Friday, February 10, 2012

Avoiding Equipment Fraud

By James S. Peet, Ph.D., CFE

In December 2010, Maritime Safety and Security News published an article about fake bomb detectors being used in a variety of countries by numerous private and public organizations (including a national military force). Not only were the “bomb detectors” not functional, but those purchasing them had never verified if they worked. If your organization was relying on these bomb detectors, how effective do you think it would be at preventing a terrorist attack? The key point to take away from this event is to verify that your organization is actually getting what it paid for.

Does the Equipment Work?
If you or your organization is purchasing equipment from an outside vendor, you should strive to ensure that you’re actually getting what you pay for. With most equipment, it’s as simple as starting it or turning it on, and then testing it. Does the equipment function as it is designed to? If not, immediately return it to the manufacturer and have it repaired or replaced. In the maritime industry, equipment that fails to meet operational standards can be a matter of life and death. Who wants to operate a crane that malfunctions or fails to lift to its rated capacity, or install a safety valve that doesn’t function properly?

It’s not just shipboard and safety equipment that should be considered, but almost all equipment, including computer hardware and software.

Supplier and Manufacturer Due Diligence
One way to ensure that equipment you purchase is of a good quality is to purchase it from a reputable company. This doesn’t mean the company has to be a Fortune 500 company or have been around for decades (although this usually indicates a quality company, it’s not always the case). The company can be relatively new or even a start-up, but due diligence on the company and its officers can provide some insight into the character of the company and whether or not they have a strong commitment to quality products.

For example, if a company has a host of unresolved complaints or a bad rating by the Better Business Bureau, there might a problem with that company. Another red flag is if a company has gone through several name change and restructuring over the years. That usually indicates sufficient complaints through the courts or government agencies that the company decided to shut down to avoid further actions, and then started up again under another name.

Bankruptcy issues might also be a concern. If a company is in bankruptcy, will the support be there for your equipment when needed, or will the company go the way of the sailing cargo ship? This is an important matter, particularly when it comes to safety related equipment and essential software.

The company’s officers are important people to consider, particularly in new and start-up enterprises. Start off with some basic due diligence of the company’s officers by reviewing court records and doing some simple Internet searches on them. A history of arrests and convictions (particularly for fraud, theft, or drugs) is important to know, as are issues related to bankruptcy or civil actions (i.e., lawsuits). A lawsuit, bankruptcy, or even a divorce may mean the officer may be financial straits and might not provide the best quality product or service in an effort to cut costs and increase profits.

Equipment reviews are also an essential component of due diligence when purchasing equipment. If possible, always conduct at least a quick Internet search of the product and reviews (naturally, this is not something that can be done with special one off items). If a simple search on the Internet turns up a host of negative reviews from a variety of sources, then there might be a problem. If all the reviews are from a single unfamiliar source, delve deeper - it might be the competition trying to discredit the product.

Along with looking at the reviews to determine if the equipment works as stated, you should also look to see what actions have been taken by the company as it relates to negative reviews. If you see phrases such as “issues with earlier models have been corrected in the latest model” it shows that the company is striving to provide a quality product. But, if you see things such as “all attempts to contact the manufacturer have been ignored” or “problems that plagued the earlier models continue in this latest version” then you have a problem with the product and the company.

Don’t Overlook Internal Corruption
It isn’t just the supplier that could be defrauding your organization with poor quality equipment; it could also be an employee of your organization in cahoots with the supplier. According to the 2010 Report to the Nation, issued by the Association of Certified Fraud Examiners, corruption accounts for almost 22 percent of all fraud events, costing, on average, $175,000 per event.

When purchasing materials and equipment, an employee could be involved in a kickback scheme. This is a case where the employee uses his or her authority to purchase materials or equipment, but rather than purchase what is expected, a lower quality product is actually purchased, but at the higher quality price. The purchaser and seller collude to do this, and the purchasing employee receives a kickback from the seller.

