By Michael Brown, Executive VP, Avalon Risk Management Most people would agree that fraud has become somewhat pervasive in today’s society. While it is a problem that is likely as old as humanity itself, the increasingly technological world in which we live has, in many ways, changed the nature and scope of fraudulent schemes. While there is no doubt that old fashioned Ponzi schemes and the like are alive and well, new and very sophisticated schemes, implemented with the help of modern technology are being hatched every day. Hardly a day goes by when an email advising that I’ve won the lottery does not make an appearance in my inbox. Sadly, the world of international trade and transportation is not immune from fraudulent schemes. One area of transportation where the incidence of fraud has expanded at an alarming rate is in domestic trucking. During the period from January to September 2013, FreightWatch International, a logistics security services provider, reported a total of 613 cargo thefts in the United States. The average loss value per incident was $166,454. While many domestic and cross-border land shipments move entirely by truck, most ocean and air shipments have a truck component as well. Fraudulent actors have realized that if they can pose as a legitimate trucking company or driver, they can often easily steal an entire truck full of cargo. The average bank robber walks away from what was potentially a confrontational encounter with less than $5,000 after committing a federal offense that will trigger an FBI investigation. Counterfeit motor carriers on the other hand rarely are detected until after they are long gone with the cargo in tow. Victims will find that the law enforcement response is often less than robust. Many times, the perpetrators are never found and, when they are, they may only receive a slap on the wrist. Document scanners and photo editing software make it all too easy to modify the credentials of a legitimate carrier. Load boards and the DOT’s own online data provide a wealth of information to would-be perpetrators. Prepaid cell phones can create the image of a legitimate carrier yet prove difficult to trace once a crime has occurred. The ability to select an area code that matches the legitimate carrier’s location only reinforces the façade. While this situation may seem hopeless for cargo owners and those that arrange for transportation on their behalf, it’s anything but. With a bit of planning and some cooperation from various parties to the shipment, the risks can be reduced significantly. The first step is to know who you are working with. When shippers, brokers and forwarders hire motor carriers, they need to carefully verify their identity. This starts with a solid carrier selection framework. A good process can reduce the risk of lost cargo and also help protect you from claims from 3rd parties who may become injured by a carrier that you hire. Counterfeit carriers will often present counterfeit documents. Many of these will have been altered to show the perpetrator’s contact details rather than those of the legitimate carrier. For this reason, when calling a carrier back from a load board, do not use the number provided in their carrier packet. Instead, use the contact details that they have on file with the DOT. The same goes for their insurance certificate. It is common practice to call the carrier’s insurance broker to verify coverage but beware that perpetrators often modify the certificate as well, usually by changing the phone number. For this reason, it’s a good idea to do an internet search for the insurance broker and call the number that you find rather than the one on the certificate. Even if the carrier is legitimate, sometimes a coyote driver will appear to pick up the load. Clear communication with the motor carrier ahead of time can be crucial. Ask the carrier for the identification details of the truck and the name of the driver that will be dispatched. When the driver arrives for the pickup, verify that their identity and the truck itself match the information previously provided. While many companies won’t let visitors past the lobby of their office without verifying their identity, drivers are too often allowed to haul away millions of dollars of freight without even showing a valid driver’s license. Transportation brokers and freight forwarders should be certain that they have added coverage to their transportation insurance policies to protect them from the acts of dishonest third parties such as carriers, drivers and those impersonating them. This includes a carrier or driver who holds a load hostage, or simply steals it as well as counterfeit carriers and drivers who impersonate legitimate parties to gain access to a load. This simple step of a broker or forwarder ensuring that they have this coverage not only will protect these companies but can also protect their shippers when losses do occur. At the same time, it’s good to verify that your insurance program includes contingent automobile liability coverage. This important coverage provides brokers & forwarders protection from 3rd party claims if a carrier that is hired is involved in an accident resulting in injury or 3rd party property damage. More shippers are requiring their brokers and forwarders to carry this coverage. This is likely a result of shippers themselves having been sued when a carrier that their broker hired injured other motorists in an accident. With cargo thefts on the rise it is imperative to know where your shipments are, especially when arranging for high value and sensitive loads. Today there are many products and services that utilize GPS technology available to provide tracking and report deviations from intended routes (something called geo-fencing). Being able to quickly locate a shipment when it is stolen can make all of the difference. While these services do have a cost, they have become much more economical as new technologies have come to market. If you arrange for shipments on behalf of your shipper clients, you should also check with your insurance provider as some insurers will split your deductible with you when thefts occur to shipments that you have properly arranged tracking on and an appropriate response is mounted. This can help defray the cost of employing the technology. While it’s always best to protect shipments using high quality shippers interest insurance, even when shipments are insured it is in your interest to reduce the chance of loss in order to keep your premiums low. Carriers aren’t the only transportation providers whose identities can be compromised. 3rd party providers like brokers and forwarders can be the target of identity fraud as well. Identity fraud takes many forms and can be perpetrated by strangers, long time employees or business contacts. When your identity is compromised, it will inevitably require a great deal of time and effort to set the record straight and protect your good name. Some transportation insurers offer a coverage enhancement that will provide reimbursement for expenses necessary to restore your good name and also pay attorney fees to defend against suits arising from the fraud. Ask your insurance broker if you have this coverage and if not, if it can be purchased. The cost is often nominal compared to the protection afforded. Of course fraud in trade and transportation happens in areas other than trucking. In recent years, a number of importers have had their identities stolen as well. This often occurs as a part of a counterfeit goods importation scheme. Importers of counterfeit goods know that US Customs & Border Protection (CBP) is on the lookout for the theft of intellectual property. Someone other than the manufacturer who imports merchandise with a well-known brand may likely draw attention to themselves. This is especially true if importations of the product are typically only made by that manufacturer. As such, one way for someone importing counterfeit merchandise to attempt to avoid scrutiny is to pretend that they are the actual manufacturer. As most regular importers have continuous bonds on file with CBP, these counterfeit entries will be made against that bond. One way that importers can protect themselves is to ask their customs broker if their surety bond provider has a program to provide electronic notifications to the importer any time a new filer makes entry against the bond. While this won’t stop the first counterfeit shipment before it is entered, it will provide immediate notice to the importer so that they may attempt to have the shipment seized and also stop future importations. There is no doubt that criminals who commit fraud have become more creative over the years. Many have realized that technology can help them be more efficient just as it helps the rest of us be more efficient in what we do. As criminals make better use of the tools available to them, so must brokers, forwarders and shippers utilize the full range of resources that they have access to. While the risk can never be eliminated altogether, proper procedures, clear communication, appropriate technology and the right insurance can greatly reduce the potential for loss.