Tech in Focus: EDI alternatives

Before the Internet revolutionized e-commerce in the late 1990s, electronic data interchange (EDI) was one – if not the only – option for carriers to automate routine communications with shippers. Despite the high promises of EDI, many small to mid-size carriers saw the technology only in terms of its cost and complexity.

EDI denotes a set of unique transactions for each industry to exchange information between businesses or “trading partners.” In trucking, the transaction sets for EDI include load tenders and load acceptance, shipment status updates and freight invoices. In the early days, EDI consisted of specialized software and hardware – modems and private networks – to transmit data.

The Internet did not change these basic transactions; in fact, it made EDI accessible to all carriers. Many shippers now offer Web-based portals for carriers that lack fully automated EDI systems. In addition, trading partners are exchanging information the moment a transaction takes place, as opposed to batch processing – as is common in the banking industry. And more trading partners are communicating directly, one-on-one, to eliminate the cost of middlemen – third-party, value-added network (VAN) providers – who facilitate and manage transactions for shippers.

According to a 2005 survey of 38 leading shippers by analyst firm ARC Advisory Group, most large shippers either use or are in the process of developing Web portals that enable carriers to manually enter data online and exchange EDI transactions. Some Web portals are very basic and are used only by carriers that do not have EDI capabilities.

Other Web portals have features that expand well beyond EDI transactions. Owens Corning developed a Carrier Web Portal that carriers use to schedule appointments, check on trailer pool status (loaded or empty) and resolve any invoice disputes. Similarly, many carriers began to build their own Web portals to communicate with shippers that either lack EDI, or have it and want additional functionality such as generating rate quotes, retrieving documents and configuring reports.

More recently, sophisticated carriers and shippers are trading EDI transactions and other communications directly using various Internet protocols for data transmission, such as FTP, XML, AS1 and AS2.

Currently, FTP (file transfer protocol) is one of the most popular EDI alternatives for exchanging information electronically. Trading partners set up FTP servers and grant these servers access to each other’s IT networks through their firewalls. Each server is programmed to pull over files from its counterpart in certain time intervals. Data in the files, such as load tenders or invoices, is typically in a “flat file” format. With minimal programming, each trading partner is able to integrate information from flat files into their dispatch, billing and other management systems.

While there are several EDI alternatives, the decision for which platform to use typically belongs to the shipper. Some of the latest Web portals and e-commerce platforms truly benefit carriers, however – especially transactions that improve cash flow by cutting out unnecessary delays due to paper snafus.

“Typical EDI allows you to exchange data electronically, but does not trigger a payment,” says Jason Kirkpatrick, director of marketing for Level One Technologies. The St. Louis-based company developed a Web-based system called Epay Manager that shippers and carriers use to manage their freight invoicing and invoice payment electronically.

Using Epay Manager, a shipper generates an invoice automatically to the carrier based on their rate agreement. After the carrier reviews the invoice online, it attaches a proof-of-delivery – either by scanning or faxing it – and clicks a button to invoice. The shipper then clicks a button to deposit. The funds are transferred automatically to the carrier’s bank account.

“EDI is very expensive to set up,” Kirkpatrick says. “We provide Epay Manager at no cost (to the shipper).” Carriers pay a transaction fee per invoice, which is no more than $3. Shippers may choose to cover part of the transaction fee; they also decide on the payment terms, including accepting discounts for early payment. In any case, if payment terms are net 30, the electronic processing of the system truly equals net 30, Kirkpatrick says, whereas mailing invoices and checks adds several days to the actual execution of the payment.

However, getting shippers to sign on to Epay is a slow process. The company now has 100 shippers and carriers that use Epay Manager, but the product’s sales cycle to shippers is between one and two years, Kirkpatrick says. The reason for this long cycle is due mostly to other IT-related projects shippers are undertaking, such as implementing new transportation and carrier management software that already has carrier Web portals built into the system, he says.

EDI truly has changed its form. With more opportunities to exchange data faster and less expensively through the Internet, e-commerce is no longer an uneven playing field for small carriers.