Unmasking Fraud in the Supply Chain Industry
By Jennifer Zhao | Transportation Intermediaries Association
As you know, cargo theft in the supply chain industry was the most prominent topic in the 3PL industry in 2024. Unfortunately, cargo theft is not something that is going to go away in 2025. Among the various modes of transportation, truckload freight stands out as the most vulnerable to criminal activity.
So, what about truckload freight that makes it such an attractive target? This issue of 3PL Perspectives delves into the vulnerabilities that make truckload freight an easy target, the challenges this causes and the steps that supply chain companies can take to safeguard against fraud. TIA’s Fraud Taskforce Justin Olsen, vice president of Legal and Risk with England Logistics, Inc., in Salt Lake City; Ronald Greene, executive vice president of Risk, Intelligence & Response at Overhaul in Austin, Texas; and Scott Cornell, crime & theft specialist at Travelers Insurance in Phoenix, share their insights on fraud in the logistics industry.
High Volume and Exposure
Truckload freight dominates domestic transportation for a legitimate reason. With truckload services moving more goods than any other mode of transport in the U.S., it is a critical component of the supply chain. According to the American Trucking Association (ATA), trucks move nearly 72% of all freight in the U.S., valued at more than $700 billion annually. The large volume and frequency of truckload shipments increases the opportunity for fraudsters to exploit gaps in security.
When asked about why truckload freight is the primary target, Olsen states, “Because it invites strategic cargo theft through use of ported or change contact information, sale or impersonation of motor carrier authority and FMCSA contact information, etc. It is the information corruption element that full truckload freight offers that makes it the primary target”.
This vulnerability in truckload freight, driven by information corruption, is further compounded by the predictable nature of high-volume shipments.
According to Cornell, when there’s a high flow of goods, whether it’s a high-value shipment or a truck carrying everyday consumer goods, the risk of fraud and theft rises proportionally. Fraudsters identify potential targets through established patterns of trucking operations, such as predictable routes, scheduling and stop locations. Without proper preventive measures, criminals can identify soft targets.
When asked about what other modes can do to ensure fraud does not become prevalent in rail, sea and air, Greene says, “Pilferage is a significant issue on rail. All air and sea shipments have a ground component where the risk is prevalent transporting to-and-from the airport and seaport. There are pilferage risks in the air cargo networks and within some port operations”.
Costs associated with fighting fraud across all modes include cost of insurance, technology, time and reputation management. Companies should ensure that they budget for these costs while planning for 2025.
When inquired about how companies can maximize their time on fighting fraud without burning up manhours, Olsen says, “Use of additional technologies to vet carriers, track loads and communicate, cooperate and collaborate with shippers and customers, as well as others in the industry. It takes collaborative effort”.
This collaboration, combined with the use of technology is essential for reducing fraud and mitigating financial losses, as Greene highlights.
“The industry rule of thumb is theft costs the cargo owner 3 to 5 times the retail value of the product, this can be higher if sales are lost to a competitor. The biggest cost for brokers is losing a customer or potentially going out of business due to higher costs and being uninsurable”, Greene states.
These losses are affecting not only companies in the supply chain, but also the everyday consumer. This loss is happening daily, “both in theory and in practicality”, according to Olsen. It is important to address these losses before they increase in severity and the best way to do so is with increased security on all ends.
Inconsistent Security Measures
One of the primary reasons truckload freight is vulnerable to theft is because of the lack of uniformity in security practices across the industry. While air and rail freight benefit from stringent and standardized security protocols, the trucking sector often operates under a patchwork of different security measures.
“The industry needs to promote a more robust security culture. Criminals will continue to evolve tactics; companies need to be ready for new types of fraud and having a security minded culture is a foundation for long term success”, asserts Greene.
A robust security culture needs to evolve with new technologies that fraudsters have access to. However, it is important to be mindful that continuous innovation in the supply chain can lead to challenges.
Cornell notes that each company may implement its own security standards, and the security landscape varies across regions and even within individual companies. While some fleets may utilize high-end security systems like GPS tracking and advanced locking mechanisms, others may not invest in technologies at all. This fragmented approach leaves gaps that criminals can exploit. The lack of cohesion among trucking companies, freight brokers and law enforcement make it difficult to coordinate consistent security measures – one of the most significant contributors to the rise in cargo theft in 2024.
