Ocean Shipping Freight Costs Exposed in Defense of the US Economy

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The US gives away billions of dollars to foreign companies though known, rampant invoicing errors in the ocean freight shipping industry which increase costs for a wide range of economically-vital imports. This persistently harms the US economy by increasing costs, weakening exports, slowing growth, lowering employment, and increasing the national debt, yet little is done to resolve the problem, according to Steve Ferreira, CEO of Ocean Audit, Inc.

Ocean Freight Audit

Ocean Freighter

The fact that over 90% of all ocean shipping is commanded by foreign companies means that over the years, the US economy has been slowly drained of billions of dollars by freely giving it away to foreign ocean freight companies who simply ask for it.

Companies across America are giving away billions of dollars to foreign companies and getting nothing in return, and they don’t even realize it, according to Ocean Audit, Inc. The problem of rampant invoicing errors among ocean freight vendors are openly acknowledged in the industry with an average frequency estimate of 20%, though some estimates reach as high as 30% according to a Nov. 2013 report by David Biederman in the Journal of Commerce, and an average error value of 14.2%. As noted by the US Department of Transportation's 2014 National Transportation Statistics report, “the overwhelming majority of overseas merchandise trade is carried by ocean vessel,” with containerized trade representing a $12 billion per year industry of which up to $684 million comes from invoicing errors. The fact that over 90% of all ocean shipping is commanded by foreign companies, according to an annual assessment done by the Journal of Commerce, means that over the years, the US economy has been slowly drained of billions of dollars by freely giving it away to foreign ocean freight companies who simply ask for it. If it weren't enough that major US retailers are being charged higher than agreed upon ocean freight rates, which are valueless costs pushed onto consumers, the economic impact that this price distortion has on US trade and employment can only be seen as an attack on the US economic, itself. The errors appear to be caused merely by systematic human and operational failures, which seldom are ever resolved. The American public remains completely unaware of the broken system affecting 95% of what they purchase.

"For American manufacturers, these errors act as a price distortion, forcing them to pay higher costs for their raw materials, which cause higher prices for American made goods, and making them less competitive in the global marketplace", according to economist Michael Taillard. He goes on to note that this results in higher import-reliance and fewer exports, resulting not only in higher prices but also weaker domestic job markets. As this slowing of the US economy weakens demand for labor, it simultaneously contributes to the national debt as slowed economic growth contributes to higher levels of national debt as a percentage of GDP by undermining tax growth necessary to fund operations. The causes of these unrelenting price distortions, as described by Ocean Audit, Inc., a freight invoice auditing company specializing exclusively in ocean shipping, include high levels of volatility in ocean freight rates, particularly after the financial collapse of 2008, which has led to elevated levels of inconsistencies and uncertainty. Highly labor-intensive work with little industry standardization has also contributed to difficulties in confirming and reconciling receipts with contract terms; 95% of companies who utilize ocean freight transport (approx. 40,000 of them) do not have the resources to properly perform internal invoice auditing and dispute ocean freight charges. Since the US statute of limitations on challenging invoices is three years, the total value being held overseas which is currently available to US companies amounts to billions of dollars.

Efforts to resolve the pricing problems in ocean freight have so far been less than fruitful, as the distortion has continued to grow since 2008, despite efforts to increase standardization through the development of a derivatives trading platforms. 77% of importers and exporters still site managing contract compliance auditing as their top challenge, according to a 2012 INTTRA Global Shipping Survey. More successfully, carriers and shippers alike have turned to freight invoice audit services which provide manual or automated pre and post-auditing. Investing in the elimination of invoicing errors creates a 50-80% reduction in the price distortion after accounting for the cost of auditing services. Without proper financial oversight, these disputes will continue unhindered, as they create a 0.041% average price increase on goods and services through improper transport costs, and increased operating costs associated with delayed shipments. It’s a small wound to the US economy that spreads like an infection to nearly every industry and sector; an exotic industrial illness that hides on foreign ships and slowly sickens the companies and labor markets which are exposed to it.

Ocean Audit, Inc.is a freight invoice auditing firm founded in 1994 by Steve Ferreira.

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