The Rising Threat of Cyber Fraud in Supply Chain Management

The logistics sector is one of the most profitable within the global economy and one which is often seen as the ‘glue’ keeping all supply chains intertwined. Efficient logistics are integral to the successful expectations and relationships built between buyers, suppliers, and everyone in between. While logistics is primarily associated with the physical movement of commodities and goods, digital transformation and its rapid evolution across multiple industries have made the sector inherently more ‘online’ in recent years. Let’s explore the rising threat of cyber fraud in supply chain management.

Are Supply Chains Digitally Vulnerable?

The acceleration towards digital-first solutions was brought upon by the COVID-19 pandemic and the worldwide supply chain disruption it caused. Without getting too bogged down in the specifics, vital paperwork – including invoices, bills of lading, compliance certificates, shipment documents, and so on – is transitioned to the cloud. As such, processes and relationships between buyers, intermediaries and suppliers that were historically fostered with face-to-face or in-person interactions became predominantly digitised. 

Broadly speaking, the increased digitisation of the logistics sector has created exponentially larger and more vulnerable attack surfaces between parties throughout supply chains. Simultaneously, the threat landscape has expanded to such a degree that malicious actors and cybercriminals can execute attacks with minimal interference or detection, leaving vendors without the cyber knowledge or infrastructure to contain them, or prevent valuable assets or information from being exploited.

Post-pandemic, supply chain fraud rose by 13% year-on-year

Post-pandemic, supply chain fraud rose by 13% year-on-year, according to recent statistics, inflicting immense financial and regulatory pressure on both suppliers and buyers within geospatially-linked supply chains. As more parties upskill in proper cyber etiquette and invest in proactive threat containment and incident response solutions, it begs the question of what each connected party within any given supply chain can do to ensure the greater protection of important data, while minimising the attack surface.

This boils down to understanding the threats to watch out for in the increasingly digital supply chains of today, recognising the potential impact they can cause, making the most informed conscious decisions on supplier relationships, and investing properly in the right cyber defence strategies to protect all parties as much as possible.

Supply Chain Risks and Threats to Watch Out For

Given the rapidly evolving and highly sophisticated nature of modern cyber attacks, logistics firms and, by extension, their vendors and suppliers should be well aware of the cyber threat landscape. A high-profile example of ransomware affecting the logistics sector was in 2021 when the Colonial Pipeline attack disrupted fuel and gas supplies to regions in the south of the US, resulting in a $4.4 million ransom payment and devastating socio-economic fallout. However, this is just the tip of the proverbial iceberg.

Some of the major cyber risks that can drastically affect logistics firms include (but are not limited to):

• Ransomware: A type of malware that prevents users from accessing critical systems or files until a ransom is paid. According to recent research, ransomware is one of the fastest-growing types of cybercrime and is expected to syphon $265 billion every year by 2031.
  
• Phishing: A type of socially engineered cybercrime when malicious actors disguise themselves as known entities/individuals, deceiving users into divulging important logins, credentials, or financial information, or downloading malicious files that cripple systems and networks. Phishing attacks are usually executed via email, telephone, or SMS messages, or a hybrid of them all.
  
• Brute force: Calculated attacks triggered by malicious actors and armies of ‘bots’ attempting to crack login credentials and passwords ad infinitum, and gain access to sensitive files and information.
• MITM (Man-in-the-Middle) attacks: An umbrella term for situations when perpetrators position themselves between users and applications, usually in an attempt to impersonate one of the parties or eavesdrop on conversations.
• DDoS (Distributed Denial-of-Service): Malicious attempts to disrupt the normal traffic of targeted networks or servers by overwhelming the target and infrastructure with floods of ‘traffic’, preventing regular users from accessing systems they need.

Heightened Supply Chain Vulnerabilities in the Digital Age

As more supply chain vendors integrate new digital platforms and cloud-based solutions to make their operations easier and facilitate conversations between themselves and their suppliers, the digital attack surface naturally expands. 