The Speed-Security Tradeoff
The logistics industry, particularly in trucking, prioritizes speed. With just-in-time delivery models, there is constant pressure to move goods quickly to meet consumer demand. However, this focus on speed often comes at the expense of security. In the rush to optimize operations, critical security measures can be overlooked.
For example, trucks may be parked in unsecured areas to minimize delays, or drivers might skip crucial security steps to save time. The increased pressure to deliver shipments as fast as possible presents an opportunity for criminals to exploit.
According to TIA’s 2024 Fraud Report, the most stolen goods are electronics, solar panels and household goods, which are targeted because of their high value and ease of resale. Olsen states “There seems to be a secondary market for everything from tires to clothes, to food and beverages, even preprinted paper products for fast food franchises are stolen. There are secondary markets for everything.”
Olsen notes that embedded tracking devices are among the most effective forms of protection against stolen goods, emphasizing the importance of education and enhanced security measures throughout the industry.
Nationwide Security Measures
One area where security enhancements have been notably successful is at U.S. ports. Following 9/11, the U.S. government introduced the Transportation Worker Identification Credential (TWIC), a secure identification system for those working in the transportation sector. As a result, cargo theft at ports has significantly decreased.
According to Cornell, this robust security culture is necessary on a local and nationwide scale. However, the trucking industry has not adopted advancements on a nationwide scale. This inconsistency in security measures means that while U.S. ports have become more secure, trucking, particularly across borders, remains a weak link. Specific states, particularly California, Texas, Illinois, Georgia and Florida, are identified as having the highest incidents of theft.
Greene explains, “The primary reason these locations are major logistics hubs. Most fraud and theft are initiated at the point of origin. Additionally, there is some correlation to criminal penalties at the state level. In some states criminals are arrested and released. They are back out committing fraud and theft the next day. If you would overlay a general crime map, there is correlation to cargo theft hotspots”.
While significant strides have been made in enhancing security at U.S. ports, the trucking industry, particularly in major hubs, continues to face challenges. The lack of a nationwide adoption of security protocols leaves vulnerabilities, which must be addressed to prevent further theft.
A Multilayered Approach
The integration of freight brokers and trucking companies into the fast-paced supply chain adds additional risk. Supply chain actors are under constant pressure to meet tight deadlines and improve efficiency. This constant demand for speed often leads to overlooked security measures.
Additionally, the issue of non-physical fraud, including scams such as fictitious pickups, fraudulent brokers and identity theft, is a growing threat. As technology evolves, so do the methods employed by criminals, making it crucial for the logistics industry to continuously evolve its security practices.
As reported by Cornell, the complexity of modern logistics requires a multi-faceted approach to mitigate the risk of cargo theft. The industry must adopt a layered defense strategy that combines education, technological solutions and physical security measures.
Layer 1: Process and Procedure: The first line of defense lies in establishing strong processes and procedures. Ensuring that drivers are aware of potential risks and educated on how to spot suspicious activity, is the first line of defense. Companies should also establish protocols for when trucks make unscheduled stops, particularly in high-risk areas.
Layer 2: Physical Security Devices: The second layer focuses on tangible security measures. High-security locks on trailer doors, landing gear locks and air cuff locks can limit theft. These measures help secure freight, especially when left unattended or stopped in a high-risk area.
Layer 3: Technological Solutions: Technology plays an increasingly pivotal role in protecting cargo. GPS tracking, covert tracking devices and geo-fencing can allow companies to monitor freight in real-time. Additionally, advanced data-sharing systems can help companies stay ahead of potential fraud.
The Path Forward
The implementation of a layered approach across the supply chain is crucial for combatting fraud. The lack of consistent security measures, along with the industry’s emphasis on speed and the complexities of the global landscape contribute to the industry’s vulnerability. Addressing these issues requires a concerted effort from all stakeholders—shippers, freight brokers, trucking companies and government agencies.
By standardizing security protocols, adopting a layered defense strategy and fostering collaboration across the industry, companies can play their part in the fight against fraud. This fight requires a shift from reactive responses to proactive strategies that evolve in tandem with rapid changes in the industry. A unified approach is essential for both protecting assets and maintaining the continued integrity and success of the supply chain industry.
Zhao is the digital marketing specialist at TIA. To learn more about TIA’s fight against fraud, visit https://news.tianet.org/take-action/fraud-resources/.