Another opportunity for employee fraud is when one is authorized to purchase and receive property. Often, the employee will purchase more equipment than necessary, and when it arrives, return a portion of it and have the supplier refund the difference. Where the real fraud takes place is if the employee (or family member or close friend) has developed a shell company with a naming convention similar to your organization’s name. For example, if your company’s name is Pacific Maritime Shippers Co., (this name is made up by the author for example purposes only, and was not identified as a real company), an employee might open up a shell company named PMS. The employee can then deposit the refund check from the unwitting supplier into a business checking account that has been specifically set up to cash fraudulently issued check.

Ways to Prevent Fraud
Following some of the tips presented here and having a fraud prevention policy (and the will to enforce it) are the best ways to prevent these types of fraud from affecting your company. Look for things out of the ordinary with your employees (such as excessive vacations, jewelry, new cars, etc.), and, when necessary, do your due diligence. If there are signs of any of the red flags discussed here, you might wish to conduct an internal investigation to resolve the matter.

James Peet, a Certified Fraud Examiner (CFE), is the principle manager of Peet & Associates, LLC, a fraud examination business located just outside Enumclaw, Washington. He is a graduate of two law enforcement academies and has earned a BA at the University of Miami, an MA from California State University, Hayward and the Global Trade, Transportation, and Logistics Certificate, as well as a Ph.D. from the University of Washington.

Transportation Committee Advances Chassis Bill

The Washington House Transportation Committee this week voted to advance a bill that would change who bears responsibility for damaged chassis and cargo containers that move through the state’s ports.

On Feb. 7, the committee voted 22-6 to forward House Bill 2527, which would make shipping companies responsible for any defects in chassis and containers, rather than truckers, who currently have responsibility.

The proposed legislation, which is sponsored Rep. Deb Eddy, D-Kirkland, would add a new section to the state code stating that when a law enforcement official finds a violation on an intermodal chassis, “any infraction, fine, or penalty assessed on the intermodal container chassis must be assessed against the intermodal equipment provider.”

The proposed legislation, which was introduced Jan. 17, would also allow the chassis to be “placed out of service by law enforcement until the violation is corrected.”

The bill would also require the Port of Seattle to create areas where truckers could examine their loads and complete a pre-trip vehicle inspection report.

HB 2527 also mandates that haulers declining to carry a load due to safety reasons must still be paid the haul rate the driver would have received for transporting the load, and that the driver cannot be retaliated against for refusing a load on safety grounds.

Some truck drivers and supporters say the legislation is needed to protect drivers, who have little rights and independent contractors and must carry an inordinate amount of the burden in event of an accident or other event that causes damage to a cargo container or its contents.

Since last week, hundreds of drayage truckers throughout the state have been participating in a work slowdown as a means of support for HB 2527 and another piece of proposed legislation under consideration, House Bill 2395, which would reclassify drayage truckers as employees, instead of the current independent contractor designation.

HB 2527, now that it has received the transportation committee’s approval, moves on to the House floor for consideration. If approved again, it would advance to the state Senate for consideration. If ultimately approved into law as currently written, the change would go into effect July 1.

Thursday, February 9, 2012

Longview Grain Ship Docks Without Incident

Workers from the International Longshore & Warehouse Union helped dock the first ship to ever call at the new EGT grain terminal at the Port of Longview this week, a ship whose arrival they’d originally planned to picket.

The arrival of the grain ship Full Sources, which occurred without incident around mid-day on Feb. 7, came just over two weeks after the settlement a prolonged labor dispute that led to dozens of arrests and hundreds of thousands of dollars in fines last summer.

“EGT is open for business,” company CEO Larry Clarke said.

The Full Sources, which is owned by EGT partner Pan Ocean STX, is scheduled to take 57,000 tons of wheat to South Korea.

For weeks, the union members had planned to picket the 740-foot merchant ship’s arrival at the new Berth 9 terminal, but that all changed last week after ILWU Local 21 was able to hammer out a labor agreement with the terminal operator.

