Strategies to prevent your containers 'going missing'

TT Club typically focuses on cargo theft when it considers supply chain security, but there are other ways criminals are misappropriating what are an essential assets in global trade. The effect of the loss of containers themselves is particularly badly felt at this time of congestion, long transit times and, therefore, increased container shortages.

Cases involving misappropriation of shipping containers typically involve large numbers of units over extended periods, which differentiates them from incidents of cargo theft that often involve single incidents that may more easily evade detection. The industry continues to grapple with this persistent risk; in certain locations, or during periods where there is high demand, shipping containers prove an attractive and lucrative target for criminals.

It is widely recognised that all actors in the freight supply chain – including operators of containers – need to exercise diligence in relation to their counterparties, particularly when contracting with those that are unknown, or there is an apparent change in expected behaviour.

Theft of containers (whether for use in trade or for repurposing) has long existed, but as technology to track and trace units has developed, the future use of those stolen units has had to be more carefully considered by those behind the crimes. Data technology advances – whether through improving standards or with ‘smart’ containers – mean that there are growing possibilities for a stolen unit to flag-up as it is gated into a terminal or processed through the ship’s booking and stowage systems. The criminals understand this and often the containers are either neutralised and used for long-term or static storage, or are altered to disguise their original identity.

More recent trends have been identified where digital records have been manipulated. This strategy has proven difficult to identify during the early stages of the fraud. One such method seen involves the release of a container that remains, for the system record, ‘logically’ in a depot, perhaps said to be under repair. This affords the bad actor time to relocate the container, neutralise it and cover its disappearance.

More sophisticated frauds have demonstrated the potential of insider involvement. Units are maintained on system records as located in a container depot and noted as a constructive total loss following a fictitious physical damage incident, while actually they have been ‘gated-out’ and sold to a third party.

In both scenarios it could be several months between the fraud commencing and the issue coming to the attention of the container operator.

TT Club has also seen several instances where large numbers of containers have been stolen by fraudulent actors operating in the supply chain. Using tactics similar to those used to steal cargo, distressed or bankrupted companies have been used to create bookings for large shipments involving many containers. After the containers are collected, they are quickly sold, often in countries where they will be difficult to trace or where law enforcement is weak. The fraudulent agent then disappears and the bankrupted companies they used to create the booking have no assets to claim against. Online platforms that allow third party bookings are also highly vulnerable to fraudulent actors, illustrating that it is just as important for container operators to complete due diligence as it is for shippers and cargo owners.

Disparity between departments

A theme that TT has been considering recently, associated with other risks, is also prevalent here.  Where different departments of the same business work closely together, then fraud is often identified at an early stage. However, where disparate parts of a business fail to communicate effectively, due to operational or geographic separation, then conditions are ripe for fraud.

For example, where containers are declared a constructive total loss and are waiting to be scrapped, there is potential that the operations, maintenance, fleet management, legal, insurance and finance teams are not working in symphony to ensure that the container is actually scrapped, and that the associated revenue is recovered. Without adequate, coordinated control, evidence shows that there is opportunity for an insider with good systems and process knowledge to manipulate records without detection, affording themselves both time and opportunity to cover their tracks.

TT’s loss prevention team has recently focused on inventory management in relation to freight, but similar risks and lessons are evident here. Maintaining regular audits, both physical and logical, of the units at each given location is a fundamental risk management tool and will assist in mitigating the risk of misappropriation, or at least afford opportunities to expose fraud at an early stage. Anomalies identified through audit should be recorded and communicated to the parties involved and full investigations conducted to ensure integrity is maintained.

It can be challenging to identify and manage insider risk. It is essential to implement, thorough due diligence, processes both at the recruitment stage and ongoing. While such individuals may have some connection to organised crime networks or other criminal activity, within the business they typically work in isolation, often enabling them to go undetected for prolonged periods. Needless to say, where incidents involving insiders have been revealed, there is a significant reputational risk for the business, particularly where large losses are incurred.

Risk mitigation

Maintaining a coherent approach across all business units is critical in mitigating this type of fraudulent activity. While this might not prevent a fraudulent act, your business will be protected from large-scale losses through early identification of suspicious behaviours. Robust due diligence and audit processes and controls will further mitigate the operational risk of fraud occurring. Importantly, once a fraud is identified, a clear and efficient escalation process will afford the opportunity to pause operations and prevent further losses.