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Fraud Schemes in Multimodal Transportation

13.12.2018

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“International trade inevitably involves multiple stakeholders in different parts of the globe. Fraudulent activities have always been a risk to consider. Be careful searching for local operators and agents,” advises the international insurance company TT Club.

This warning from the largest insurer was issued due to the increased frequency of fraud in multimodal transportation: “A number of fraud cases have recently arisen, particularly involving Chinese freight operators.”

How fraud schemes work

International freight forwarders often rely upon other local freight forwarders and agents. Such partnership is commonly long-term and reciprocal. Issues may arise where agreements with new contractors are signed or, alternatively, old contractors have changed the owners or managers. Higher risks of becoming the victim of fraudulent activities arise at such moments.

One of the most popular fraud schemes used in multimodal transportation is as follows:

a fake forwarder maintains control over the original copy of the bill of lading, refuses to release it without receiving a payment first.

As a rule, the freight operator (forwarder) arranging the shipment acts as a shipper under the bill of lading to control the documents. The trigger point comes when the cargo arrives at the destination port and nobody has received the original copy of the bill of lading. The forwarder receiving the cargo contacts the shipping agent asking to provide the bill of lading and receives a request to make an additional payment. The reason behind the additional payment may be different from immediate payment to a third party, penalty charge to unexpected fees. The amount depends on the shipment volume and usually comes to tens of thousands dollars.

The forwarder receiving the cargo now faces the dilemma of whether to pay or not. The payment does not guarantee that the unscrupulous forwarder will provide/release the bill of lading as they might not necessarily be a legitimate business. Choosing not to pay potentially leads to financially and commercially dangerous discussions with the customers.

If there is a language barrier, different laws, lag time and distance between the parties, it might be difficult and very expensive to solve the issue. So it will be necessary to involve a local law firm to reach a peaceful solution with the fraudulent company expecting to receive the original bill of lading and have the cargo released at the place of destination.

TT Club advises

If the decision to change or use the services offered by an alternative agent arises from any unforeseen circumstances, the verification of contractor’s legality must be thorough. “Be very careful searching for local agents online. For instance, low rates (cost of the services) are often a bad selection criterion. If you have any doubts about the proposed conditions, which are too good to be true, your doubts may turn out reasonable…

In the age of easy forgery of documents, contractor verification based only on electronic documents should be no longer considered a reliable tool to verify company’s legitimacy.”

As for the cases with Chinese businesses, TT Club experts recommend to:

  • consult other freight forwarders who know the market and can recommend a reliable candidate;
  • contact the local TT Club office for advice;
  • consult the China International Freight Forwarders Association (CIFA) on www.cifa.org.cn. CIFA has a number of specialized departments, such as Membership Department (email: wangxy@cifa.org.cn) and Credit Risk Assessment Department (email: linzhong@cifa.org.cn);
  • study the information available on the official websites, such as the National Credit Information System (http://www.gsxt.gov.cn/index.html). The website contains information about all the registered companies, license revocations, official fines, court proceedings and court decisions;
  • use the official Chinese shipping website http://www.chineseshipping.com.cn/bl/blzcd01.asp. The website contains information about all the freight forwarders registered properly as non-vessel-operating common carriers (NVOCC);
  • or if you still have any doubts, involve a local lawyer to examine the forwarder to be engaged. This will entail certain initial costs but it will significantly reduce the risk of becoming a victim of fraudulent activities.


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