordable, and reliable transportation resources.
  • The Federal Prompt Payment Act aligns with the commercial industry goal of maintaining and improving its cash flow. An important trigger to the Prompt Payment Act interest is presenting a proper invoice from the start of the payment process. Accuracy in billing and timely resolution of billing discrepancies directly ties to cash flow and efficient deployment of capital.
  • Financial Improvement and Audit Readiness (FIAR) requires the government to follow proper accounting procedures that pass external audit scrutiny. In accordance with FIAR, it is imperative to maintain internal controls that protect and preserve the audit trail and contribute to the availability of resources. 

The payment process also includes significant regulation to ensure that reliable and trustworthy partners are paid. Regulations such as the Bank Secrecy Act (BSA) and regulatory entities such as the Office of Foreign Assets Control (OFAC) serve to protect funding and therefore, aid in ensuring capacity is provided by legitimate carriers.

Regulations require banks to conduct substantial due diligence on customers via a process defined as Know Your Customer (KYC). KYC is a labor-intensive process that involves bank staff reviewing identification documentation to ensure an entity—a person or a corporation—is who/what they claim to be and that subsequent payments are only going to legitimate entities. This is done to mitigate the risks of money laundering and terrorist financing, critical to our country’s security. The KYC vetting processes completed by bank staff, not the payors or payees, provides another layer of security in the overall support of missions.

Supply chain data security
Cybersecurity attacks remain a constant threat to supply chains. These risks are resulting in sweeping changes in daily operations and regulations that impact capacity.

When examining processes and the data available to you, it can be helpful to ask yourself, “What would happen if this fell into the wrong hands?” Using one of the most commonly used items in supply chains, the freight bill, it is easy to see the sensitive information that should be protected. These are far more than “pieces of paper” or “basic data.” Freight bills contain contact details for shippers and carriers, quantities, the types of goods being shipped, pickup times, and delivery due dates and times. These details are not for broad consumption and reveal confidential or sensitive information regarding the movement of goods and possible plans.

Security breaches could impact individual deliveries or have broader impacts across multiple carriers, lanes, and modes. As more supply chain processes and information are digitized, security needs to remain a priority:

  • What data needs to remain confidential?
  • Does the data have multiple layers of protection?
  • What steps are necessary to mitigate risks?

Regulations that govern information and cybersecurity are continually evolving (e.g., DOD regulation DFARS 252.204-7012 addresses the need for additional information protection) and there are programs and resources available to the DOD and industry including:

Payment reporting 
Strong payment reporting programs help both shippers and carriers proactively manage their operations. The way the information is applied directly influences capacity.

Reporting helps both shippers and carriers determine and allocate resources, analyze performance data, and address inefficiencies. A report focused on invoice exceptions may result in shippers and carriers allocating resources to resolve issues. It may also result in further analysis into the root causes of the exceptions so they can be avoided in the future. Both applications of reporting facilitate payments and maintain capacity.

Shippers use a variety of reports that are tied to their carrier relationships. These can range from monitoring unpaid invoices and reviewing preferred carrier lanes to analyzing payments across modes and evaluating carrier performance, to name just a few. The actions shippers choose to take can quickly change capacity for multiple parties while providing the flexibility needed in their supply chains.

For carriers, delivering the proper invoice on time and accurately from the start is critical to their accounts receivable turnover and, ultimately to their cash flow. A healthier cash flow and financial picture for a carrier translates directly into whether they can expand their capacity and provide much-needed assets to support the DOD supply chain. Monitoring unpaid invoice and exception reports can help quickly isolate and resolve issues so payments can be made.

Actionable data and insights
In addition to reporting, it’s important for both government shippers and carriers to have visibility to actionable financial supply chain data to maintain and maximize carrier capacity. Why the emphasis on actionable?

Collecting data for the sake of collection doesn’t do anything but take up space. Actionable data enables shippers and carriers to better understand the current state of their financial supply chains and determine next steps.

Both real-time and historical data matter, if information is not current, any decisions may not be as good as they would have been using real-time data. However, historical data should not be disregarded because it provides insight into cycles such as seasonal shifts in capacity and can help spot new trends.

Taking an outward look at what’s happening in the industry, even beyond government shipments, can provide a healthy perspective. There are several indices and tonnage reports available to help shippers and carriers stay attuned to current trends and challenges, including the U.S. Bank Freight Payment Index, which is published quarterly. Some organizations go a step further and benchmark their performance against peers in the spirit of continuous improvement. 

Continued partnership 
Though perhaps less well known, the programs and regulations that support and govern the financial supply chain are critical to maintaining carrier capacity. They also underpin the strong relationships between the government and industry that allow us to collectively fulfill the DOD’s mission.

By Cheryl Garcia, Senior Vice President Government Sales and Relationship Management, Global Transportation at U.S. Bank

For more information about U.S. Bank Freight Payment, please visit freight.usbank.com or contact us at cpstransportation@usbank.com.

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