The dispute stemmed from the company using the services of a union other than the ILWU at Berth 9, which is a $200 million joint venture between Bunge Ltd., ITOCHU International and STX Pan Ocean.

Local 21 had contended that its contract with the Port of Longview required that the 25 to 35 jobs inside the terminal go to ILWU labor. The company, however, said its lease agreement with the port does not specify ILWU workers, and members of Operating Engineers Local 701 had been working at the terminal.

As part of the conflict, ILWU members and supporters picketed the facility last summer. During some protests, picketers stormed the facility, cut brake lines on rail cars and dumped grain from the cars, among other things, which led to dozens of arrests on trespassing and disorderly conduct charges.

A federal trial on the dispute had been scheduled for March, but was suspended after the office of Washington Gov. Chris Gregoire announced on Jan. 23 that it had negotiated an agreement between the two sides.

Berth 9 is the first export grain terminal built in the United States in more than 25 years. EGT spokesman Matthew Beck said the company expects to load 150 to 200 ships annually bound for Asia. The new grain terminal could quadruple the tonnage of cargo that passes through Longview, according to port officials.

Port of Tacoma Seeks Planning Input

The Port of Tacoma is conducting two public meetings next week to gather input on the draft version of its 2012 strategic plan.

The port is currently developing the plan to use as a guide toward its next chapter of economic growth. The plan’s focus is on near-term actions, but aims to set Tacoma’s course for the next 10 to 15 years.

As part of the effort, the port is also examining its identity and has hired a company, BrandStrata, to support efforts to create a brand reflecting Tacoma’s strategic advantages over other ports.

Six overall goals are outlined in the plan, they include:

  • Enhancing the port’s competitive position via means such as improving the port’s business assets, efficiency and cost competitiveness, and advancing the port’s market position in the international shipping industry.
  • Bettering local and regional infrastructure connections via methods such as development of a long-range rail system plan and improving the operational performance of the major road corridors in and around the port.
  • Improving the port’s financial performance through the creation of new bulk business, updating of the debt management plan and adjusting the port’s business and operating models to increase profit.
  • Increasing workforce and organizational capabilities by optimizing the use of electronic records, strengthening the port’s performance management system to support employee growth, and reinvigorating the port’s safety program to reduce work-related injuries.
  • Advancing the port’s environmental efforts by identifying and addressing environmental issues in advance of planned development, and partnering with customers to find solutions to environmental challenges, such as stormwater treatment.
  • Strengthening the port’s connections with the surrounding community by strengthening relationships with civic and elected leaders in communities affected by the port’s activities, increasing public awareness about the port and its work, and using strategic partnerships to advance regional economic development priorities.

The two open houses on the strategic plan are scheduled for 4:30 pm Mon., Feb. 13 at the Fabulich Center in Tacoma, and 4:30 pm Wed., Feb. 15 at the McGavick Student & Conference Center at Clover Park Technical College in Lakewood.

More details on the plan and meetings can be found at
The Port of Tacoma Commission is expected to adopt the plan in March.

Job Activity Nearly Triples at Port of Long Beach

About 3,000 additional jobs were generated at the Port of Long Beach in 2011, along with nearly $300 million in regional economic activity, thanks to new construction projects, port officials revealed in a report this week.

“This report reaffirms all the positive things we’re doing here,” POLB Executive Director J. Christopher Lytle said. “The money we’re investing is paying off in terms of jobs created.”

Among the projects cited for the boost were the kickoff of the port’s $1.2 billion Middle Harbor redevelopment project, preliminary construction on the Gerald Desmond Bridge Replacement and a new maintenance facility.

The estimated 3,000 jobs were nearly triple that of the prior year; in 2010, port projects generated about 880 jobs.

“2011 was a spectacular year for jobs, particularly when compared to 2010. By February 2011, we had exceeded the number of jobs added in all of 2010,” Larry Cottrill, the port’s Director of Master Planning said. About 96 percent were in construction-related fields, he said.

