Those Pesky Shortages

By George Carl Pezold, Esq.
Pezold, Smith, Hirschmann & Selvaggio, LLC

       "Shortages" are a perennial problem and it seems there is an epidemic, particularly small shortages in shipments of consumer goods to retailers. Many of these shortages are from sealed or "dropped" trailers, or shrink-wrapped pallets, and are not discovered or reported until after the truck driver leaves. Vendors are often annoyed because their customers do not document or report the shortages promptly upon discovery, and merely deduct the shortages when paying the vendor's invoice - which could be weeks or months afterward.

       Aggravating this situation is trend for purchasers to want to control their inbound freight. Thus, many shipments are essentially "customer pickup", i.e., the customer designates the carrier, has a contract with the carrier, and pays the freight charges. However, in many cases the vendor is required to assume risk of loss in transit under the terms of the purchase order. This places the vendor-shipper in a difficult position to deal with the carriers and to recover on loss or damage claims.

       Large losses such as resulting from a truck hijacking, overturn, fire, etc. receive immediate attention and often investigation by law enforcement agencies. Small shortages, on the other hand, receive little if any serious attention because they are generally "under the radar screen". In fact, some transportation contracts have a minimum threshold for filing loss and damage claims, and many companies have a policy not to bother with claims under a certain amount, such as $100 or even $500.

       How do these shortages occur? Of course, there are some instances of simple miscounting either when loading or unloading, or packages going astray in a terminal during cross-docking, etc. However, the reality is that most of the time the goods have been stolen, and that the cumulative impact of thousands of these small shortages costs shippers millions of dollars every year.

       There are only three explanations for these shortages: either the freight was not put on the truck at origin, or it was stolen during transit, or it was stolen after delivery and while in the consignee's facility.

       What can Shippers do to prevent or minimize these shortages in the supply chain?
 
       SHIPPERS - Here are some suggestions:
  • restrict access to shipping areas
  • require identification of all personnel entering the area
  • check bags, packages, etc. of personnel leaving the area
  • check personal automobiles leaving the facility
  • conduct background checks of employees
  • install security cameras and monitor activity in the loading area.
  • establish and enforce procedures for verifying package count at loading
  • require loaders (and their supervisors) to sign manifests and loading tallies
  • ensure that labels comply with customer requirements and are properly applied
  • whenever possible use barcoded labels and scan packages during loading
  • test scanning devices periodically
  • take digital photographs during and upon completion of loading
  • make sure date and time are shown on the photograph
  • record serial numbers on high value goods
  • use distinctive shrink-wrap and/or tape so that tampering or restacking can be identified
  • weigh palletized shipments and put weight on pallet label
  • check trailer doors, locks, hinges, etc. before loading
  • apply shipper's seals on full trailer loads
  • record seal numbers on shipping documents
  • put special instructions (delivery appointments, etc.) on bills of lading
  • keep accurate gate logs of all vehicles entering and leaving the facility
  • record USDOT number, plate number and state on tractor and trailer
  • require drivers to provide photo identification and retain a copy
  • except for SL&C, require drivers to be present during loading and sign for package count (not pallet count)
  • require drivers to print name of carrier & driver and sign bills of lading or receipts
  • even if shortages are small, keep records and look for patterns for particular locations (DC's, stores), carriers, routes and drivers
  • report recurring patterns of shortages to corporate security and/or management
  • report recurring patterns of shortages to both the carrier and the customer
  • hire a security consultant or private investigator if a theft pattern is identified
      Consignees and receivers of goods can also take steps to reduce and prevent those pesky shortages. Many of the same precautions and suggestions that apply to shippers are also applicable to companies that experience shortages related to inbound shipments. What can receivers do to prevent or minimize these shortages in the supply chain?

       RECEIVERS - Here are some suggestions:
  • restrict access to receiving areas
  • require identification of all personnel entering the area
  • check bags, packages, etc. of personnel leaving the area
  • check personal automobiles leaving the facility
  • conduct background checks of employees
  • install security cameras and monitor activity in the receiving area
  • establish and enforce procedures for verifying package count at unloading
  • require unloaders (and their supervisors) to sign receiving reports
  • scan package barcodes during unloading and record exceptions
  • ensure that scanners cannot be disabled or blocked
  • test scanning devices periodically
  • take digital photographs before and during unloading
  • make sure date and time are shown on the photograph
  • inspect shrink-wrap and/or tape and report any signs of tampering or restacking
  • weigh palletized shipments and compare with weight on shipper's label
  • hold any pallets or packages that show signs of tampering in an OS&D area
  • promptly request a carrier inspection (in writing)
  • provide secured area for dropped trailers awaiting unloading
  • inspect trailer doors, locks, hinges, etc. for signs of tampering
  • inspect seals on TL shipments and check seal numbers against shipping documents
  • keep accurate gate logs of all vehicles entering and leaving the facility
  • record USDOT number, plate number and state on both tractor and trailer
  • require drivers to provide photo identification and retain a copy
  • except for dropped trailers, require drivers to be present during unloading and sign for any exceptions
  • record details of any shortages discovered after delivery (OS&D)
  • report all shortages promptly to the shipper and the carrier for investigation & corrective action
  • even if shortages are small, keep records and look for patterns for particular locations (DC's, stores), carriers, routes and drivers
  • report recurring patterns of shortages to corporate security and/or management
  • report recurring patterns of shortages to both the carrier and the vendor
  • hire a security consultant or private investigator if a theft pattern is identified