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Due Diligence Critical to Avoid Freight Fraud

Due Diligence Critical to Avoid Freight Fraud

Cargo theft is on the rise with criminals becoming more sophisticated, posing as legitimate carriers and brokers to secure loads.

“Holding freight hostage, stealing freight and diverting freight are all part of the criminal enterprise scene that we’ve seen,” said Jared Palmer, founder of JSP Risk Advisors. “The criminals are keen to how transportation works, how supply chain works and how to find the high-value loads. They look for the areas of weakness, whether that is the broker, driver, shipper or warehouse facility.”

Anne Reinke, president and CEO of the Transportation Intermediaries Association, said she has seen an increased amount fraud and deception, including fictitious pickups and fictitious identities. “It is ever escalating, and we’re not seeing any slowdown.”

Worker applies lubricant to large bearing.

CargoNet reported that cargo theft was up 59% in 2023 over 2022. “If you look at our data in the fraud section, we had about 400 last year,” said Keith Lewis, vice president of operations for CargoNet.

Lewis said it costs around $1,500 to get a motor carrier number, which is a low barrier of entry for criminals. Newer carriers have higher MC numbers. “Now the trend is they’re going out and buying old companies with low MC numbers. They’ll buy their company, email domain and phone numbers. That is how they’ll do the switch,” he said.

One tactic thieves use is theft by extortion—securing a load and holding it until the shipper pays for its release. “I had one situation where they were holding 15 loads. I was in the process of negotiating one back, but this company had gotten so many that they lost track of where they hid them,” he said.

Palmer said it isn’t uncommon for thieves to negotiate a return and take the money but never return the load and sell the contents instead.

Justice Rerouted

Adding to the challenge is the fact that law enforcement doesn’t always react. “One of the problems is the transportation companies, brokers and intermediaries don’t know how to present this case to law enforcement,” Lewis said. “They’ll say, ‘We posted a load, and a company picked it up.’ Law enforcement is hearing ‘civil matter.’ They don’t hear the theft. Stick to the theft.”

Lewis recommends reviewing how the criminals secured the load, which can uncover forgery, wire fraud or other illegal activities.

When fraudulent double brokering occurs, victims must start with the local police department. “There is no federal agency that will get involved in this—not the FMCSA [Federal Motor Carrier Safety Administration], not FBI and not Homeland Security,” Lewis said.

Reinke said the Department of Transportation’s FMCSA is cognizant of the issue but believes they don’t have the authority to lodge civil penalties. “They are planning to do more tightening around registration and verifying identities,” she said.

Preventing theft starts with shippers, carriers and brokers being proactive and implementing layers of defense.

Protecting Your Freight

Preventing theft starts with shippers, carriers and brokers being proactive and implementing layers of defense. “Investing in the people and technology to properly vet anybody transporting goods for you isn’t a nice-to-have, it is a necessity,” said Brent Hutto, chief relationship officer for load board

Like many industries, trucking and logistics transactions take place electronically, happen quickly, and are conducted between parties that may never meet face to face, said Ken Adamo, chief of analytics for load board provider DAT Freight.

“As identity theft and unauthorized load brokering have increased, the challenge for technology companies in freight is how to reduce friction for legitimate users so your compliance and investigations team can focus their resources on potential threats,” Adamo said, adding that AI and machine learning can make a difference in detecting fraudulent actions quickly and at scale.

Hutto said uses multifactor authentication and has implemented identity verification, with scanning their license and submitting a photo of themselves. “If those don’t match, you can’t use our product,” he said, adding that shippers should be cautious of handing freight over to any provider that won’t provide additional verification. “If they’re not willing to prove themselves, don’t use them. There are a lot of people you can move freight with.”

Reinke recommends companies go back to the basics and always verify who they are doing business with, especially if there has been a contact change in the last 60 days. Another best practice is to review the physical address a carrier or broker provides and use caution if multiple MC numbers are listed for a single location. “We have members of ours reporting one particular address has 260 MC numbers associated with it,” she said. “Why is that?”

Creating a trail of cookie crumbs can also be useful. “Do you have GPS tracking? Did you get any pings? Is there a camera or toll pass along the way? That can all help with a recovery,” Palmer said.

Certain days of the week tend to pose higher risk of fraud. “Cargo theft by the day of the week is highest on Fridays. You’re trying to get freight out and there is a sense of urgency,” Reinke said. “You want to be quick but on the other hand you want to do your due diligence.”