Safeguards against shipping and freight fraud

Over the years, I have received several queries from readers around the world asking for my opinion and advice on situations relating to shipping and freight fraud..

Many have been duped by forwarders, taken for a ride by shippers and intermediaries, made to pay double so on and so forth..

Here are six safeguards to follow against some of these shipping and freight fraud..

1) Know your trading terms

• First and foremost, really really read and understand about Incoterms® with the current version being Incoterms Rules 2020..
• A large volume of shipping and freight fraud, duping and mistakes happen because the buyer or seller don’t understand the Incoterms® rule that has to be used for a particular transaction..
• It is NOT a one size fits all solution..
• Each sale is individual and has to be treated differently..

2) Trust

• Trust as you know is earned..
• If you are doing business with a company for the first time there are several safeguards you should take..
• For example, if you are selling to a first time buyer overseas but agreed on Cash Against Delivery (yes it happens) don’t be nice and issue a Sea Waybill or do a Telex Release (yes this has also happened) before you get your money..
• In such cases, it is always good to issue Original Bills of Lading and hold on to them till you receive the money in your account..
• Don’t send the buyer the OBL or issue a Telex Release based on a proof of payment.. Many times the proof of payment has turned out to be a fraud.. Wait till your money is in your account..
• Seek the assistance of banks, there are instruments like Letter of Credit that can assist in ensuring that you get your money..
• Once the trust has been developed and has been earned through repeated business, you can use your discretion..

3) Verify and distinguish

• Verify whether the company and person that you are buying from is genuine and actually a legal entity..
• There are many fly by night middlemen who pretend to be the supplier, manufacturer, seller etc and you will find out much longer that their company doesn’t really exist..
• If the business is new, I would strongly suggest that you should pay a visit to the company at the origin and convince yourself that the seller and the product is genuine..

4) Choose the right partner 

• If you are an exporter or importer and use a freight forwarder or a customs broker, look for someone that has a solid and professional reputation..
• A lot of the times, clients look to save a few pennies and end up choosing run of the mill agents and end up actually being blackmailed by them into paying more and still don’t get their cargo in time..
• A good place to start looking for a good agent would be freight forwarder, customs broker associations in your area..
• You can also check with Customs or Port authorities in your area for some recommendations.. They are always glad to help..
• If you wish to do any product inspections or analysis etc, (which you should if you are dealing with the company for the first time) do your own research and appoint your own agent to do these activities rather than the shippers agent..
• There have been cases where the buyer has used the seller’s agent and has been given false information leading to loss..
• If you are a forwarder and looking for partners in other parts of the world, look for similar forwarding associations in the destination country and choose the right partners..
• Many freight forwarders choose the wrong partners and end up paying them more commissions and destination charges unnecessarily..

5) Learn

• If you are in the business of exporting or trading, you NEED to know, you HAVE to know, you WANT to know how the whole process works..
• Don’t just be content knowing or trying to know only what happens in your area, know the whole process..
• This way, if something untoward happens, you know how to handle it, who to speak to and not to panic..
• Speak to your Agent, the shipping line, and if possible Customs, Port, Chamber of Commerce to understand the various roles and how each entity fits in the whole chain..
• If you are importing for the first time, read up on what it entails..

6) Know the costs

• Whether you are buying and selling on FOB, CIF, CPT, DPU know the costs at origin and destination and what costs you are expected to pay..
• A large number of queries that I have received pertain to such issues whereby the seller expects the buyer to pay for X activity and buyer is rejecting or vice versa..

This list is by no means exhaustive, but just some of the important ones that I thought I would share with you and is based on the queries I have received and case studies I have been sent..

What are some of the tips you have been following in your business to safeguard against shipping and freight fraud..??

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