The port has about $4.5 billion in capital improvements planned for the next decade, which could generate as many as 50,000 new, permanent jobs in the region plus thousands of temporary construction jobs.

The port currently supports as estimated 30,000 jobs in Long Beach – one in eight in the city – as well as nearly 316,000 throughout Southern California. Nationwide, the port says it supports about 1.4 million jobs in fields related to goods movement, including dock work, truck driving, warehousing and freight forwarding.

Tuesday, February 7, 2012

Heed Canada's Strategic, Coordinated Cargo Transportation

By Don Meyer
Port of Tacoma Commissioner and Connecting Washington Task Force Member

January 2012

Canada has its freight transportation act together, and it’s time the United States did the same if it wants to stay competitive.

Eighty percent of the American population lives east of the Mississippi River. Puget Sound ports traditionally have competed with southern California ports to reach those customers. In recent years, though, a host of new competitors have emerged in Canada, the US Gulf and East Coasts as shippers have sought alternate ways to reach the main US population centers.

Canadian port cargo volumes have surged. Port Metro Vancouver has seen its containerized cargo volumes increase by 14 percent since 2006 despite the bruising recession. The newly formed Port of Prince Rupert grew in its first three years to handle more than 300,000 20-foot equivalent (TEU) units, and it continues to add new services.

The Harbor Maintenance Tax remains a sore subject between US and Canadian ports. Discussions are likely to continue for some time over whether it’s fair for the tax to be charged on international cargo destined for US markets that come through US ports but not Canadian ports.

But one immediate lesson we can learn from Canada is the value of strategic transportation investments.

A key factor in improving their competitiveness is the massive, coordinated investment being made by the Canadian government through the Asia-Pacific Gateway and Corridor Initiative. Investments include more than $1 billion in road and rail connections that reach across western Canada and into the economic heartlands of North America. They are also taking a similar approach with the Atlantic Gateway and Corridor strategy that is currently under way.

But capacity alone does not guarantee service, so Canada is also linking infrastructure investments to performance standards that help them measure efficiencies and service expectations in the overall logistics chain. What is even more amazing is this is all being done on a collaborative basis between public and private entities.

We need something similar in the United States.

Our multimodal freight transportation system is a national asset that we have failed to appreciate and support.

In recent years, the chorus of voices calling for a “vision” for our transportation future has swelled. Nowhere is this need more pressing than in the freight system that provides for our nation’s commerce. Without strategic corridor investments to expand capacity and increase efficiency, US productivity and global competitiveness will suffer, costs will increase and investment will lag.

The benefits of freight improvements are substantial.

Sustainable goods movement lies at the center of our productivity and quality of life, not just for the availability of consumer products. Improvements to freight infrastructure can result in reduced congestion, better air quality and less wasted time and fuel. In addition, employment in the logistics sector is one of the fastest-growing sources for job creation in the US economy.

Productivity growth in freight transportation has long been a driving force for the growth of US overall productivity and contributed directly to the growth of the US GDP, according to the Bureau of Transportation Statistics.

International trade, combined with domestic growth, has created millions of new job opportunities and a higher standard of living for Americans. But these benefits will last only if we are able to keep moving our freight on a competitive basis.

A seamless system through the northern United States will be critical in our nation’s ability to implement President Barack Obama’s National Export Initiative to double exports in the next five years.

To create more jobs through more exports, the nation’s road and rail connections, and the nation’s ports, must have the capacity to handle more cargo efficiently and cost-competitively.

We must do as Canada has done, to view the system in its entirety, with coordinated investments under one overarching freight strategy.

This is not just a federal issue. State and local investments also must tie into the system.

To address state needs, Gov. Chris Gregoire recently formed the Connecting Washington Task Force. The group is charged with reviewing statewide transportation needs, recommending the most promising investment options and revenue sources to address the top priorities.

I am joined on that task force by nearly three dozen other locally elected officials, members of state legislative transportation committees, tribal members, organized labor, and trade associations and businesses.

