The high cost of cargo fraud

The million-dollar load of pharmaceuticals stolen overnight from a parking lot, or a trailer full of frozen meat hijacked at gunpoint make great headlines and news stories. But the truth is the biggest losses from freight security come from far more mundane and increasingly common problems. As fleets have adopted better hardware and surveillance techniques to protect cargo under their care, the bad

The million-dollar load of pharmaceuticals stolen overnight from a parking lot, or a trailer full of frozen meat hijacked at gunpoint make great headlines and news stories. But the truth is the biggest losses from freight security come from far more mundane — and increasingly common — problems.

As fleets have adopted better hardware and surveillance techniques to protect cargo under their care, the bad guys have also moved on to new strategies, shifting to fraud and identity theft as low-risk, high-profit enterprises. Even more costly to a fleet than the actual value of any lost cargo, these newly popular trucking crimes undermine trust between carriers, brokers and shippers, making everyone wary of potential new business partners and sources of revenue. And that wariness will only get more costly if it keeps you from loads just as tight capacity brings new profitability to the spot markets.

The bad economy is the logical suspect, but for whatever reason “industry reports have shown a significant increase in cargo theft over the last three or four years,” says Scott Cornell, the national manager of a special investigation group focused on supply chain security at insurance company Travelers. “You still have the common load stolen at a truck stop, but we're seeing a shift in the way cargo thefts are being committed. It's becoming more organized and more creative.”

The most publicized of these “creative” crimes have involved setting up dummy trucking companies that at least on paper appear to be legitimate carriers with the proper registration and insurance documents. Trolling load boards, they wait for a high-value cargo, take the load and disappear. Early this year, 25,000 lbs. of king crab valued at $400,000 was stolen from a shipper in Los Angeles using a fraudulent fleet apparently created just for such a score. And this spring, a similar setup in Florida was able to pick up six trailer loads of tomatoes before the broker realized none of them were being delivered.

“As technology advances, security lags behind a bit, so there's usually a gap [that can be exploited] before security catches up,” says Sam Rizzitelli, national director for transportation at Travelers Inland Marine division (inland marine is an old insurance industry term that refers to all non-ocean cargo transportation services). This type of fraud is proving attractive because it's “easier pickings,” he says, since the thieves “can hide behind the veil of the Internet to target specific loads instead of just looking in a truck stop” for a vulnerable target. “We've even seen [fraudulent carriers] claim loads have been stolen from them and make an insurance claim on the load,” adds Cornell.

While the bogus trucking company is a relatively new twist requiring significant planning and organization, “fictitious pickups have been around for a while,” according to Cornell. A form of identity theft, this simpler technique involves “getting ahold of the paperwork for a pickup and arriving at the shipper early, posing as the legitimate carrier,” he explains. Perhaps made easier by the proliferation of electronically transmitted documents, this older type of cargo fraud is also on the rise again, he says.

Holding loads hostage for additional unauthorized fees, too, is another common form of cargo fraud. “It comes and goes in cycles,” says Cornell.

And not to be overlooked, there's the issue of fraudulent brokerage, whether it's carriers without the proper authority “double-brokering” loads to other carriers or out-and-out scam artists posing as legitimate brokers and disappearing without paying carriers for loads delivered.


Calling it “a system that allows ruthless brokers and scam artists to continue to operate unchecked,” Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Assn. (OOIDA), has been a vocal critic of what he sees as a largely under-regulated brokerage environment. “In many instances, brokers provide a valuable service to truckers and the transportation industry,” he says. “However, the current system is loose enough that it provides ample, fertile grounds for fraud.”

At this point, you're probably asking, “What does this have to do with me? I run an honest business that delivers the services we promise.”

At all levels, trucking is a relationship-driven business, but that's especially important when it comes to carrying someone else's freight. “It all boils down to relationships, which take time and patience to develop properly,” says Rizzitelli. Whether they're dealing with a carrier directly or with an intermediary like a broker or load board, “shippers need to be reassured the [carrier's] legitimate,” he says.

