There are significant cost increases resulting from invoicing errors, increasing the operating costs for ocean shippers worldwide. Most significantly, this has caused a severe drop in operating efficiency, as the costs and the time required to resolve shipment disputes result in underutilized resources. In 2013, in the United States alone, there were roughly 1.5 million units of surplus capacity which resulted from a lack of proper control over shipments and the related administrative operations. The resulting inefficiencies and associated costs meant a drop of 9,500 jobs related to ocean freight shipping between 2006 and 2009, and by 2013, there were roughly 21,333 ocean freight shipping jobs remaining. The biggest companies importing and exporting things through the US include Wal-Mart, America Chung-Nam, Target, and Koch Industries. These organizations tend to have their own shipping fleets, and disputes are handled internally. For the commercial shippers such as Maersk, Evergreen Line, and Hapag-Lloyd, such errors represent a serious problem for customer relations.There is a severe problem of invoicing errors in the ocean freight industry. Data collected from auditor reports show that the reported price or value of a good being shipped does not remain consistent between the time it is given to ocean freighters, and the time it reaches its final destination. There is a median error rate of 20%, and a median error value of approximately 14.2%. That means roughly 20% of shipments contain administrative errors worth a tremendous, roughly 14.2% value each, on average. These errors are stated to come primarily from 8 specific sources. The most frequent problems arise from disparities between bills of lading and contract terms, the inconsistent rating of invoices, uncertainty in adjusting for variance in charges, and a high degree of price volatility within the shipping industry. By themselves, these things would not cause such widespread errors. Within the industry, there is a total lack of a sufficient fail-safe to catch and resolve the matters. There is a total lack of standardization, and the amount of time required to properly perform inspections is high, resulting in insufficient resources dedicated to risk management and auditing.According to government analysis, ocean freight shipping into or out of the United States was valued at roughly $12 billion in 2013. This accounts for 24% of all US international trade by value, and containerized ocean freight accounts for 40.3% of all US trade by weight. US GDP in 2013 was $16.77 trillion.

bhanu29 I think answer for the third part of second question: A customer can expect to have an error of 2.84% on his/her invoice, is true. Because median value would be 14.2*20/100 = 2.84, one person can expect right, it doesn't has to be 2.84 but it can be right?

There are significant cost increases resulting from invoicing errors, : Multi-Source Reasoning (MSR)

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Hi bhanu29, thanks for the detailed answer. For the first part here, in auditors section this is mentioned "..That means roughly 20% of shipments contain administrative errors worth a tremendous, roughly 14.2% value each, on average." Here it's about 20% of shipments, i.e. in terms of quantity, but they might not be equal to 20% in value of total shipping. How come we can take both the same!, secondly, how can you assume all are overcharges? There is very less information given to know that, and anyway IMO taking 20% quantity equal to 20% value is a big leap.

bhanu29

Explanation
Value of shipping = $12 billion, as per the Economist.
For approximation/indicative purpose, it will be alright to assume the median as mean.
Average error rate = 20%
Average error value = 14.2%
Price distortion = 20% * 14.2% = 2.84%
Price distortion value = 2.84% of $12 billion = $340.8 million

[color=#339966][b]Hence, B is the correct answer choice.[/b][/color]

Explanation
I.
25% of value but 40% of weight means a weight-to-value that is disproportionate compared to all trade.
[color=#339966]This statement is true.[/color]

II.
0.2% of US economy in 2013 shall be 16.77 * 0.002 = $33 billion, which is greater than the total value of freight, leave alone the error.
[color=#339966]This statement is false.[/color]

III.
Only 20% of shipments had errors, which means a customer can expect his/her invoice to be correct.
[color=#339966]This statement is false.[/color]

[color=#339966][b]Hence, True-False-False is the correct answer choice.[/b][/color]

Explanation
I.
There is no information about the weight of total US trade other than that ocean freight is roughly 40% of it.
[color=#339966]Hence, the answer is No.[/color]

II.
The data for job loss is given for the duration of 2006-09. The data of remaining jobs is given for 2013. We don't know the jobs lost during 2009 to 2013. Besides, to find the rate (generally, a percentage), we need to know the number of jobs in 2006.
[color=#339966]Hence, the answer is No.[/color]

III.
As $12 billion represents 24% of the total US international trade, value of the total US international trade ($12 bn/0.24) can be calculated.
[color=#339966]Hence, the answer is Yes.[/color]

[color=#339966][b]Hence, No-No-Yes is the correct answer choice.[/b][/color]

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2nd Q1st statement.With that data imbalance , can u claim it as 'primarily' and 3rd statement , since median error is 14.2 %, a package can have 2.84% error . so answer should be yes right?

bhanu29

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Hi bharathhr,

Good, sharp questions on both statements. Let me take them one at a time, since they're really two different issues.

Statement 1 - does the imbalance justify "primarily"?

Look only at the Economist tab. Two facts sit side by side:

- Ocean freight is 24% of US trade by value.
- Containerized ocean freight is 40.3% of US trade by weight.

So these goods take up a much bigger slice of weight than of value - roughly 40% of the weight but only around a quarter of the dollars. That can only happen if, pound for pound, the stuff is cheap - i.e., heavy or bulky goods that aren't worth much per ton. That's exactly what "low-value goods of high weight or volume" means.

The gap is large and one-directional (weight share well above value share), so the data does support the word primarily here. - True.

Statement 3 - can a customer "expect" a 2.84% error?

Here's the key catch: 2.84% comes from multiplying two medians (20% error rate x 14.2% error value, from the Auditor tab). A median is just the middle value of a distribution - it is not an average, and you cannot multiply two medians together to get an expected value. So 2.84% isn't a meaningful "expected" figure at all.

And notice the word "expect." You're reading it as "could possibly have" - but "expect" means what a typical customer should predict. Since only 20% of shipments have any error, most customers should expect a correct invoice (0% error); a customer who does get an error would see roughly 14.2%, not 2.84%. No single customer's realistic expectation is 2.84%. - False.

Quick way to feel the median trap: if five invoices have errors of 1%, 1%, 14%, 30%, 30%, the median is 14% but you'd never say each invoice "is" 14%. Medians describe the middle, not what any one customer should bank on.

So the official True, False, False holds.

Answer: True, False, False

bharathhr

2nd Q1st statement.With that data imbalance , can u claim it as 'primarily' and 3rd statement , since median error is 14.2 %, a package can have 2.84% error . so answer should be yes right?

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True	False
		Containerized cargo shipping is used primarily to ship low-value goods of high weight or volume.
		Assuming all errors are overcharges, the total impact of errors on the US economy was roughly 0.2%.
		A customer can expect to have an error of 2.84% on his/her invoice.

Yes	No
		The weight of total US international trade
		The rate of job loss in the US ocean freight shipping industry during 2006-13
		The dollar value of total US international trade

[color=#000000]True[/color]	[color=#000000]False[/color]
		[color=#000000]Containerized cargo shipping is used primarily to ship low-value goods of high weight or volume.[/color]
		[color=#000000]Assuming all errors are overcharges, the total impact of errors on the US economy was roughly 0.2%.[/color]
		[color=#000000]A customer can expect to have an error of 2.84% on his/her invoice.[/color]

[color=#000000]Yes[/color]	[color=#000000]No[/color]
		[color=#000000]The weight of total US international trade[/color]
		[color=#000000]The rate of job loss in the US ocean freight shipping industry during 2006-13[/color]
		[color=#000000]The dollar value of total US international trade[/color]

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There are significant cost increases resulting from invoicing errors,

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