The discussions have been painful as we wrestle with making recommendations to the 2012 Legislature because the needs are so great. Our initial list identified $50 billion in needed transportation investments throughout the state.

In difficult economic times such as these, however, we need to focus our limited resources on completing key freight corridors that spur jobs and connect people to job centers.

One regional example that fits the criteria is the completion of State Route 167 from Puyallup to the Port of Tacoma.

Despite its broad support as a priority in Pierce County for more than 20 years, SR 167 still ends abruptly in Puyallup, dumping cars and trucks onto surface streets for the last 6 miles to Interstate 5 and the Port.

Completing the highway would provide a direct link to the manufacturing and distribution centers in the Kent and Puyallup River valleys. It also would provide the “last mile” connection for agriculture products grown in eastern Washington to reach Port docks for export.

We in the shipping, agricultural, manufacturing and logistics industries all need to communicate the urgent need for – and the broad economic benefits of – transportation investments.

Let’s do it before more cargo finds a home elsewhere.

Don Meyer is a Port of Tacoma commissioner and a member of Washington State Governor Christine Gregoire’s Connecting Washington Task Force. He is also the former executive director of the Foss Waterway Development Authority and a former deputy executive director of the Port of Tacoma.

Truckers Conduct Work Slowdown at Washington Ports

Hundreds of truck drivers who normally haul goods to and from ports throughout Washington State stayed off the job last week to send a message in a dispute over pay and safety issues.

At the Port of Seattle alone, about 300 to 400 truckers chose not to work delivering cargo containers at the port and nearby BNSF Railway yard last week. Of those, an estimated 120 missed work to make a trip to the state capital, Olympia, to witness and participate in hearings the state Legislature has been conducting on two statewide pieces of legislation.

One bill, House Bill 2395, would reclassify drayage truckers as employees, instead of the current independent contractor designation; another, HB 2527, would make shipping companies responsible for any defects in chassis and containers, rather than truckers.

HB 2395 doesn’t outright ban owner-operators from ports, but would allow the Washington Department of Labor to reclassify independent contractors as employees if they enter port property.

Some truck drivers and supporters say the legislation is needed to protect drivers, who have little rights and independent contractors and must carry an inordinate amount of the burden in event of an accident or other event that causes damage to a cargo container or its contents.

The truckers, many of whom are immigrants from other countries, have the support of various community groups, such as Puget Sound Sage, a coalition of labor, faith and community organizations.

“They are at the fulcrum of our economic recovery,” David West, executive director of Puget Sound Sage, said of the drayage truckers. “But they do not share in industry prosperity because the system is fixed against them. They work in sweatshops on wheels.”

There has been industry opposition to both bills, however. Capt. Michael Moore, vice president of the Pacific Merchant Shipping Association, said in a letter to Port of Seattle and Port of Tacoma executives that HB 2527 would “threaten the future viability of both ports” and “result in confusion and inefficiencies while increasing congestion, emissions, costs and liabilities.”

Also, the Washington Trucking Association, which opposes the employee mandate in HB 2395, contends that any attempt by a state to regulate the rates or services of trucks engaged in interstate commerce violates federal law and that if the state Legislature approved either bill, the WTA would challenge it in court.

HB 2395 is similar to an employee mandate that the Port of Los Angeles attempted to enact in recent years as part of an anti-air pollution program. Last September, however, the US 9th Circuit Court of Appeals ruled against the mandate.

New Service Launching Between Portland, Mediterranean

Starting Feb. 8, ICTSI Oregon Inc. is welcoming a newly expanded containership service offered by Hapag-Lloyd and Hamburg Süd to the Port of Portland.
The service is expected to connect the Pacific Northwest and Mediterranean with direct calls and fixed-day weekly service, plus also offer feeder connections to the Far East, Middle East, Indian Ocean, Latin America and West Africa.

“Portland offers a strong import and export market with a newly deepened navigation channel and excellent intermodal rail, truck and barge connections,” ICTSI Oregon sales and marketing vice president David Trzyzewski said.