Electronic data makes it easier for a fleet to uncover new opportunities, especially in the increasingly lucrative spot markets. But an escalation in cargo fraud of all types makes shippers especially wary of any new party offering their services. There's a good chance you could be frozen out of this valuable revenue stream simply because you're new to the intermediary or shipper; or second and third thoughts about accepting a load from a new source will keep you from maximizing your fleet's productivity. Either way, cargo fraud is just as much a threat to the business success of legitimate fleets as it is to the people who own the freight.

So how do you calm those fears and avoid the roadblocks created by the growth of cargo fraud? A look at the problem from the perspective of brokers and operators of load boards offers some solid guidance.

TransCore Freight Solutions operates DAT 3sixty, arguably the largest, most active load board in North America. “It's our responsibility to provide a safe marketplace, to assure people are who they say they are,” explains David Schrader, TransCore senior vice president. “If [a fraudulent party] were to get on our board, the fox would be in the henhouse.”

Whether it's a carrier or broker attempting to sign up for the board, “we first want to confirm that it really is a brick-and-mortar establishment,” says Michele Greene, group product manager and author of a white paper for shippers titled “Don't Be a Victim.” Phone numbers and other basic business information including proof of insurance and authority are verified and that information is crosschecked against a TransCore registry of 400,000 carriers and brokers, both those in and out of business.

“It's not uncommon for someone [rejected] to make a run at registering five or six times, but we'll turn up a common phone number or last name in the registry,” says Schrader. “We have to be persistent in monitoring our network.”

Since insurance coverage is too complex and time-consuming for a shipper or broker to routinely check, TransCore offers a service called CarrierWatch that checks documents it obtains, not from the carrier or someone at the end of a phone, but from a legitimate insurance agent, Greene explains. “In this day and age, people can doctor documents pretty easily,” Schrader adds.


On the other end of the transaction, TransCore provides carriers with credit information on all the brokers in its system and provides insurance coverage if freight charges are not paid as a no-charge feature of its load matching service.

“Our job is to arm each side with as much data as possible about the other, and then they can make their decisions,” says Schrader.

It helps, then, to know what brokers and shippers look for when approached by a new carrier.

“A lot of brokers will not use a carrier that has been in business less than six months or even a year,” says Greene. “Then they'll check our service and look at the fleet's history on the [Federal Motor Carrier Safety Administration] site looking for lapsed insurance or authority, or frequent out-of-service violations — anything that indicates carelessness financially or in safety behaviors. From a carrier perspective, they really do have to keep their noses clean.”

If a carrier wants to move into higher-value cargos, and therefore higher paying ones, shippers will be even more stringent in their evaluation. “They'll want to see that you have experience [with high-value cargo] and the right amount of insurance,” says Greene. “They'll probably want tracking capability, too. If you want to move into that space, your best bet would be doing so with an established company like a broker with a strong reputation.”

Jeff Tucker provides a good perspective on what brokers — and by extension shippers — look for when they evaluate carriers and the security of the loads they tender them. Not only is he CEO of Tucker Co. Worldwide, a privately held 50-year-old freight brokerage, but he also served on the carrier selection committee of Transportation Intermediaries Assn., which authored a detailed “Carrier Selection Framework” document for the group's members.

Given the incidence of cargo fraud, “we're particularly careful who we deal with, and normally we are not giving valuable freight to a new carrier no matter who it is,” Tucker says. The way in, to Tucker, usually starts with carriers proving themselves with less valuable freight.

In all cases, “we do a fair job of looking at any new carrier,” he says. “We check certificates of authority and insurance; make sure the names match and the policy timeframes are right. Our risk department looks at the CSA (Comprehensive, Safety, Accountability) database to crosscheck that data and do a deeper dive into the carrier's safety profile.

“We put those two pieces together because carrier compliance data at FMCSA should relate to their capacity to understand and digest freight requirements,” Tucker says. “If a carrier is operating well within regulations fundamental to business and is safe relative to its peers, then it stands to reason that that carrier is better prepared to handle the needs of our customers and represent us well in its role in the transaction.”


