What is Freight Fraud? A guide to protecting your supply chain

Fortunately, there are sophisticated tools that can help with addressing freight fraud, offering businesses the confidence to operate securely and efficiently. In this article, we will cover the common types of freight fraud, the main causes, and preventive measures companies can take. 

Common types of freight fraud schemes  

The freight industry is full of complex processes. Therefore, fraudsters do target it to find vulnerabilities and gain unlawful benefits. These fraudulent practices come in different forms and the most common types include: 

Double brokering   

In double brokering, a fraudulent broker impersonates a legitimate broker and presents an enticing discount for shipment to the freight-sending company. Once the offer is accepted, the fraudulent broker delegates the shipment to another broker or carrier without the sending company’s knowledge. The impersonating broker pockets the difference.

They act as a middleman and make money by reselling the delivery job. This practice causes severe issues such as delivery delays, damaged goods, and shipment losses, all of which contribute to financial losses for both the freight sending and receiving companies.  

Cargo theft  

This is the stealing of goods during transit stoppages at warehouses, drop lots, and parking lots. These thefts can occur any time in the supply chain proceedings which has its main focus on unsecured shipments.  

In 2024, the UK experienced a significant surge in cargo theft, with losses escalating to £102 million. Thieves tend to aim for items they can sell quickly like consumer electronics. Today, they are not limited to physical methods of stealing but have become more sophisticated by involving methods such as:

• Breaching cybersecurity defences
• Tampering digital tracking data to reroute the shipments

Cyber-attacks

These attacks happen when perpetrators target the digital systems businesses that are being used for supply chain management. Mostly, they compromise third-party software vendors who have the access to the organisation’s technical infrastructure.  

One common example of this can be an email-based cyberattack. Malicious actors use deceptive emails to invade an organisation’s operations. The systems they use contain high-value and sensitive information like freight movement data. Such emails include fraudulent links and corrupt attachments. If the receiver falls into the trap, these attackers can steal credentials, install malware applications, and intercept financial transactions.  

Non-payment and payment frauds   

Payment fraud is the fraudulent siphoning of money through unauthorised transactions. An example can be duplicate invoicing.

On the other hand, non-payment is a malicious practice in which a broker or intermediary receives goods from carriers but deliberately does not pay for them. This type of fraud is a blatant breach of contract. 3.9 million payment fraud incidents occurred in the year ending September 2024 as per Crime Survey for England and Wales (CSEW).  Collectively, these frauds can cause the following setbacks within the supply chain:  

Fuel card fraud  

Fuel card fraud is broadly divided into two types: 

1) Third-party fuel card fraud: This happens when a third-party logistics provider gains unauthorised access to fuel card credentials and misuses them to carry out illegitimate transactions. These transactions include fuelling unauthorised vehicles and incurring phantom fuel charges (where no fuel is dispensed, and the charges are split between the employee and the station operator).  

2) Friendly fraud: This occurs when a driver or an employee uses a fuel card for prohibited purchases such as siphoning fuel to sell later, using fuel-card for purchasing restricted items (such as food and drink), and fuelling at unapproved locations. 

Fuel card theft not only results in direct financial loss but also has extended implications around compliance. It can cause regulatory violations, failed audits, and results in penalties for breaches.   

Key drivers of freight fraud

It’s clear freight fraud causes operational disruptions and legal liabilities. But what are the main drivers of this illicit activity? 

Economic pressures   

Economic pressures such as inflation and increased operational costs can be a precursor for freight fraud. Employees for comparatively small carriers might resort to fraudulent activity in a desperate bid to supplement their income and counteract cash flow problems.

Another example is companies that operate on tight budgets due to increased operational costs. In an effort to cut costs they might not invest in the necessary security and become more susceptible to fraud. This ultimately puts them in an even worse financial situation if they do end up being breached.  

Increased demand  

With the surge in demand for products at specific times of the year due to seasonality, logistics organisations must battle against tight deadlines. Therefore, they may accelerate their operations to deliver products on time to retailers.

Such an urgency could lead to hasty carrier onboarding and rushed verification processes, which subsequently increases the risk of exposure to fraud. 

Technological gaps   

Cybercriminals look to take advantage of technological gaps. They could include poor security measures, a lack of comprehensive cybersecurity protocols, and insufficient employee training. When such lapses exist in logistics processes, employees can fall prey to phishing attacks, risking sensitive data to cybercriminals. 

Lack of real-time visibility   

Many logistics organisations are still relying on legacy systems that do not have real-time tracking visibility of shipments. In the absence of real-time monitoring , fraudulent activities such as stolen shipments might remain undetected until the detrimental impact surfaces. 

How to prevent freight fraud?   

