I have been running Shipping and Freight Resource since 2008 and over the years, I have received several requests from readers around the world asking for my opinion and advice on remedies to certain situations brought about by fraudulent activities that some of them have been victims of..
Many have been duped by forwarders, taken for a ride by sellers, buyers, and intermediaries, made to pay double charges, charged undue demurrage, and detention, and so on and so forth..
Here are some updated tips on safeguards against some of this shipping and freight fraud..
- Know the terms of your contract (s)
- First and foremost, closely read and understand the sales contract between you and your buyer or seller..
- Really understand what is required, what is not required, what is allowed, and what is not allowed..
- Many sales contracts invariably reference or use Incoterms® rules.. Read and understand Incoterms® in detail, don’t just skim through it..
- A large volume of fraud, duping, and mistakes happen because the buyer or seller uses specific Incoterms® for a particular transaction in the sales contract without understanding the full extent of the terms used..
- You need to understand that it is NOT a one-size-fits-all solution.. Each sale is individual and has to be treated differently..
- If you have any doubts with regards to Incoterms®, visit this LinkedIn Group on Incoterms® which is a great source of information, details, and discussion about Incoterms®..
- In cases where you are not in charge of the contract of carriage, it may be prudent for you to understand the contract of carriage entered into with the carrier by your counterparty as this is also an area where there are disputes frequently as to who has to pay for what as part of the carriage..
- Such issues become more important in the current scenario where ships are being rerouted around Africa due to the conflict in the Red Sea..
- Trust
- Trust, as you know is earned and this is true for shipping and freight as well..
- 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..
- If you do this, you as a seller won’t be able to prevent delivery to the buyer before they pay you the money for the goods..
- 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 proof of payment.. Many a time, the proof of payment has turned out to be a fraud.. Wait till the funds are in your account..
- Similarly, if you are a buyer, don’t pay for the goods before you have verified that your goods have actually been shipped..
- Seek the assistance of banks, there are instruments like Letters of Credit that can assist in ensuring that you get your money and/or goods..
- Once the trust has been developed and has been earned through repeated business, you can use your discretion on what the terms of payment should be..
- Verify and distinguish
- Verify whether the company and person that you are buying from is genuine and is 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 later that their company doesn’t really exist..
- If the business is new, I would strongly suggest that you pay a visit to the company at the origin and convince yourself that the seller and the product is genuine..
- Choose the right partner
- If you are an exporter or importer and use a freight forwarder or a customs broker, NVOCC or carrier, look for someone that has a GOOD reputation..
- A lot of the time, clients look to save a few pennies and end up choosing dodgy agents and end up actually being blackmailed by them into paying more and still don’t get their cargo in time.. This is still a very frequent occurrence..
- A good place to start looking for a good agent would be a freight forwarder or customs broker association 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 shipper’s 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.. There are also several global freight forwarding networks around..
- Many freight forwarders choose the wrong partners and end up paying them more commissions and destination charges unnecessarily..
- Learn
- If you are in the business of exporting or trading, you NEED to know, you HAVE to know, and you WANT to know how the whole process works..
- Don’t just be content knowing only what happens in your area, study, know, and understand 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, and Chamber of Commerce to understand the various roles and how each entity fits in the whole chain..
- Use resources like Shipping and Freight Resource to understand more about the business of shipping, freight, and trade (couldn’t resist that :)), and if you don’t find answers to any specific question, pose questions on the site or other resources like LinkedIn..
- Know the costs
- Always know and understand the costs involved in shipping, whether at origin or destination and who pays for what.. This is directly related to the Incoterms® you use, so going right back to the first point of this article, know your Incoterms® before you contract..
- 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 the buyer is rejecting or vice versa..
- There are several fraudulent activities on the back of a lack of understanding of costs by either the buyer or seller..
The above points are by no means exhaustive and are just some of the important ones that I thought I would share with you based on the queries I have received and case studies I have been sent..