Supply Chain

Fake It Till You Freight It: The Counterfeit Ghost in the Logistics Machine

Fake goods account for a massive 2.5% of world trade every year – the equivalent of €426 billion, according to the Organization for Economic Cooperation and Development (OECD). It’s a problem that isn’t about to go away, despite the best efforts of government organizations, the private sector, and NGOs.

The industry of counterfeit goods is incredibly opportunistic, a factor that’s highlighted by its increased production at times of rising demand. According to startup Smart Protection, sales in sporting goods, kitchenware, and office equipment skyrocketed during the pandemic, leading to an influx of counterfeit goods into the market to take advantage of the increased demand. In response to this growing problem, a suite of new technological innovations has been developed to combat it.

Counterfeit goods have infiltrated the global market 

The counterfeit problem has grown at an alarming rate in recent years. The latest report from the OECD, for example, highlights a 154% increase in counterfeit goods traded internationally between 2005 and 2016, reaching an overall estimate of €457 billion worth of counterfeits at the peak. 

The European Union Intellectual Property Office (EUIPO), meanwhile, says that imports of counterfeit goods in Europe reached €119 billion in value, accounting for a staggering 5.8% of total EU imports from the rest of the world. According to the EUIPO report, over 80% of counterfeit goods come from China and Hong Kong, although Turkey, Singapore, and the United Arab Emirates also account for a significant share of these products. This abundance of fake goods erodes the trustworthiness of logistics firms and global brands when imitation products make their way into the supply chain.

What industries do counterfeiters target the most?

High-value or luxury products that offer high-profit margins for fraudsters account for the greatest deal of counterfeit goods, globally. According to a 2021 OECD report, footwear made up 27% of all seized counterfeit products in 2019, followed by clothing and leather fashion products like handbags. Particularly alarming, due to the impact on health, is that counterfeit pharmaceutical products have become a real threat, with their trade totaling over €4 billion in 2016 according to the latest OECD data. The fact that medication counterfeiters most often target products that are less likely to require high-grade inspection and are less likely to affect the recipient’s physical health — so as to attract less attention from law enforcement – doesn’t exactly make this less worrisome. Aside from luxury, footwear and medical products, typical goods targeted by counterfeiters include apparel, household accessories, electronics, and toys. However, the automotive and cosmetics industries are also witnessing the growth of sub-standard fake products.

These replicas of genuine products are not subjected to industrially accepted tests for quality standards, meaning they can be harmful to consumers. Hyundai, for example, published a video raising awareness on the problem of defective counterfeit airbags, warning of the risk of death to car owners who weren’t aware they had bought a defective part. The U.S. Federal Trade Commission values the counterfeit auto parts industry at €11 billion a year globally, and counterfeits are available for any number of replacement parts, including brake pads and other components that are crucial for driver safety.

How can we prevent counterfeiters from swapping their replicas for real products?

Counterfeit goods get past inspections for several main reasons: firstly, they are crafted to look so much like the real product that even inspectors can’t tell the difference. Second, detailed examinations are usually skipped in favor of faster delivery times. Finally, and most critically, the sheer volume of parcels being delivered vastly outnumbers the manual inspection methods available. Between 2014 and 2020, global parcel volume has soared from 43 billion to 131 billion parcels shipped! 

On paper, the best way to combat these problems is for logistics companies to enforce discipline in verifying supply chain partners and products, down to the suppliers, distributors, and subcontractors. However, this isn’t always a practical solution, given the complex nature of supply chains and the workload requirement to reinforce verifications or punish failed due diligence.

As counterfeit goods cost global brands more than €213 billion in 2018, some companies have been working hard to provide a more efficient and more effective solution. One firm, and Beam startup, Countercheck, intercepts counterfeit parcels at the point of sortation automatically via camera recognition and Machine Learning technology and sideloads them on detection. Then, advanced analytics allow logistics providers and brands to monitor any flagged activity in real-time, helping them to pinpoint areas of the supply chain that might be compromised. 

Alternative initiatives to tackle the issue of counterfeits include French startup Cypheme, which have developed unique tabs that are monitored by artificial intelligence software to authenticate products that did make it into circulation to combat counterfeiting post-distribution. Distributed ledger and blockchain technologies also provide a solution to the counterfeiting problem — a recent DHL report stated that blockchain can help to prevent the widespread problem of counterfeit pharmaceuticals. SAP provides a solution that is designed to reduce drug counterfeiting by adhering to directives issued by governments around the world requiring drug serialization and commensurate compliant reporting. Although counterfeit products will invariably make it into the supply chain, these new technologies are well overdue and have the potential to go a long way towards combating counterfeiters – wherever their products may reside.