Now we’ve explored the types of freight fraud and the key drivers behind them, it's time to understand how to prevent them. Here are a few strategies: 

Implement a robust due diligence process 

Due diligence is a systematic investigation process in the freight and logistics industry which is used to authenticate the legitimacy of suppliers, brokers, and partners before indulging them in business transactions. It acts as a first layer of security against fraud and includes methods such as:  

• Verifying business credentials
• Background and reputational checks
• Financial health assessment
• Insurance and compliance checks
• Understanding prospective partner’s protocols 

These methods help freight and logistics companies to be more confident and safeguard against reputational damage and legal liabilities. 

Leverage technology for enhanced security and visibility  

Leveraging technology stands as one of the proactive ways to build a barrier against these risks, with real-time tracking and data encryption being prominent methods. 

Real-time tracking:  Real-time tracking involves using technologies like GPS, RFID (Radio Frequency Identification) and telematics to get updates on location, state, and condition of freight. These technological systems help to provide prompt updates on the deviation of cargo vehicles, flags access of goods outside approved zones and times, and send tamper alerts. All of these helps prevent freight frauds. 

Data encryption: This can involve utilising a cybersecurity firewall to convert sensitive logistical data into an unreadable format. This data can then only be accessed through a special encryption key, protecting the carrier’s credentials, and ensuring compliance with the likes of GDPR. 

Develop strong legal contracts 

This is a foundational step for every freight fraud prevention strategy. A strong legal contract not only legalises business partnerships but also dissuades malicious actors through enforceable consequences.  

Legal contracts carry payment terms like milestone-based payments, or no payments until verification of freight pickup is provided. Such terms prevent fictitious pickups, which helps with operational disruptions while also minimising the possibility of freight threat 

Collaboration and information sharing  

Lack of collaboration and information sharing creates favourable conditions for fraud to thrive. When companies do not have a shared network of information, it’s more difficult to have visibility of blacklisted entities, fraudulent patterns, and other risk indicators.Access to Iinformation like this can help to build a collective resilience. Below is an example to illustrate this further:

Detecting patterns: When companies collect data from sources such as insurance claims and freight boards, it helps them to identify fraud-related patterns. Through data analysis they can sometimes anticipate mishaps before they reoccur while also using this information for the likes of route risk assessments. 

Risk assessment and analysis  

Fraudulent activities can take the form of fake deliveries, invoice fraud, and identity theft. The main functions of risk assessment and analysis are:  

• Preventing businesses from engaging with imposter entities, double brokers, and unlicenced operators
• Highlighting risk-prone routes, locations, and loads, which then promotes risk-based routing and keeps cargo safe from malicious activities like cargo theft
• Detecting transaction level risks like invoice tampering
• Fortifying contracts through informed risk modelling, which creates a preventive legal framework and ensures fraudsters are unable to exploit ambiguities like undefined payment terms
• Supporting insurance claims to make it more credible and easier in cases like lost and damaged goods

Compliance consulting  

This method involves gauging the cybersecurity, operational, contractual, and regulatory architecture of the organisation in detail. It is carried out to ensure the business is aligned with legal requirements and strategies to prevent unwanted activities (such as overbilling and rate manipulation in the supply chain).  

Compliance consulting can also help with building a robust internal control framework thus prohibiting unauthorised payments across the supply chain. On top of this, it can serve to ensure supply chain systems are compliant with important regulations such as transport laws, trade compliance, and data protection laws. Such a setup creates a comprehensive legal foundation to respond accordingly to fraud if and when it occurs. 

Zero trust policies for cybersecurity threats  

Zero-trust is a security framework based on the “never trust, always verify – no matter who or where’’ principle. In the world of freight, it means none of the brokers, drivers, or systems get access to data such as load assignment and freight visibility information automatically. Instead, the verification and authorisation process should be a pre-requisite before bestowing such permissions. Here are two ways in which the zero-trust philosophy can keep fraud at bay: 

• Reduces third-party vendor risk: With a zero-trust policy in place, third-party vendors are on-boarded with limited access to permissions like viewing and editing freight pick and drop locations. Therefore, they do not get a chance to perform any unauthorised activity.
• Minimise insider threats: Zero-trust framework deploys role-based control and real-time activity monitoring. This way, activities like unauthorised payment redirections are restricted. This is one of the popular insider threat practices by disgruntled employees.   

How OneAdvanced can help with freight fraud prevention? 

Resilient processes facilitated by technology help with providing the necessary oversight and control to reduce instances of fraud and other business threats. With the right systems in place you are able to gain:  

• Real-time visibility across your supply chain
• Enhanced data validation and verification
• Proactive risk identification using AI
• Elevated collaboration among stakeholders through a centralised tech infrastructure
• Secure and digitised documentation  

Our Wholesale, Distribution, and Logistics software helps you to optimise your entire operation, delivering unmatched efficiency and security.