Blockchain technology has already made its impact on financial services. Now, it presents several significant opportunities in the oil and gas industry. Oil and gas companies with heavy transportation expenditure occurring from processes like freight audit and payments can drive substantial savings with blockchain.
Essentially, petroleum companies process thousands of freight transactions each day. However, reconciling freight invoicing against services with appropriate remittances proves to be laborious and costly for them.
Here, blockchain can significantly enhance the freight audit and payment process with transparent and accurate freight rates, shipment routing, and invoice generation.
In other words, blockchain acts as an underlying mechanism that enables information transfer with transparency and security, and no central authority, or intermediary dependence.
The freight bill audit and payment process involves a growing chain of appended transactions between transporters and consumers. It includes several manually managed steps like freight rate management, invoicing, and payments. Applying blockchain here enables secure sharing and access to these transactions, and provides efficient freight audits, payments, and reconciliation.
According to Gartner’s report published in September 2018 report, Market Guide for freight Audit and Payment providers “Improved freight spend visibility and freight audit accuracy is the need of the hour to improve transportation performance and lower freight costs in the face of increasing transportation challenges.”
In transportation, freight services are carriers, and customers are shippers. Here, the oil and gas companies are shippers.
In the freight bill audit and payment process, carriers submit freight invoices to the shipper. The shipment invoice contains the price of a freight move, as well as ancillary charges like fuel surcharges and detention, generally identified as accessorials. The calculation of these additional charges depends on the circumstances that may arise during the freight shipment, such as miles covered, or the idle time the driver bears. Once the shipper has received invoices, it conducts audits to match the ordered and performed services with the received invoice.
Since oil and gas companies don’t consider freight audit and payment as their core competency, they hire third-party service providers. A third party conducts additional audits and provides invoice reconciliation for freight orders and payments. Often, the third-party auditor receives invoices that are complex and do not follow standard processes. It gives rise to exceptions, and lead to the time-consuming and laborious reconciliation process.
Blockchain technology presents several solutions to alleviate these challenges.
A blockchain solution can enable freight process stakeholders to add each transaction to a growing, permissioned, and shared digital information chain. The chain acts as a single source of truth between the transportation providers and shippers. It adds contracted rates as the first block of the information, and record different events and transactions. Eventually, it stores them on the shared database, such as the freight order, and payment submission. Further, a smart contract solution automates the calculation of an invoice by matching the origin-destination information of the freight order with the agreed-upon rate agreement. Blockchain also provides provision to append track-and-trace capabilities with the solution for real-time shipment visibility and accurate details of miles driven. It also calculates accessorials automatically using the smart contract and inputs from events like miles driven, and idle driver time. Essentially, blockchain automates the distribution of invoices and remittances on the same chain that began with the contracted rate.
At Oodles, our blockchain developers estimate that oil and gas companies can drive significant cost savings in freight audit and payment spend with blockchain application development. They can increase accuracy in invoicing, reduce overpayments, and eliminate dependence on third-party services. It is the right time for industries to explore blockchain-enabled solutions for speed, real-time visibility, and end-to-end accuracy.