Fraud, Fraud Detection, and Fraud Prevention – These terms get thrown around in virtually all sectors where transactions are occurring and there is an opportunity to profit from another party’s lack of security, the logistics industry is no exception. For a broker or carrier, fraud in freight brokerage can be devastating for a smaller organization. Not only from a monetary standpoint but also from a company’s reputation in the marketplace. The issue is so common today that many corporations have entire departments dedicated to fraud detection. For organizations with fewer resources, there are a variety of best practices to assist in mitigating exposure.
Fraud and identity theft occurs when entities use another motor carrier’s assigned USDOT number, when not authorized to do so, or when someone acts as a broker and is not registered with FMCSA. Fraud and identity theft are criminal acts.
Fraud in the freight brokerage world can come in several forms:
Perhaps the most common method of identity theft happens when a scammer poses as a legitimate trucking company, books a load with a broker or shipper, and then ultimately takes off with the cargo. In this situation, the fraudulent carrier may also extort money from the broker via a cash advance prior to severing communication.
Another common method of identity theft happens online when a scammer sets up a fake shipping website to solicit payment information from a shipper and can steal thousands through a credit card or ACH transaction before the shipper realizes what has occurred.
The third and most challenging type of identity theft is not unique to the freight industry but is still prevalent. This happens when an individual’s identity is stolen and replicated for a fraudulent cause. The more experienced scammers can appear legitimate by copying a person’s email signature, social media profiles, websites, and phone lines. They can use a variety of methods to target the victim’s contacts and extract payment before disappearing entirely.
Double-brokering is when a motor carrier accepts a load with the intention of booking another carrier for the shipment, often posing as a broker themselves. This practice puts all other parties at risk. Shippers no longer have control of their products and are exposed to liabilities they never agreed to, the hauling carrier doesn’t get paid, and the broker has to contend with both these issues.
To pull the scheme off, a fraudster will apply for a motor carrier (MC) number, use that MC number to book a load with a reputable 3PL, and then, using the documents provided by the 3PL, pose as another reputable 3PL to pass that load onto a different carrier that will actually haul the freight. They’ll then steal the shipment or have the carrier deliver it as promised, collect payment from the brokerage, then disappear.
Holding Your Bill of Lading for Ransom
Not necessarily a fraud event, but an area of risk is carriers that will hold freight hostage. This happens when a carrier withholds delivery of the freight with the sole purpose of extorting more money from the broker or shipper. Often it will be a relatively low-cost rate when booking the carrier to secure the load, but then once the carrier gets to their home location they begin their hostage negotiations, often hiding behind false claims of additional services performed without approval.
With all forms of fraud, the earlier it is identified and disrupted, the better chance you have of salvaging the situation and mitigating loss. Partnering with and utilizing shared industry resources can be invaluable in preventing scammers from infiltrating your organization. FMCSA, TIA, Carrier411, DAT, Truckstop, and RMIS are all common resources that carriers and brokers utilize to help identify and prevent fraud.
Identity Theft can be particularly difficult to detect but can be coached and trained on how to spot a potential event.
Some red flags to look out for include:
As a carrier, If you picked up or hauled a fraudulently brokered load, identify who is paying the freight on the load and ask to be put in contact with their brokerage service. In many cases, the real broker of the load is also a victim of fraud or theft and is not involved in an illegal transaction. Holding loads hostage until you get paid is illegal.
For Brokers, the carrier, who had or has your load, may also a be victim and is not knowingly involved in the theft. By working together, you may be able to get the goods properly delivered.
Fraud prevention works hand in hand with fraud identification. You can take steps to attempt to protect yourself from being a victim by:
This problem is not going away anytime soon. A study by Verisk Analytics’ CargoNet showed that voluntarily reported “supply chain risk events” increased 15% year-over-year to 1,778 across the United States and Canada. But those events that involved the theft of cargo increased by 20%. The total loss value in 2022 was $223 million.
It is becoming increasingly crucial that every player in the freight industry has a tested and practiced plan to identify and prevent freight brokerage fraud. Continuously educating every employee that may interact with carriers and brokers is a key component of this plan. An organization is only as strong as its weakest link.
For more information please reach out to our team, today.
By Ted Anders
Director of Provider Development
There’s never a boring day in logistics.’ This sentiment is one heard often and continues to stand the test of time. Challenges lead to solutions, solutions lead to partnerships and partnerships lead to mutual growth. I think this never-ending quest to answer the supply chain challenges with innovative solutions becomes addictive and is the reason many of us dedicate our careers to this industry.