Taking that approach one step further, Tucker created, a consulting service for shippers that mines DOT data. “It lets a shipper set thresholds for their carriers so they're automatically notified if there's a change in their safety ratings or authorities,” Tucker says.

No system is failsafe and documents can be forged, of course, so Tucker also relies on its shipper customers to help avoid cargo fraud and its associated problems. “Our contracts prohibit [carriers] from using other companies to pick up or deliver,” he says. “We want to be sure that the truck that turns up is the one that reached out to us.” Communicating often and well with both the customer, the carrier and even the assigned driver helps avoid conditions that might lead to loss or fraud, he believes.

As the third generation running the brokerage, Tucker recalls that at one time a handshake was enough, even if the freight volume was high. “Today, everything is in a contract drawn up by very smart people and spelling out in great detail standards of care for the freight. The biggest security mistake made by shippers and brokers is sending out a contract and having it come back signed in seconds with no discussion or red-lining. As a carrier, you better know what you're signing and ask questions. Maybe [the offer] is from a company you've wanted to do business with for a while, but even still you should make the effort to establish a dialog and ask questions. Thefts occur when there are careful procedures established but then not followed in practice.”

While his company wants new carriers “to earn their way into the valuable loads,” if a carrier “repeatedly does a good job for us, we're going to go with that carrier even if it's at a higher price,” Tucker says. “Building relationships with carriers is important to our business.”

For most fleets, the threat of cargo fraud is potentially more damaging than the rare case of actual cargo theft. Keeping thieves away from freight is relatively easy — a harder lock or a higher fence is often all that's needed. But convincing new customers that you're who you say you are and will do what you say you will is a much tougher challenge, one that will require attention to every aspect of your operation to meet.

Looking inside out

As part of its cargo liability insurance business, Travelers has established a dedicated nine-member cargo-theft investigative unit that not only works with law enforcement on recovering stolen goods, but also offers consulting services for fleets that want to avoid becoming victims of cargo theft or fraud.

“The first thing we do is try to understand the fleet's business,” says Scott Cornell, national manager of Travelers Specialty Investigations Group. “Then we develop a security plan that works in your business, that doesn't interfere with your daily operations.”

The plan usually starts with fleet policies and procedures, then moves on to specific anti-theft devices like locking and tracking systems that the team has found to be effective and non-obtrusive.

The Evans Network of Companies is made up of seven fleets using some 1,400 independent carriers and 110 independently owned service centers to move intermodal freight. With ports the single largest target for cargo thieves, Evans suffered 11 significant thefts in 2008, so it turned to the Travelers team for some help.

“They really upped our game,” says Kim Lorimer, vice president of safety. “We cut thefts in half the first year, and then another 35% in 2010.”

One of the first things Evans and the Travelers team did was visit and evaluate every yard and lot where it kept equipment. “We did a security assessment of every lot, looking at their use of guards, fencing, camera surveillance and so on, and Travelers made specific suggestions on how to improve security,” says Lorimer.

Next, Evans instituted a no-stop rule, requiring contractors to be ready to go when they pick up a container and to drive at least 250 mi. before making their first stop. Travelers investigators have found that deters criminals who follow a truck from its pickup and swoop in when it stops at a rest area or shopping mall, Lorimer says.

The third major step was adopting kingpin, air-cuff and container locks that had proven their effectiveness in other fleets. “In some areas with real theft problems, we gave them to contractors,” Lorimer says. In others, the contractors purchased them or received them as safety award incentives.

Finally, Evans began educating contractors and agents alike on identity theft and the need to protect documents and confidential information. Since all of its locations are run by franchised “agent partners” employing owner-operators, the key to avoiding thefts was, and remains, communicating with those independent parties. “We have two safety representatives, and a big part of the training they do involves theft prevention,” Lorimer says. “We also communicate with our partners on a weekly basis with letters, sending along any periodic warnings and advisories from Travelers or from industry groups like CargoWatch.”

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