Corruption. Kickbacks. Stolen freight. These are all things you could be dealing with when shipping with a carrier you have not previously researched and vetted out. Corruption exists everywhere and the trucking industry is no exception.
Kickbacks
What is it?
“Kickbacks are undisclosed payments made by a third-party to a company’s employees. Kickback schemes almost always result in the victim company being over billed.” 1
Example
We hear all of the time about trucking company employees upping their rates in a kickback scheme that puts money in their pockets. Let’s look at a popular case that went to court in 2008 resulting in a several million dollar verdict.
SC Johnson, a well-known household brands manufacturer, was being charged inflated rates by trucking contractors who kickbacked a portion of the money to Milton Morris (SC Johnson’s transportation director at the time, terminated in 2004 when SC Johnson’s investigation began) and Katherine Scheller (Morris’ employee to which he bought gifts for). 2
According to the trial, “Transportation carriers [Transport Corporation of America, Inc., Stevens Transport, Inc., Far Side Trucking, Inc., and Graham Kent Pharr who have pleaded guilty] gave Morris hundreds of thousands of dollars in cash, lavish travel and expensive jewelry in exchange for business with SC Johnson.” 3
SC Johnson was awarded $203.8 million in damages in 2008 against Morris, Scheller, and the four men who ran the transportation companies and in 2011, Morris was sentenced to 8 years, 1 month in prison along with 3 years of supervised release and “$20 million in restitution payments to SC Johnson, with $5.4 million of responsibility shared with his co-defendants. 2 Scheller received three years in prison and one year of supervised release. 2
Chameleon Carriers
Who are they?
Chameleon carriers are existing/pre-existing carriers who register as a new carrier in order to hide poor safety records, out-of-service issues, and to avoid paying fines.
Example
Chameleon carriers are becoming a serious problem in the transportation industry. A recent study conducted by the GAO found that in 2010, 1,136 new applicants were attributed as chameleon carriers, increasing by 377 since 2005, with 94% being freight carriers. 4
Click the video to watch 41 Action News’ Investigation on Chameleon Carriers
In 2012, 41 Action News Investigators uncovered seven citations on Freight, Inc. (operated by Binder Singh) including out-of-service brakes, stating that “96% of the companies on the road have better vehicle maintenance records, and 98% have better driver safety records,” according to the Federal Motor Carrier Safety Administration. 5
However, further investigation proved that Singh had operated numerous trucking companies under different DOT numbers, including one company which was issued an out-of-service order due to safety violation fines to which Singh declared bankruptcy and reopened the next company.
How to Prevent
Chameleon carriers pose a large risk on the road and to your freight. According to the GAO, the risk of an accident is three times higher among chameleon carriers than other new carriers. 6
With over 66,000 U.S. DOT number applications being submitted each year, 98% are not being cross-checked with those previously shut down. 6 On February 18th, “the FMCSA sent the final rule (expected to publish in the Federal Register this May) for a Unified Registration System to the White House Office of Management and Budget for review” that would “replace several existing identification systems” and “serve as a clearinghouse and depository of information on motor carriers, brokers and freight forwarders and others required to register with the U.S. DOT.” 7
For a list of five ways in which you can help reduce the risk of hiring chameleon carriers click here.
Double Brokerage
What is it?
Double brokering occurs when a carrier agrees to move a load with a broker and then brokers that load out to another carrier without the original broker knowing.
Risks
When a load is double brokered, neither the original broker nor the shipper is aware of who is moving their freight or if the carrier has the proper license, liability insurance, or safety record to do so. This then leads to increased vicarious liability and due diligence risks. Learn more about vicarious liability here.
Examples
From January 2006 to December 2009, Pauline Robinson-Kirkland set up over 15 trucking company names for which she used to bid on online boards, receiving nearly 69 payments, never paying the carrier who actually transported the shipment. 8 With the new highway bill signed on July 6th, 2012, the broker bond was raised from $10,000 to $75,000. 8
How to Prevent Due Diligence
Below is a list of how you can reduce the risk of due diligence:
-Check the carrier’s CSA scores. Learn how at http://www.youtube.com/watch?v=DUXpdbubDVM
-Run a credit check
-Obtain/contact references
-“Be clear in defining obligations and responsibilities in co-brokering agreements. Include a clause against unauthorized double brokering and the penalties associated with it in the contract of carriage.” 9
-Keep track of your shipment in transport. Ask for status updates.
Insider Jobs
What is it?
Theft results in a loss of more than $30 billion in the transportation/shipping industry each year. What’s even more stunning is that 85% or more of these thefts are a result of insider jobs, individuals who had the information/ability and used it for their own benefit.
Drivers utilize what they know about a shipment/trucking company, not to steal the freight themselves, but rather distribute their information to thieves in return for compensation.
Drivers have also been known to stage their own hijackings, arranging to leave their trucks unattended at a specific time in which their accomplice then moves in, stealing the loaded truck in exchange for money.
Example
On Monday, November 12, 2012, 3,600 iPad Minis valued at $1.9 million were stolen from the same JFK airport building as in the movie Goodfellas.
The heist was found to be an insider job as authorities arrested Renel Rene Richardson, employee of JFK’s Cargo Air Services building, who “allegedly made suspicious inquiries to coworkers about the shipment, as well as where he might be able to access a forklift.” 10
Richardson acted as a lookout in the heist as two others entered the building, utilizing the airport’s forklift to load two pallets of the iPad minis into the truck just before another airport employee, who was arriving from dinner, began questioning the thieves, leading them to flee before they could load three other pallets of iPads onto the truck. 10, 11
Fraudulent Carriers
We must not forget those thieves who pose as carriers, especially on load boards, to obtain and steal freight.
Example
Between April 2011 and February 2012, the FBI investigated 17 cargo thefts involving meat trucks, the majority from the Amarillo area, valuing between 720,000 and over $4 million. 12
On June 15, 2012, a trucking company was contracted (through a broker) to transport ribeye from Amarillo to Chicago, but never made the delivery. 12
A person claiming to be part of a Michigan trucking company contacted a broker regarding the transport of two truckloads of beef from Amarillo to California. When the broker reported it to the FBI, the Michigan company claimed that they never hauled refrigerated foods. 12 When the FBI teamed up with a broker to contract the company to haul two truckloads, they caught three men who they found to have a fake CDL as well as a “real driver’s license registered to a woman.” 12
Bribes
What is it?
It goes without saying, a bribe is when a person pays another off as a means of persuasion to act in their favor.
Example
Just last month, a DOT official was sentenced to 18 months in prison along with a $41,300 fee after “taking tens of thousands of dollars in bribes in exchange for initiating “complaint audits” that could put a company out of business, or for giving favorable audits to other firms, providing “inside information” that let some companies keep potentially unsafe trucks on the road” such as postponing safety inspections as well as “providing consultants with internal agency information, including lists of trucking companies scheduled to be audited.” 13
Do you believe that kick backs are occurring in the trucking industry? To what extent? List your comments below.
1http://www.linkedin.com/groups/What-is-Kick-Back-Scheme-4360801.S.136335198
6http://knowledgebase.findlaw.com/kb/2013/Feb/867829.html
7http://www.landlinemag.com/Story.aspx?StoryID=24812
8http://www.landlinemag.com/Story.aspx?StoryID=23924
10http://appleinsider.com/articles/12/11/19/suspect-arrested-in-19m-ipad-mini-heist-at-jfk-airport
12http://amarillo.com/news/local-news/2013-02-19/3-face-federal-charges-meat-thefts
