Freight fraud is a significant issue in the logistics industry, but shippers are often insulated from it, not realizing it costs them billions of dollars each year.
And the financial impact is just one part of the problem; the potential damage to customer service and risks to regulatory standing and reputation can have even more far-reaching consequences.
Recently, double brokering has garnered attention, particularly during this period of low freight rates. You likely have security measures in place, and may have strong relationships with your logistics providers, but completely avoiding the impact of fraud is nearly impossible. It’s a reality we have to deal with.
By understanding how fraud occurs, you can better measure its impact and ensure you aren’t unknowingly covering the costs in your freight rates.
The freight industry is vast, involving millions of brokers and carriers. Over-the-road freight services can seem highly commoditized, with market rates for lanes and seemingly similar service offerings across the board. It’s easy to view the industry as a straightforward capacity and demand matching problem. However, as you delve deeper, its clear that no two providers are exactly alike, and no two loads are executed in the same manner. Relying too heavily on pattern matching for predicting load outcomes or provider behavior can be misleading.
Shippers solve this by working with brokers, who are responsible for finding reliable carriers at competitive prices and coordinating with them. Building a strong, trusted relationship with a broker can provide a layer of protection against some risks, but it doesn’t shield you from the costs of fraud.
Fraud typically starts when your load is handed off to the broker’s routing guide or posted on a load board. While these tools are beneficial for securing competitive prices and capacity, they also expose your freight and budget to individuals who can bypass broker filters. Once inside, these fraudsters increase your freight costs in several ways.
Rate arbitrage is one of the least reported forms of fraud, yet it’s pervasive and can significantly inflate your freight costs. In this scheme, someone with access to cheaper carriers pockets the difference between the lower carrier rate and the higher rate quoted to you. This practice is often hidden within the broader context of legitimate freight transactions, making it difficult to detect and report.
One of the more deceptive and damaging types of freight fraud involves fly-by-night brokers who often engage in MC leasing scams. These brokers may appear legitimate but operate under borrowed or leased Motor Carrier (MC) numbers, often from unqualified or rogue operators. These scams are designed to bypass standard compliance checks, allowing these fraudulent brokers to appear legitimate while they orchestrate their schemes.
Once they secure a load, these brokers may either assign it to an unqualified carrier or, in some cases, simply disappear with the payment, leaving shippers with no recourse. The risks here are profound: not only are you at risk of losing the payment and the freight, but you may also face legal liabilities if the carrier involved is found to be operating outside of legal or safety regulations.
Perhaps the most alarming type of freight fraud is load theft orchestrated by organized crime. In these cases, criminals impersonate legitimate carriers, take possession of the freight, and then disappear, leaving shippers with substantial financial losses and no recourse.
Depending on what your freight is, this can also cause major liability issues for your company. If a load of perishable goods gets stolen, and then the product on that truck shows up spoiled in shady convenience stores and thousands of people get sick, your company could be at significant risk of FSMA fines and your leadership could be personally liable.
Fraud can be pervasive, but there are ways to mitigate the risks and avoid footing the bill:
With the power of a tool like Portex, you may be tempted to bid every load out to any broker that comes your way. However, the best use of Portex is to build and maintain a close network of trusted logistics providers. Like any relationship, its give and take. With Portex, you get score cards and reporting on broker performance that will let you see whose best earning your business. You also get reports about your allocation and bookings that allow you to make sure you’re rewarding them for their loyalty.
Leverage portex to keep track of your interactions with logistics providers, and keep a close eye on their performance as well as incidents of fraud. Arm yourself with data so you’re not going into account reviews or bid processes blind.
Make compliance and fraud reporting a part of your regular account reviews. Whether you’re dealing with a long-term partner or a spot broker, these reports can provide crucial insights into how well your freight is being protected from fraud. It also gives you leverage in negotiating, allowing you to demand high quality service, or lower rates going forward.
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Portex is a modern, web based freight procurement and management platform that is built for mid-size shippers. This article was about OTR full truckload, but Portex is setup to streamline your spot and bid processes across every mode. If you move less than 300 loads per week, and are looking for a way to save hours each week, take control of your freight pricing, or better manage your logistics provider network, check us out at portexpro.com.
