TT Talk - Theft trends – carrying out effective due diligence
Cargo fraud and theft impacts everyone in the international supply chain. A buyer of cargo needs the same assurances as the provider of logistics services, who relies on others for contract fulfilment. These risks consistently are amongst the top five incidents seen by the TT Club that collectively account for about 2/3 of claims through the supply chain.
Criminal organisations continue to advance technologically, refining their means of deception. From cargo scams to falsified insurance certificates to mimicking genuine haulage companies on freight exchange websites, the returns clearly continue to provide sufficient motivation.
Freight clearing sites – be wary
Popular internet freight exchange websites unfortunately provide an efficient smoke screen to search out high value cargoes and a clear, simple introduction path for criminals. Many forwarders or logistics operators only use such sites as a last resort, but that is also when the cargo and forwarder are at the greatest risk; time is of the essence and hurried decisions are made in order to meet delivery schedules and avoid contractual penalties. The reputational risk as a result of a cargo theft is real and should not be overlooked.
“The reputational risk as a result of a cargo theft is real and should not be overlooked”
Credit should be given to the criminal organisations; they are nothing if not well prepared. Where the contractor does request certain basic information, such as a user identification number for the freight exchange site, insurance certificates, contact names and numbers and even driver identification cards, all and more can be provided without the hesitation that might otherwise raise concerns. Unfortunately all will be falsified. With insufficient time to verify the information provided, scant due diligence checks are performed. On many occasions, the email addresses used for correspondence are subtly changed from those of a genuine company. Beware of any free mail accounts, which are easily created and closed with very little traceability.
Loss investigations generally discover that once the cargo is collected immediate efforts are made to conceal all details; email accounts are closed, phone numbers abandoned. Documents prove to have been falsified and often addresses which may appear at the foot of emails are found to be for legitimate haulage companies, who have simply had their identity stolen to facilitate the theft. In most cases, the cargo is efficiently distributed through the criminal markets and never recovered.
Even where there is some legitimacy in the subcontracted haulage arrangements, recovery following thefts can be met with insurmountable challenges. It may be difficult to litigate against the liable party, either in their own jurisdiction or joining them to proceedings elsewhere. Even if a judgment is obtained, recognition and enforcement may prove impossible – either legally or due to lack of assets. Often such organisations are virtually insolvent and prefer to cease trading in their current guise and restart under the cover of another entity, thus effectively avoiding any sizeable claim.
“Even where there is some legitimacy in the subcontracted haulage arrangements, recovery following thefts can be met with insurmountable challenges”
There are additional risks, often overlooked, in not engaging a robust selection process. When trading under the CMR Convention for instance, a theft claim may ordinarily be subject to a statutory limitation of 8.33SDR/kilo. However, the claimant may pursue wilful misconduct as an argument, where they feel that the subcontractor was appointed negligently, for example. Whilst pleading wilful misconduct may prove very difficult in some jurisdictions, in others, such as Germany, it may be much easier, potentially stripping carriers of limitations and other defences.
The increased use of internet cargo clearing sites is affording such organisations an unprecedented opportunity to engage in the theft of identity and high value cargoes. So what can be done by the prudent contractor to mitigate such risks through the supply chain?
“The increased use of internet cargo clearing sites is affording an unprecedented opportunity to engage in the theft of identity and high value cargoes”
Subcontracting is necessary; do it well
It has to be conceded that subcontracting will always be necessary in the industry. Where a forwarder makes a conscious decision to use the services of a subcontractor or an internet clearing website, the associated risks can be successfully mitigated in a number of ways. The essential tool is a robust approved subcontractor selection and employment policy. The effective incorporation of such a policy, even in times of highly time sensitive movements is fundamental.
The website providers will generally exclude liability for fraudulent activity, but do have a care of duty and will often detail recommendations and good practice advice, in order for users to minimise their risk exposure. It is recommended that such instructions are fully understood and applied wherever possible.
Communications with potential contract partners solely by either free email accounts, Skype or mobile telephone should increase suspicion, and lead to further enquiries to ensure the legitimacy of the company. When requesting documentation, especially insurance documents, be diligent to make independent checks of everything submitted electronically and request hard copies of the original certificates. Always seek to verify the legitimacy of the insurance policy with the insurer yourself directly. Where you have previous trading experience, be prepared to challenge when a normal point of contact suddenly, and without notice, changes.
Ultimately thieves will identify the weakest links in the supply chain. Be alert and implement robust policies, particularly for the urgent jobs. Fully consider the risks involved; the consequences of failing an on-time delivery will be insignificant compared with the theft of an entire cargo.
“Be alert and implement robust policies, particularly for the urgent jobs”
We hope that you have found the above interesting. If you would like further information, or have any comments, please email us, or take this opportunity to forward to any colleagues who you may feel would be interested.
We look forward to hearing from you.
Risk Management Director, TT Club