Due diligence is a crucial risk management process that enables businesses to protect themselves from potential exposures. In the context of the global supply chain, effective due diligence is increasingly important when selecting haulage contractors, service providers, or considering risks associated with new customers.

The need for due diligence in haulage contracting

Cargo theft remains one of the top claims costs for transportation and logistics companies globally. Many cases involve subcontracted hauliers, making the integrity of contractors a significant concern. Due diligence assists in assessing whether contractors can meet requirements, are financially viable, and possess the necessary qualifications and training.

Initial considerations

The starting point is identifying the required services and any particular expertise needed, such as the value and theft attractiveness of the cargo and the likely route. Ideally, stakeholders would have established approved hauliers through experience, but when an approved contractor is unavailable, a robust due diligence process becomes crucial.

Verifying contractor identity

One of the primary checks is verifying the contractor's identity and legitimacy. Red flags include communicating solely by mobile phone or free email accounts, lack of an established landline, business email, or website. Stakeholders should request relevant documents, such as legal names, trading address, insurance policies, terms and conditions, and compliance certificates.

Trading address verification

The trading address is an important consideration. Cases have emerged where a contractor's claimed address was actually a residential apartment block, raising suspicions about their legitimacy.

Balancing speed and due diligence

While digital platforms and freight exchange sites have increased the expectation for speed, stakeholders must balance this with thorough due diligence. Having a well-established process with identified minimum criteria is crucial to protect the business, even under time pressure.

Subcontracting and liability concerns

There have been instances where haulage movements were further subcontracted multiple times, creating a complex contractual chain and diluting control over cargo handling. Stakeholders should consider building service-level agreements with direct contractors, including provisions to prevent further subcontracting or assume back-to-back liability.

Freight exchange sites and online risks

When using freight exchange sites, stakeholders should not rely solely on the site operator's due diligence checks. They should follow their own established process and verify information from trusted sources, as online information may be inaccurate or fraudulent.

Responsibility and compliance monitoring

Due diligence should have support from senior management, with an established escalation process for discrepancies. While a wide range of personnel may perform due diligence, stakeholders need to monitor compliance and ensure final decisions are made by authorised personnel.

Cost considerations and potential exposures

While cost is a factor, stakeholders should consider the potential exposures of failing to conduct proper due diligence, such as cargo theft, damage, licensing issues, and the consequential impact on commercial relationships and reputation.

Conclusion

Implementing well-considered due diligence processes focused on early identification and verification of contractors is critical to avoiding losses and protecting businesses. Stakeholders should adopt a proportional approach tailored to their needs, with consistency and established escalation processes to control identified risks.