News, Education and Events Decoding Digital Payments & Fraud

News, Education and Events Decoding Digital Payments & Fraud

Parcel Forwarding: Fly-By-Night or Totally Right?

Parcel Forwarding: Fly-By-Night or Totally Right?

By Karisse Hendrick, Editor-at-Large,

Parcel Forwarding: Fly-By-Night or Totally Right? Parcel or freight forwarding is a service used by millions of international consumers to obtain foreign goods that may not directly ship to their country. These consumers obtain an address in the country they wish to purchase from (usually the United States, though it does happen elsewhere) and use it as their shipping address when ordering online. A forwarding service then ships the products, including the correct customs paperwork, to the foreign consumer who made the purchase. The immediate benefit of shipping to these customers is obvious: more reach and availability for customers to place orders can mean more sales. However, there are risks merchants should educate themselves about, which, in tandem with best practices from industry leaders, can help retailers attain a balance between increased sales and minimized risk.

The Allure

Even as cross-border e-commerce becomes more popular, there are still many Websites that either do not ship outside their home country, restrict shipping to only a few regions or offer different products and services outside their own borders. Foreign consumers, however, still want the good stuff, so they turn to parcel forwarding services. Parcel forwarders generally charge a percentage of the purchase price, in addition to customs fees, although many have simplified their pricing and made it more attractive by offering online sign up, flat fees, discounted shipping costs and allowing more than one name on the account so consumers can share the service with friends or family members. Some of these companies offer addresses in tax-free states like New Hampshire or Delaware, saving their consumers state sales tax.

Foreign consumers are not the only ones utilizing these services. Expatriates and military families stationed overseas often feel like they have to use these services to experience the creature comforts of home. And, because some domestic merchants do not accept foreign payment methods, some parcel forwarders will purchase an item on the consumer’s behalf using a domestic credit card, charging a service fee to do so and enabling customers to pay with their preferred payment method.

The Benefits

The biggest benefit to merchants in shipping to parcel forwarding addresses is increased top-line sales. For companies that are testing a new market or that don’t have the infrastructure to support a multitude of payment and shipping options, it’s a simple way to increase sales while exposing your brand to potential loyal customers. Adding new cross-border payment methods, country-specific Websites in different languages and setting up foreign fulfillment options can be costly. Allowing foreign consumers to purchase your products and have them pay for the additional shipping and customs requirements can be the best way to add sales for little extra cost.

The Risks

Not knowing the final destination of the goods you are shipping is risky for merchants. Many retail fraud managers say fraudsters love parcel forwarding because it enables them to have packages delivered to high-risk geographical locations (e.g., Nigeria, Venezuela or Russia) that would ordinarily lead the merchant to decline the transaction. The shopping option that many forwarders use (having the forwarder make the purchase with a domestic credit card) also has a high risk for fraud. And, without payment information on the actual consumer it becomes much more difficult to assess the risk of the transaction.

But, the risks go beyond fraud. Many retailers have reported a high percentage of “goods not received” chargebacks associated with orders to parcel forwarders. Even if the goods had a confirmed delivery to the shipping address, many end consumers hold the merchant responsible for a failed delivery, even if the parcel forwarder is to blame. This practice also can lead to challenges with returns and exchanges. If a foreign consumer has had a package shipped to them from a source other than the merchant, they still may expect the merchant to pay for overseas shipping and customs fees if they wish to return an item.

And, shipping products to geopolitically unstable areas, even unknowingly, can negatively impact retailers. Said one former director of risk at a big box retailer: “If we get caught shipping things with GPS or a microchip to a restricted country like Syria, Iraq or Afghanistan, not only are the fines massive but the results if the media gets ahold of it are less than favorable.  No one wants to be associated with supporting ISIS.”

The Players

It can be difficult for merchants to tell if a shipment is going to a parcel forwarding service rather than an individual. There are things to look for, however. A suite, account or unit number in the second address line could indicate a forwarder. International IP addresses or masked or proxy IPs can also tip a merchant off. Many retailers keep a list of known parcel forwarding companies, though all acknowledge this is not comprehensive, and new ones appear often. If you see a fraudulent transaction on a known parcel forwarding address, it may be best to establish a policy before placing the address on a negative list: All legitimate transactions also being shipped to these addresses will be rejected, possibly resulting in a high volume of false positives and lost customers.

The Strategies

Sometimes, there is disagreement among different departments in the same company regarding what the policy on parcel forwarders should be. Sales and marketing departments tend to welcome all sales, while fraud and risk departments would probably cancel all shipments headed outside the geographical areas a company formally supports. But what is right for your company?

“Merchants should understand as much as possible about their customers and implement a risk strategy that matches their business strategy and optimizes sales and profitability,” advises Rich Stuppy, COO of Kount. “Many times, very high value (affluent) customers use freight forwarders to get genuine, high-quality goods that are not readily available to them directly.”

Instead of only focusing on the risky orders that may be associated with these services, it is likely that there are more good sales associated with these services than fraud, though tracking these purchases and determining the ratio may help guide you to the right strategy.

Retailers generally employ one of three strategies when it comes to parcel forwarding services:

  • They will not ship to any known freight or parcel company, keeping a list of such companies and rejecting all transactions with the known shipping address.
  • They will accept transactions shipping to known forwarding companies, but will perform a risk assessment on other factors and monitor the outcome of these orders closely.
  • They will ship to all parcel forwarding addresses, even if there is a handful of fraud chargebacks, because many good orders outweigh a few bad.

Stuppy advises merchants to steer towards the middle strategy, managing the risk associated with freight forwarders in a way that doesn’t reduce sales and profitability.

“The best defense is to perform a comprehensive, real-time risk check associated with a transaction that analyzes data about the device, customer, payment implement, address, scoring, phone number, customer history, distances, bank information, association with fraudulent activities, linkages to high risk transactions and more,” he says. “The presence of a freight forwarder is only part of the picture and may not be a negative at all.”

One retailer said his company performs additional verification requirements on specific parcel forwarding companies if it is one they have not seen before. Additionally, he said, “monitoring forwarders in certain U.S. geographies and knowing which countries each forwarder specializes in shipping to is also important. For instance, many consumers in Latin America utilize forwarders in Florida. We have seen a spike in fraud chargebacks in orders that had a final destination of Venezuela recently, so we monitor these closer than we might forwarders located in other port cities.”

Amazon has created policies specific to parcel forwarding services, which appear to be intended to reduce “did not receive” chargebacks and return/exchange issues. The e-commerce giant requires that customers who do not have a U.S. address but have their order shipped to a U.S. address obtain written permission from Amazon to do so. The company also explicitly states, in those cases, it is not “responsible for damage, defect, material difference, or loss that occurs to goods after they’re delivered to you or a freight forwarder” and won’t replace goods or issue refunds for goods that fit into that category.

Having these policies posted on its Website provides Amazon the necessary requirements to represent a chargeback in these cases.

There are billions of Internet-connected devices around the world and the number grows each day. As more consumers come online, more will see and want what merchants beyond their borders have to offer. And, as the old saying goes, “where there’s a will, there’s a way.” In this case, the way is sometimes to pay a company to receive U.S. goods and ship them to an international destination.

While the majority of purchases are probably legitimate, it is important to know the risks and to create a comprehensive strategy that addresses those risks, while maximizing revenue for your company. Accepting orders from customers using parcel or freight forwarders may be right for your business. Remember, however, that when localized payment and shipping options are provided directly through a merchant, most consumers will select this option over paying additional fees to a forwarding service.

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Daniel Leibovitch