Protecting Your Business Against Supply Chain Fraud

Melton Logistics – 04/04/2024

Scammers in the transportation industry can be very convincing. In many ways, they too are logistics experts. They are extremely familiar with the industry, having thoroughly evaluated it for gaps in visibility and lapses in communication to capitalize upon any naturally occurring weak links. Companies that fall victim to supply chain fraud often suffer significant financial losses and, in some cases, irreparable damage to their reputation. Every logistics professional must understand the warning signs of potential scams and how best to avoid them. 

The Four Most Common Logistics Scams

 A logistics scam is any fraudulent activity utilizing fake or stolen information to intentionally deceive victims into delivering money or goods. These scams can take many forms, from posing as a fake shipping company to sending false or inflated invoices. 

False Invoices or Payment Requests – Fake invoicing is easily the most common logistics scam, as it takes minimal effort and has a high success rate if businesses aren’t careful. For schemes of this nature to work, scammers need access to legitimate billing information from one of your real customers. This is typically garnered from hacking or phishing an employee’s login credentials. Using this information, the send requests to change banking details or even send an invoice posing as the company, referencing real shipment numbers and info. Victims that fall prey to this scam may not have the resources to fully review every invoice thoroughly, and therefore may unknowingly send money to the scammer’s bank account believing they are paying their supplier. The scammer gets away with the money and access to sensitive company banking information.

Fake Carrier Services – This scam takes a bit more effort and is more difficult to execute, but it’s the second most common type of scam encountered in logistics. In this scenario, scammers pose as a fake transportation company (or in some cases, duplicate information from a legitimate company). Once the fake persona is created, they offer lower-than-average rates to attract potential victims looking to reduce costs. From here, scammers often create issues with the shipment that allow them to request additional payments. Companies are then forced to pay the ransom or risk losing their products/goods. 

Cargo Theft/Non-Delivery of Goods – In this scenario, scammers will take one of two routes. First, they create a sense of urgency and convince the shipper to issue payment early before the goods are picked up or shipped. Then, they take the money and disappear. Alternatively, scammers will simply pick up and steal the shipment. This second option is typically reserved for high value cargo.

Double-Brokering – Double-brokering occurs when a scammer claims that they have a source available to move freight. Once a 3PL contracts with the scammer, the scammer rebrokers the freight with a legitimate carrier. After the load is picked up and delivered, the scammers will request proof-of-delivery and submit it to the 3PL for payment. The scammer is paid for the job, while the legitimate carrier who managed the freight successfully is left unpaid. Double brokering occurrences are growing in frequency throughout the logistics industry reportedly impacting between $500-700 million in freight every year. This forces logistics companies to rely more heavily on established contacts, while also enacting methods to avoid these occurrences. 

How to Spot a Scammer

One of the most important tools a logistics professional can possess is intuition. If something sounds too good to be true or otherwise feels amiss, a delay in communication, billing mix-up or conflicting information, it is critical to confirm details with the contacts before proceeding. 

Even as scammers grow more sophisticated in their methods, tools like Carrier 411, utilized with every carrier/shipment or something as simple as confirming the carrier’s phone number or address, can expose attempted fraud. When vetting potential carrier partners, seek out those with trusted company referrals, reviews, and ratings. Request the truck and trailer number of the truck picking up and pictures of the freight when loading and unloading to confirm those hired to manage your business are the ones performing the tasks. Always be wary of unsolicited emails and phone calls from companies with whom you are not familiar. 

Fraud Prevention Tips: 9 Ways to Secure Your Supply Chain

1.) Confirm Your Company’s Name is on the Bill of Lading – According to federal law, the name of the carrier managing the load must be listed on the Bill of Lading. Be sure you don’t haul any load without confirming your name is on the bill first. If you see someone else’s name on the BOL, call the company – even if you do not suspect fraud, it could be a simple misunderstanding that needs a quick correction.

2.) Concerning Shippers and Carriers – Avoid offers that are well above or below the current market. If it seems too good to be true, it likely is.

3.) Conduct an FMCSA Search for Broker or Carrier Info – Before you make any deal with a 3PL outside your regular network of trusted contacts, check their credentials on the Federal Motor Carrier Safety Administration’s website.

4.) Take Advantage of Nonrecourse Factoring – Nonrecourse factoring protects you if the broker billed fails to pay the submitted invoice; it means you are guaranteed to get paid.

5.) Avoid Businesses With a History of Scattered Address Changes

6.) Avoid Businesses That Don’t Offer Tracking – If the business isn’t utilizing tracking apps or transportation management systems, it’s probably because they want to keep their actions a secret.

7.) Match Names, Numbers, and Emails with Online Sources – Utilize the FMCSA, the carrier’s website, references, or anything you can to verify with whom you are trusting your freight/business. Email addresses from common domain services (Gmail, Yahoo, etc.) are easy to create and nearly impossible to trace. You can feel more confident responding to emails from an email address containing a company’s domain name. 

8.) Be Wary of Businesses That Don’t Request Tracking – Automated tracking is the expectation, not the exception. If a 3PL isn’t asking you to be on some sort of tracking, there is a chance that they don’t want that information shared. Melton Logistics utilizes Macropoint to track all of our shipments, allowing our customers full visibility to their shipments and their associated progress through delivery.

9.) Read the Broker/Carrier Agreement – Additionally, take particular notice of the payment options and schedule; if neither of these are provided, consider it a red flag. Standard payment terms are 30 days. 

Fraud Fallout: How Scams Impact and Damage Your Business

The consequences of falling victim to logistics scams can be impactful. If goods are stolen or payments are made to a fraudulent party, the affected business is likely to suffer a significant financial setback that may even jeopardize its future. Additionally, they may face legal action if they are found negligent in their handling of the logistics process, resulting in additional financial penalties, legal fees and irreversible damage to the company’s reputation. 

Preventing Supply Chain Fraud and Cargo Theft at Melton Logistics

Not everyone can manage freight for Melton Logistics. All of our carrier compliance is managed by a third-party source with a list of criteria utilized to validate our carriers, including the carrier’s duration in business, no lapses in insurance, and utilization of a B+ or better-rated insurance company to name only a few. We take these extensive measures to ensure that your freight is handled by the safest and most trustworthy carriers in the industry. Learn more about working with Melton Logistics as a shipper or as a carrier here.

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