The more organisations that adopt enterprise-grade infrastructure will gradually see outdated legacy systems fall behind in terms of cyber prevention. It may be in a buyer’s best interest to overhaul systems completely in favour of innovative new systems that can bring their operations fully into the digital age. However, this invariably comes at a high cost, particularly when budgets are stretched in these times of high inflation and interest rates. Therefore, firms have to make informed decisions about which parts of their existing infrastructure are most at risk and devise remediation solutions accordingly.

One of the biggest underlying issues of the current cyber attack epidemic is an alarming lack of proper cyber security knowledge

Fundamentally, however, one of the biggest underlying issues of the current cyber attack epidemic is an alarming lack of proper cyber security knowledge. Many raw material suppliers may be in the unfortunate position of having minimal technological infrastructure to truly understand the cyber threat landscape and a typical attack’s severity. Meanwhile, buyers – usually those in developed economies – are invariably better off.

However, cybercrime is not exclusively reserved for the less fortunate and technically-minded. It is a problem that affects all parties within a given supply chain, and to prevent more attacks from manifesting, it’s those who have access to the knowledge and infrastructure to educate, inform, and assist those without such luxuries.

The Ripple Effect of Supply Chain Cyber Breaches

Due to the interconnected nature of modern supply chains, even a siloed cyber attack can impact multiple stakeholders within a single ecosystem. Should a buyer or supplier fall victim to a cyber breach or fraudulent activity, it can lead to the following, to name just a few:

• The manufacturing and distribution of unsafe, counterfeit, or unverified products, thus flooding the market with cheaper knockoffs that can tempt buyers. As a result, trust is more likely to be eroded and financial returns are likely lessened.
• The disruption of production and shipping processes caused by system malfunctions can lead to missed deadlines, severe bottlenecks, and unforeseen raw material price hikes. In turn, this affects a supplier’s productivity and profitability.
  
• A firm’s share prices can be negatively impacted if they are publicly found to have suffered a breach, resulting in the termination of supplier agreements, loss of customer trust, regulatory fines, and potential layoffs.
• Fraudsters and malicious actors can move laterally through connected global systems if they gain access. In turn, they can misappropriate assets, send fraudulent invoices, or conduct a range of activities constituting corruption or bribery.

How to Defend Against Supply Chain Fraud and Criminal Activity 

The rising number of cyber threats that affect supply chains worldwide is not to be overlooked. Immediate and decisive countermeasures must be implemented if importers, exporters, and intermediaries are to have any hope of maintaining stability in a volatile and competitive digital ecosystem.

• Enforce strict onboarding controls and due diligence checks on third-party vendors and suppliers, validating their financial robustness, compliance with relevant anti-fraud, anti-money laundering (AML) legislation, and internal security policies.
• Conduct regular risk assessments to evaluate whether your existing security protocols, policies, and processes are effective and whether new vulnerabilities need to be addressed. If possible, expand this to validate third parties in your supply chain.
  
• Commit to regularly monitoring your suppliers through periodic transaction reviews, audits, and policy compliance checks. Deploy enterprise-grade data analysis to detect anomalies and false positives, while bolstering your threat intelligence efforts.
  
• Mutually agree on baseline protection methods like multi-factor authentication, patching regimes, SSL certification, and email security to minimise the attack surface within tools and software you and your suppliers ?use every day.
• Invest in cross-departmental training initiatives to make sure employees are continually aware of risks, possible signs of fraudulent behaviour and risk identification and reporting steps. This is crucial to developing improved cyber hygiene amongst geographically dispersed vendors and suppliers.

Proactive and definitive action

While it’s difficult to foresee anything other than a grim and challenging outlook as far as supply chain management and security are concerned, implementing the steps above will drastically reduce both your and your vendors’ attack surface. Proactive and definitive action today will ensure long-term stability and protection of assets vital to your supply chains and customers. It’s better to collaborate now and strengthen our collective cyber resilience if we are to see the true benefits of continued – and safe – digital transformation.

Prepare your supply chain for the future with IoSCM. Call 0800 1422 522 today to find out how we can help.