What Is Freight Fraud? 7 Ways to Prevent It

Freight fraud schemes like double-brokering and cargo theft cost the shipping industry anywhere from $500 million-$700 million annually, FreightWaves reports. During the first half of 2024 alone, there was a 49% surge in cargo thefts compared to the same period in 2023. Citing a recent Cloudflare’s survey, the publication also says there’s been a 400% rise in double-brokering complaints since 2022.

“When double brokering became a child’s game almost, now we have strategic fraud making it even more puzzling to get to the bottom of,” says Samantha Haynes, Director of Customer Success at Revenova.

Freight fraud is a blanket term referring to schemes that target money, goods, or sensitive data at any point in the shipping process. Falling victim to these crimes can lead to financial losses, shipping delays, and reputational damage, among other consequences.

Common Freight Fraud Schemes Explained

Criminals have a number of tricks they typically employ to scam shippers and carriers. They range from simple to complex and can strike at virtually any time.

• Double-Brokering: A fraudulent carrier re-brokers a load to another carrier without the shipper’s knowledge. After the freight is delivered, the first carrier takes the money and runs.
• Fictitious Pickups: Often using forged documents and/or credentials, a scammer steals a shipment under the guise of a legitimate carrier or broker.
• Identity Theft: Scam artists can use stolen identities to claim shipments or payments without the true owner’s knowledge.
• Phishing: Using false email addresses, cybercriminals can trick carriers and shippers into giving up their login credentials and other sensitive information by impersonating vendors or customers.
• Payment Fraud: In this scheme, criminals route payments to their own accounts by illegally altering invoices. Other examples include scammers requesting payments through a third-party app or service that turns out to be illegitimate.
• Shipment Diversion: Criminals can redirect legitimate shipments to them through the use of forged documents or identity theft.
• Load Pilferage: In this type of fraud, cargo is stolen directly from the trailer, or the equipment itself is stolen.

Freight Fraud Red Flags and Early Warning Signs

Shippers and carriers can protect themselves from instances of freight fraud by watching out for warning signs. These may include:

• Mismatched MC/DOT information
• Websites that appear legit at first glance but contain broken links, poor spelling, etc.
• Abrupt changes to payment terms after the initial contracts were signed
• Unusual or unexpected changes to pickup locations

How Double-Brokering Scams Work

Double-brokering is one of the most pervasive scams in logistics. In this scheme, a fraudulent freight broker accepts a load from a shipper. Instead of delivering the shipment, however, the broker finds another broker to ship the load using a legitimate carrier who handles the delivery. This is done without the shipper’s knowledge. The shipper who signed the initial contract accepts payment for the delivery without doing any of the work and disappears, leaving the legitimate carrier out in the cold.

This can have numerous ramifications for the honest carrier as well as the shipper. These include higher costs, insurance issues, and liability concerns.

7 Ways to Mitigate Freight Fraud

1. Use good vigilance in communications. All staff members should know about the risks of phishing and use caution when replying to emails. This means paying attention to senders’ addresses, avoiding suspicious links or attachments, and never providing sensitive information to an outside website.
2. Make secure credential management a priority. Strong passwords and multi-factor authentication should be required for all employees. This reduces the possibility of scammers exploiting weaknesses to gain access to internal systems.
3. Put your TMS on the case. A strong transportation management system (TMS) standardizes processes and provides robust security for data. It also provides real-time status updates to keep tabs on shipments at all times.
4. Develop a plan of action and define everyone’s roles in it. When fraud is discovered, every moment counts to prevent the worst of the damage. This means a company should have a clearly defined logistics fraud prevention plan and make sure all stakeholders know what to do. For example, is your legal team aligned with handing over product information or video of a driver to law enforcement? What role will you play versus what roles will your freight brokers and asset providers play in an event?
5. Learn to detect (and avoid) double-brokering scams. “This includes verifying their licenses and insurance, checking their reputation in the industry, and reviewing their past performance,” the company addsCarrier/broker vetting is essential to prevent double-brokering. Background checks and other verifications ensure companies know who they are working with and spot any suspicious activity.
6. Always use secure payment methods. Trusted escrow services will hold onto payments and distribute them upon delivery. Regular audits of all freight bills also help ensure the integrity and accuracy of records.
7. Get everyone on the same page. “It might be pretty straightforward to align your internal team on your standards, but if you’re one of the 75% of shippers who outsource at least some of your supply chain, you will need to have important conversations with some third parties,” RXO points out, noting that this can be especially important if you are transporting freight out of a third-party facility. “Make sure everyone who will be involved in loading the freight onsite has been briefed about your expectations for communication and verification.” All external logistics and transportation partners should be just as committed to security. Expectations regarding communication and verification need to be spelled out clearly and vendors should be held to the same standards.

How a TMS Improves Visibility and Deterrence

A transportation management system is crucial for freight fraud prevention. it provides features including real-time tracking of shipments, exception alerts, centralized record-keeping, and stringent role-based access to data. Thanks to third party integrations, these can be woven directly into existing systems with minimal fuss. For example, Revenova TMS is built on Salesforce, allowing for Salesforce’s security investments to blanket an entire brokerage, fleet, and shipper in billions of dollars of safety measures.

Freight Bill Auditing and Secure Payment Methods

Carriers and shippers that handle payments through escrow services should take the time to thoroughly vet and check the providers they use. Any outside carriers also should undergo extensive background checks to verify their legitimacy. Regular audits of freight bills on an annual or quarterly basis also helps streamline the chargeback/dispute resolution process and help make fraud detection in shipping easier.

Aligning Internal Teams and External Partners

When it comes to getting all stakeholders on the same page to prevent freight fraud, there are a number of operational processes that can ensure a smooth collaboration:

• Standard operating procedures ensure consistency in processes
• Sharing incident contacts means everyone knows who to notify in the event of fraud
• Periodic drills and simulations give stakeholders a chance to practice protocols
• Data sharing is essential to make sure everyone knows what’s going on

Legal, Insurance and Reporting Considerations

In the event of fraud, it’s critical for the victimized companies to document the incident as thoroughly as possible. All evidence must be preserved, and insurers and law enforcement should be brought into the process as soon as possible. If the fraud is determined to be caused by negligence on the part of an external partner, companies should leverage any relevant contract clauses — such as those surrounding data security, notification, or indemnity.

Frequently Asked Questions

What is logistics fraud?

Logistics fraud is any type of crime in which someone attempts to steal cargo or payments related to the shipping of cargo.

What are the signs of cargo fraud?

Signs of cargo fraud include unusual payment methods, unfamiliar carrier details, abrupt changes to the terms of a contract, and suspicious websites.

What technologies can detect freight fraud?

The use of a strong TMS for shipment visibility can help shippers and carriers share information, keep details straight, and keep an eye on shipments throughout the supply chain.

Next Steps: Strengthen Your Cargo Theft Prevention Playbook

With layered controls and higher visibility, Revenova TMS for cybersecurity in logistics reduces your risk of falling victim to fraud.

To learn more about Revenova TMS, Request a Demo. Follow Revenova on LinkedIn, YouTube, and X for the latest updates and news about Revenova TMS, the original CRM-powered Transportation Management System.