ICTSI Oregon, a subsidiary of International Container Terminal Services Inc., operates Portland’s Terminal 6 container terminal under a 25-year lease with the port. ICTSI runs 22 container terminals and port projects in 17 countries in Asia, Europe, the Middle East and Latin America. Portland, however, marks the company’s first entry into the US market.

By bringing in more ships into Portland’s Terminal 6 and improving the regularity of the calls, the service is expected to provide a more efficient, dependable and competitive option for shippers utilizing the Port of Portland, ICTSI says. The addition of Hamburg Süd ships in March should add capacity while reaching new ports overseas.

“This comes as very good news, and it will significantly increase our volumes out of Portland,” said Lee Goodwin, manager of international transportation for Boise Inc. said of the new service. Boise Inc. exports containerized paper products from Pacific Northwest mills through Terminal 6.

“Using this enhanced weekly service will improve efficiency, cost savings and flexibility in our schedules,” Goodwin said.

The planned port rotation for the newly configured North America West Coast service is: Cartagena, Manzanillo in Mexico, Los Angeles, Oakland, Seattle, Vancouver, Portland, Oakland, Los Angeles, Manzanillo (Mexico), Manzanillo (Panama), Cartagena, Caucedo, Tangier, Valencia, Cagliari, Livorno, Genoa, Marseilles-Fos, Barcelona, Valencia, Tangier and back to Cartagena.

LA Harbor Tour Boat Approved for Landmark Retrofit

The Port of Los Angeles says its 42-year-old harbor tour boat is poised to become the first harbor craft of its kind retrofitted with a system that reduces emissions and fuel usage by more than 95 percent.

The Angelena II has received approval from the US Coast Guard for installation of a hybrid propulsion system which, if completed as planned this spring, would be the first such system in a vessel of its kind, according to the port.

“The Angelena II is an invaluable business and public education tool, and now we can also use it to demonstrate yet another emerging technology that can reduce emissions in ports and harbors around the world,” port Executive Director Geraldine Knatz said.

The 73-foot tour boat, which the port bought in 1988, is used to highlight the capabilities of port facilities. LA provides several hundred tours annually on the boat, which can take up to 40 guests on 60- to 90-minute harbor tours.

In 2011 alone, the boat hosted more than 4,000 visiting sightseers, including port customers, constituents, public leaders, foreign dignitaries, media members and stakeholders.

Since its construction in 1970, the Angelena II had been powered by two 350-horsepower diesel engines, but as of September 2011, they no longer met California emissions requirements.

The port says it received a grant of about $500,000 from the US Department of Energy to upgrade the vessel power system to cleaner technology, and is spending about $200,000 for the cost to replace the existing diesel engines, which are a Coast Guard requirement for back-up power.

Installation and repair work is being done by LA city workers, including electricians, carpenters and others.

Historic LA Merchant Ship Temporarily Relocating

Due to wharf expansion at nearby berths, the historic Merchant Marine vessel SS Lane Victory is temporarily relocating from its current location at the Port of Los Angeles’ Berth 94 at the Cruise Ship Promenade to Berth 46, according to the port.

The ship is scheduled to remain at Berth 46, just south of Cabrillo Way Marina for about nine months, the port says.

During the move, the ship is scheduled to be closed to all visitors through Sun., Feb. 12, and reopen to the public Mon., Feb. 13.

The SS Lane Victory, which was built in Los Angeles in 1945, served during World War II, Korean War and Vietnam War. After years of deterioration, volunteers of the United States Merchant Marine Veterans of World War II restored the vessel to its original condition.

It’s now a nationally recognized historic landmark and serves as a museum and memorial to the service and sacrifices of Merchant Marine sailors and Navy Armed Guardsmen.

The ship is relocating to Berth 50 in the port’s East Channel after improvements are completed at that berth later this year; a permanent location for the vessel hasn’t yet been determined, however.