How to Manage Risk Among Logistics Partners
Businesses face their own unique challenges in today’s waffling economy, with credit largely frozen, consumerism measured, supply lines lengthening, and transportation-related costs reaching record thresholds. Aside from these internal and market-driven obstacles, companies also encounter considerable risk partnering with carriers, forwarders, and third-party logistics providers laying down their own odds to deliver competitive value and service in a soft market.
High fuel costs and diminishing freight volumes have forced industry contraction. Carrier bankruptcies are on the rise and players of significant size are either choosing, or being forced, to leave the business. Others will do whatever it takes to secure shipper business, even if it means taking short cuts, skimping on service, or subcontracting with less reliable companies. Market fluctuations and pricing pressures create bad behavior.
As a result, scamming activities, negligent hiring, service and security oversights, fraudulent cash advances, and general malfeasance such as holding a load "hostage" to force a shipper’s hand, have become familiar occurrences. Placing customer expectations, and your respective reputations, in the hands of third-party providers forces businesses to exercise extra due diligence in all transactions to ensure partners are viable for the long term and keep your priorities in mind.
SAFEGUARDING AGAINST RISKY BUSINESS
Here are four steps to hedge your bets when vetting and contracting with logistics partners:
STEP 1. Review all procedures for qualifying and contracting with third-party logistics providers and carriers. Ensure the basics are documented—obtain a copy of the applicable Motor Carrier (“MC”) license, operating authority, current insurance certificate, and latest safety rating. Also evaluate practices for issuing cash advances and confirming driver identity. Some companies prohibit advances after standard business hours to mitigate the risk of fraudulent activity.
STEP 2. Research 3PL or carrier business viability through Dun & Bradstreet, Hoover’s, or other Web-based services. Look for company name and address modifications or changes in ownership that may indicate a high-risk business model. If the company has a Web site, make sure information is up to date. Ask for customer references to get a firsthand account of its service commitment and capabilities
STEP 3. Subscribe to online services that provide ongoing monitoring of carrier safety, fraud alerts, changes in authority, and reports of incidents or questionable business activities. The Safety and Fitness Electronic Records (SAFER) System provides public access to records maintained by the Federal Motor Carrier Safety Administration. Commercial and subscription-based options are available from companies such as Carrier411 and Internet Truckstop. These services can integrate with transportation management systems to ensure updated information is placed in the hands of those managing transactions in real time. Some services also include blog-type capabilities where scams, threats, and other questionable business practices are reported.
STEP 4. Pay close attention to dates. When was authority initially granted? How long has the provider been in business? Have there been lags in insurance coverage? If an unsatisfactory safety rating was obtained, what was the time frame before a satisfactory rating was issued?