Just when you think it couldn’t happen — not in this day in age when communications are instant and regulatory oversight abounds — somewhere along the supply chain someone falters and you pay a hefty price.
The risks of trading globally have always been huge — that’s why we have legal instruments like letters of credit. Companies needed two banks to sit in between trading partners to ensure everything went as planned and no one got hurt.
As global trade and related shipper tools have evolved, outsourcing is now common among both domestic and international logistics operations, and companies have become more comfortable, or maybe even accustomed, to doing business with many vendors for a range of functions, but a lot of the risks still exist.
Today’s shippers have no choice in many instances to collaborate externally to get the job done, and there’s indeed significant benefits to working together with vendors in terms of cost savings, efficiency, access to new sources or markets, etc. However, shippers can easily lose sight of the risks that exist just under surface when they put their freight, information, money, compliance, and other important processes in the hands of another company.
A number of shippers, including some of those representing the biggest brands in the market, learned in late March that freight payment firm Trendset became embroiled in a case of embezzlement and fraud, which put an undetermined amount of money the company was holding on behalf of its shipper clients in peril.
The concept of the widely used third party freight bill payer is simple — the entity collects money from shipper clients and uses it to pay the carriers on their behalf. However, it’s not too difficult to picture an unscrupulous vendor using this money for activities other than paying the shippers’ carriers.
An even bigger risk across the entire supply chain spectrum is the increased sharing of business information with third parties via the Internet and other mobile technologies. While information may be shared, manipulated and analyzed in near real-time, it can also be used maliciously by vendors to pit shippers against each other or end-run export and import compliance.
Unfortunately, it’s easy for many shippers to be lulled into a false sense of security with their vendors or develop the mindset that “it won’t happen to me.” While disaster may not strike today, tomorrow, next month or even next year, the reality is that those unchecked risks loom in the background waiting to deliver a blow to the unprepared corporation.
The important takeaway from all of this is that shippers must continually vet their vendors — both new and established — because no one else is going to do it for them.
Staying risk management-minded
