As freight stakeholders await a rulemaking addressing broker transparency, a new report reveals the prevalence and costs of fraud within the broker industry.
In its State of Fraud in the Industry 2024 report, the Transportation Intermediaries Association shows an increase in all types of fraud, which is forcing brokerage companies to spend more time, money and resources on efforts to combat the problem.
“We are an industry under siege right now, and we are not getting the support from government and law enforcement authorities to help us combat this scourge on the supply chain,” TIA President and CEO Anne Reinke said in a statement. “When people think of fraud in the supply chain, they only see what is happening to a business; they are not seeing the trickle-down effect to consumers and economy. Fraud is a multimillion-dollar problem that needs to be addressed today.”
TIA identified five different types of fraud plaguing the industry: cargo theft, financial theft (e.g., unlawful brokerage scams), identity theft, internal/employee theft and data/information theft (e.g., cyberattacks). The most common type of fraud reported by survey respondents was broker scams (43%), followed by email spoofing (17%) and identity theft (11%).
Cargo theft is rising at an exponential rate. According to the report, cargo theft increased by 600% between November 2022 and March 2023. Truckload freight is the most vulnerable target of fraud. Electronics, solar panels and household goods are the most commonly stolen cargo.
In June, Rep. David G. Valadao, R-Calif., introduced a bill to address “rampant theft” within the supply chain. As of Tuesday, Sept. 24, the bipartisan Safeguarding our Supply Chains Act had 14 co-sponsors: eight Republicans and six Democrats.
TIA’s fraud-reporting service received nearly 1,000 reports this year through Aug. 31. Nearly a third of those reports were unlawful brokering, about 17% included identity theft and about one in five were unresolved insurance claims.
Fraud within the freight industry is costing companies a lot of money. The average cost of fraud among those surveyed by TIA was more than $400,000 or nearly $41,000 per load. Those costs trickle down the supply chain and ultimately to consumers.
California appears to be the fraud hotbed in the United States. Nearly half of all fraud identified by TIA originated in the Golden State. In a distant second was Texas (9%), followed by Illinois (5%).
Nearly three-quarters of those surveyed experienced at least three different types of fraud. Companies are spending significant amounts of money on fraud prevention, including new technologies, training and insurance coverage. Consequently, companies are faced with slimmer profit margins due to these additional costs that only recently came into existence.
In addition to money, more time is being spent to avoid fraud. Brokers are spending more time finding out how long a carrier has been in business, verifying information on Secretary of State websites, confirming Department of Transportation registration and verifying phone numbers and email domains.
Broker transparency, fraud and FMCSA
TIA’s report comes against the backdrop of a highly anticipated rulemaking that addresses some aspects of fraud: broker transparency.
The Federal Motor Carrier Safety Administration is scheduled to publish its notice of proposed rulemaking for broker transparency in October. What will be included is unknown, but the rulemaking is in response to a petition the Owner-Operator Independent Drivers Association filed in 2020. That petition asks FMCSA to:
- Require brokers to automatically provide an electronic copy of each transaction record within 48 hours after the contractual service has been completed
- Explicitly prohibit brokers from including any provision that requires carriers to waive their rights to access the transaction records
The trucking industry has been calling for more enforcement of existing rules and regulations. During a one-on-one meeting with OOIDA, FMCSA indicated that its hands are tied when it comes to combatting broker fraud. Statutory and regulatory limitations allow the agency to address only certain civil aspects of fraud and prevent it from pursuing any criminal complaints.
Additionally, the agency announced a new Registration Fraud Team to investigate fraudulently registered companies. And stakeholders are advised to file complaints with the National Consumer Complaint Database.
In July, FMCSA submitted a report to Congress about unlawful brokerage activities. In addition to doubling down on claims it lacks authority to go after broker issues, the agency also blamed a lack of data for its inaction.
“FMCSA is still assessing the relationship between motor carrier safety and incidence of unlawful brokerage,” it wrote. “While the agency has received multiple expressions of concern from stakeholders regarding fraud related to double brokering, it lacks data to quantify or confirm a safety impact.”
In its report, TIA also calls for “stronger enforcement measures and regulatory oversight” to reduce fraud within the broker industry. In March, FMCSA granted TIA’s petition asking for more training requirements for freight forwarders and brokers.
“The FMCSA and other regulatory bodies must prioritize resolving pending complaints, implementing penalties for violations and closing loopholes that allow criminals to exploit the system,” the report states. “TIA continues to advocate for these changes, recognizing that robust regulation is key to maintaining the integrity of the supply chain.” LL
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