Strategies for Preventing Transport Fraud

Big fish means a bigger payout, right? Fraudsters think so. These individuals have figured out that large trucking companies have better insurance coverage than the average person. The most common limits for general liability coverage of a truck are $1,000,000 per occurrence with a $2,000,000 aggregate Meanwhile their Commercial Auto policies cover 1 million CSL (combined single limit) and they usually guard themselves with property and crime coverage.

Cargo Theft

Ficitious Pickups:

U.S. ICE describes fictitious pickups as, “A cargo theft method where goods are stolen by a person who is impersonating the authorized driver for the cargo pickup.”

Carrier fraud dominated claims of this type last year (2022). There are instances of fake carriers intercepting haulage instructions from forwarders or shippers and posing as the authentic carrier; also falsifying cargo pick-up or delivery documentation to steal the loads.

California is the #1 State for Cargo Theft. Up 101% increase in cargo theft (2020 to 2021)

 

To prevent such incidents, brokers and shippers should check any bids with the trucking company’s contact info and make sure the trucking company’s name and driver match the original agreement.

Carrier Fraud

Double brokering, unlike co-brokering, is a big problem in the trucking industry. Co-brokering is legal and involves one broker sub-contracting a load to another licensed broker with everyone’s knowledge and approval. Double brokering, however, is when a carrier subcontracts a load to another carrier without the shipper’s knowledge. This can lead to issues like delayed deliveries, damaged goods, and the original carrier not getting paid.

TriumphPay, a division of Dallas-based TBK Bank SSB, estimates at least $500 million to $700 million of shippers’ and brokers’ freight payments are going to double brokers annually. WSJ 2023

Fraudsters often pretend to be legitimate brokers by getting a fake Motor Carrier (MC) number and then disappearing after getting paid. This not only causes financial losses but also damages trust in the industry. Even though it’s hard to measure the exact scale of double brokering, it’s estimated to cost the industry hundreds of millions of dollars.

Lets review this recently published case by the Wall Street Journal about the financial burden of double brokering.

Dale Prax, president and CEO of Lawrenceburg, Tenn.-based freight brokerage Direct Expedite LLC, shared a recent loss of $5,000 due to double brokering. He explained that Direct Expedite paid for and handed off the load to a company, which then relisted the freight. It was only months later that Direct Expedite received an invoice from the actual carrier that delivered the load, leading Mr. Prax to realize the situation.

Currently, Mr. Prax is working to recover the money from the fraudulent carrier. He noted that his typical margin on a load is around $200, meaning he would need to handle 25 additional loads to make up for the $5,000 loss. Costing another innocent business owner their livelihood.

Preventive Measures

To help protect against cargo theft here are some recommendations:

• Arrange for same-day delivery of short-haul shipments.
• Embed covert tracking devices in the shipment.
• Use high-security locks on trailers.
• Drivers should adhere to the “red zone” rule and avoid stopping within 250 miles of pickup.
• Drivers should be aware of any vehicles that appear to be following them.
• Thoroughly vet all carriers and brokerage services.
• Compliance monitoring is crucial to detect non-compliance indicators of a theft in progress.
• Identify a path to effective law enforcement engagement.
• Confirm identification through multiple forms of ID of drivers who pick up loads, including driver picture and CDL picture, tractor number, VIN, and license plate. Individuals wearing face masks should be asked to remove the mask for positive identification.
• Brokers, Carriers and Shippers should check the FCMSA licensing status of any company they work with

3 Investigation Methods for Cargo Theft Prevention

1. Data analysis: these tools identify patterns and anomalies in claims data, which can indicate potential fraud. They can also be used to identify unusual or suspicious behavior by claimants, such as frequent claims or claims involving high values.
2. Background checks: these can be performed on claimants, as well as on their associates and business partners. This can help to identify any previous involvement in fraudulent activity or criminal activity, as well as any connections to organized crime.
3. Physical investigations: these may involve visiting the site of an incident or interviewing witnesses. These investigations can help to gather evidence and assess the validity of a claim.

Freight Fraud

Reducing freight fraud is crucial for several reasons. First and foremost, minimizes financial losses for both insurers and insured parties. Fraudulent activities, such as double brokering, can lead to increased claim payouts and higher insurance premiums, ultimately impacting the bottom line of insurance companies and businesses alike.

By reducing fraudulent activities, legitimate businesses have a level playing field to operate and compete in. This fosters trust and integrity within the industry, which is essential for its overall stability and growth.

Contact us today if you are reevaluating your risk management strategies for commercial transport fraud. Want to learn more about transport fraud? Sign up to one of our monthly webinars and stay tuned for more blogs on these topics!