Freight fraud can cause expensive losses and increase downtime, resulting in less revenue and a halt in operations. Over the years, supply chains have recorded losses of billions of dollars due to varying types of freight fraud. To protect your business, learning the common types of freight fraud and how to avoid them is paramount. This guide outlines some common tactics scammers use and freight fraud prevention strategies you can adopt.
At FactorLoad, we advocate for small to medium-sized trucking companies and can provide client education that helps protect against fraudulent activities.
Types of Freight Fraud
Scammers continually seek out loopholes and methods to infiltrate legitimate brokerage operations. They use emerging technologies and deceptive tactics to carry out the following types of freight fraud.
Double Brokering
The common practice of double brokering is when a freight broker transfers a load to another broker without the shipper’s authorization, knowledge or consent. In some instances, freight brokers resort to double brokering to mitigate the effects of issues such as an overbooked schedule. So to ensure the load reaches its destination, they transfer it to a different broker. In other cases, fraudulent entities can pose as brokers, accept loads from shippers, and transfer them to legitimate brokers at rates lower than those agreed upon with the shipper.
Double brokering is illegal and poses several risks to the parties involved, including:
- Cargo damage or theft: Shippers may lose their cargo, leading to significant financial losses.
- Loss of reputation and credibility: Legitimate brokers engaging in the practice may face legal consequences and suffer the loss of reputation.
- Non-payment for services rendered: When fraudulent brokers are involved, carriers may not receive payment for the services they provide.
- Disruption of supply chains: Due to cargo losses and inefficient load handling, the supply chain suffers from disruptions, including delayed deliveries and failed deliveries.
Phishing Scams
Phishing scams are a common form of freight fraud, in which scammers use fraudulent emails and links to steal sensitive information, such as shipping details and rate confirmation. To convince unsuspecting parties, these scammers may use stolen credentials and create fake websites mimicking established companies. With sensitive information in their possession, these bad actors can cause significant harm, resulting in financial losses for legitimate parties.
Payment Fraud
Scammers involved in payment fraud attempt to deceive parties in freight brokerage deals for financial gain. Scammers employ several tactics to manipulate payment systems. Some common ones include:
- Use of fake proof of payment
- Sending fake invoices
- Bounced checks
- Impersonating legitimate carriers to get their payments
Fictitious Pickups and Cargo Theft
Scammers carry out this type of freight fraud by impersonating legitimate carriers using falsified documents. With these documents, they proceed to pick up and steal entire cargo shipments from unsuspecting brokers, rather than delivering them as intended. In other cases, scammers may steal small portions of cargo and falsify documents to cover up their tracks.
In more calculated freight fraud, scammers go so far as to steal loads from carriers while in transit. One way they do this is by changing legitimate delivery addresses to incorrect addresses, where they would steal the load after it has been delivered.
Broker Impersonation
To perpetuate this fraud, scammers infiltrate broker emails or steal load board credentials, after which they systematically make load posts using the stolen identity. To make their offers stand out, they offer competitive and premium rates to attract carriers to transport loads to designated destinations. After such a successful delivery, the scammer pockets the carrier’s pay before disappearing, sometimes without a trace.
How to Avoid Freight Fraud
With the rise in freight fraud, shippers, brokers, and carriers need to take steps to protect themselves from falling prey to different scam tactics. Here are some freight fraud prevention strategies you can start implementing:
Verify Freight Broker Credibility
Always verify credibility before considering shipments with these steps:
- Check their tax ID.
- Ask about or research their insurance information.
- Question low rates.
- Use load boards from a trusted factoring service.
Do Your Due Diligence
Be sure to verify every load you see posted on a load board and do thorough research before offering your services. Some ways to spot red flags and do your due diligence before working with any new broker include:
- Obtain accurate information: Call the head office number on the company’s official website, not the one provided in emails.
- Verify their business registration number: Ensure you spot an unregistered and unregulated business.
- Use a regulatory database: Search the Federal Motor Carrier Safety Administration (FMCSA) database to check for MC or USDOT numbers.
- Examine the rate sheets: Confirm that the rate sheets supply accurate, transparent information. If not, you may be dealing with a scammer.
- Look at the load information: Ensure the load information is correct. Fraudsters are interested in getting your money, so they won’t prioritize accuracy.
Leverage Technology to Improve Security
Similar to how scammers use technology to their negative advantage, you can also leverage it to improve your security. Using advanced technology and the emerging digital infrastructure, you can adopt the following strategies to protect yourself against common freight fraud schemes:
- Employ digital verification tools to confirm the legitimacy of prospective shippers and brokers.
- Implement cybersecurity measures to spot threats and protect your data from unauthorized access.
- Utilize global positioning system (GPS) tracking tools to monitor freight in real time.
- Use secure communication channels to prevent unauthorized access to sensitive information.
Steps Toward Proactive Fraud Mitigation
Set up training for your staff and yourself to help mitigate fraud and spot a potential fraudulent transaction. You can do this through a third party or yourself, as long as you do thorough research. Topics you could cover include:
- Unsolicited contact out of the blue.
- Discrepancies in communication methods, like different email addresses or phone numbers.
- High-pressure tactics to quicken transactions.
- Inconsistent and unclear paperwork.
- Too good to be true offers.
Trust FactorLoads as Your Partner in Freight Factoring
Avoid freight fraud and protect your business assets by doing due diligence and only working with trustworthy factoring services. Building relationships with reliable providers can significantly help you mitigate fraud and avoid freight industry scams.
The team at FactorLoads proudly stands in your corner, helping small to medium-sized trucking companies accept loads from legitimate companies and get paid on time. Experience unparalleled back office support for the health of your business. Contact us online today or call 1-866-218-0030 to get started.
