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During the last 6 months, we have received several reports from importers being defrauded by Chinese freight forwarding companies. Since mid August, the frequency of these shipping scam reports has increased rapidly. Thus, we decided it was time to issue a warning to our readers, and explain how you can best protect your business from scammers.
The scammers exploit the Bill of Lading
Let’s begin by introducing you to how the shipping process usually works, when no scammers are involved. Most importers buy according to FOB (Free on Board) terms, which means that their Chinese supplier takes care export clearance and delivery to the Port of Loading (e.g. Shanghai or Shenzhen).
The importer then assigns a freight forwarder, with an office in China, to forward the cargo from the Port of Loading to the Port of Destination, in the importer’s country. Once the products are shipped, the Bill of Lading, and other relevant shipping documents, shall then issued by the freight forwarder.
After the Bill of Lading and other relevant freight documents are issued, the original documents are sent by express mail to the importer. The importer must give local port authorities (directly, or indirectly through a customs broker) access to the original Bill of Lading, and other documents.
Without the Bill of Lading, the importer cannot prove ownership of the arriving cargo, and will therefore not be able to go through customs procedures, in order to access the cargo. This is exactly what is being exploited by the shipping scammers.
How are buyers being scammed by freight forwarders?
All reports we’ve received follow the same pattern. The importer purchase items from their Chinese supplier according to FOB terms, which then ships the cargo to a freight forwarder in China. This freight forwarder is selected by the buyer, not the supplier.
The cargo arrives, and the buyer pays the freight forwarder for the shipping (usually according to CIF terms) to the Port of Destination. The freight forwarder ships the cargo, and this is also when it get’s interesting. While the cargo is not stolen, but actually shipped to the buyer, the original Bill of Lading is never delivered. Roughly a month later, the cargo arrives, and the buyer is expected to provide the Bill of Lading, and Commercial Invoice, to the customs authorities.
Around the time of the arrival, or perhaps a few days before, the freight forwarder suddenly demands more money from the importer. If the buyer refuses to pay, they withhold the Bill of Lading, and other freight documents. We’ve seen scammers demand additional payments ranging between US$11,000 to US$25,000. That’s quite a hefty ransom that few small businesses and startups can afford.
As a result, the buyer cannot clear the cargo through customs, thereby facing a total loss. However, things get even worse: if the buyer has not picked up, or contracted a local forwarder to pick up, the cargo within a few days, the buyer must pay a daily ground rental fee, ranging between US$50 to US$100. This fee is charged for each day the cargo remains in the Port of Destination, therefore putting even more financial stress on the defrauded importer.
Are the local port and customs authorities offering any help?
No, in all cases reported to us, the carrier and the local authorities have simply stated that it’s the importer’s responsibility to provide the original Bill of Lading, Commercial invoice and Packing List. Without this, they remain in a deadlock and cannot get access to their cargo.
Who are behind these scams?
These scams seem to be carried out by various small Chinese “freight forwarders”, advertising on various B2B sites, or sending targeted marketing emails to importers. In the latest reported case, the importer found the freight forwarder on Alibaba.com, but by the time they realized they were being defrauded and reported the occurrence to Alibaba, the freight forwarder had already deregistered from the supplier directory and disappeared. That said, Alibaba did take swift action once the case was reported, and I don’t think any other B2B supplier directory could have done much more to avoid the situation.
At Alibaba.com, and other B2B platforms, are open supplier directories, it is impossible to regulate every single company, email conversation and transaction. These, so called, freight forwarders are most likely not even properly licensed in China, and only set up as temporary “fly by night operations”, to bring in as much money as possible – only to hide well before the local authorities are aware of what’s going on.
However, I would expect that these freight forwarder offer prices below the market rate. This tactic is also commonly used by other scammers, often claiming to sell branded goods.
Where do these reports come from?
So far, we have only received shipping scam reports from importers in Europe, Asia and Latin America. That said, we are only aware of scams reported directly to Chinaimportal.com. Therefore, we have no data indicating that buyers in other countries, including the United States and Australia, are not being targeted by these scammers.
What is the Chinese government doing about this?
The Chinese government is certainly not going easy on fraudsters. However, these businesses are fronts for criminals that know how to take advantage of the system. By the time local authorities are made aware of such scams, the money is already long gone.
Tracking down the scammers is very hard and can take months, if not years. As in most countries, local police authorities rarely have the resources to pursue ongoing investigations, unless the amounts involved are too great.
It is also entirely possible that some of these scams are carried out by non-Chinese organizations, posing as Chinese businesses. We have seen quite a lot of payment scams being carried out through entities registered in Hong Kong and Africa, posing as Mainland Chinese entities.
How can I protect myself from shipping scams?
If a price seems too good to be true, it probably is. An established freight forwarder, Chinese owned or not, would never apply such scam methods. I have worked with several freight forwarders in China, primarily in Shanghai, and never once have I had a first hand experience, or even heard, of shipping scams.
Another option is to let the supplier manage the shipping, instead of contracting an external freight forwarder. I find it extremely unlikely that a serious manufacturer in China would ever attempt to scam their buyers by withholding the shipping documents.
Considering the increased frequency of shipping scams reported to ChinaImportal.com, I think this may be the beginning of an ongoing trend. Seemingly, these scammers have found yet another way to exploit small businesses importing from China, and other countries.
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Co-founder of Asiaimportal (HK) Limited and based in Hong Kong. He has been quoted in and contributed to Bloomberg, SCMP, Alibaba Insights, Globalsources.com, China Chief Executive, Quartz Magazine and more.
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