Cargo Theft, Loss Prevention, and Supply Chain Security

Dan Burges

• Publisher: Butterworth-Heinemann
• Year: 2012
• ISBN:
  9780123914682
• Topic: Social Sciences
• Subtopic: Criminology
• Index: Social Sciences

Cargo Theft, Loss Prevention, and Supply Chain Security outlines steps for identifying the weakest links in the supply chain and customizing a security program to help you prevent thefts and recover losses. Written by one of the world's leading experts in cargo theft analysis, risk assessment and supply chain security, this is the most comprehensive book available on the topic of cargo theft and loss prevention. Part history of cargo theft, part analysis and part how-to guide, the book is the one source supply chain professionals and students can turn to in order to understand every facet of cargo theft and take steps to prevent losses.This groundbreaking book contains methods of predictive cargo theft modeling, allowing proactive professionals to develop prevention solutions at every step along the supply chain. It provides a complete methodology for use in creating your own customized supply chain security program as well as in-depth analysis of commonly encountered supply chain security problems. It also supplies a massive amount of credible cargo theft statistics and provides solutions and best practices to supply chain professionals who must determine their company's risk and mitigate their losses by adopting customizable security programs. Furthermore, it presents cutting-edge techniques that industry professionals can use to prevent losses and keep their cargo secure at every stage along the supply chain.This book will be of interest to manufacturing, logistics and security professionals including chief security officers, VPs of logistics or supply chain operations, and transportation managers, as well as professionals in any company that manufactures, ships, transports, stores, distributes, secures or is otherwise responsible for bulk product and cargo.

• Outlines steps you can take to identify the weakest links in the supply chain and customize a security program to help you prevent thefts and recover losses
• Offers detailed explanations of downstream costs in a way that makes sense - including efficiency losses, customer dissatisfaction, product recalls and more - that dramatically inflate the impact of cargo theft incidents
• Provides a complete methodology for use in creating your own customized supply chain security program as well as in-depth analysis of commonly encountered supply chain security problems

Part 1

Understanding the Problem

1 Cargo Theft 101

2 Cargo Theft Defined

3 Risk vs. Reward

4 Organized Criminal Groups

5 The Black Market

6 International Cargo Theft

7 Product Targeting

8 High Tech

9 Pharmaceuticals

10 The True Impact of Cargo Theft

1

Cargo Theft 101

INFORMATION IN THIS CHAPTER:

• Overview of cargo theft in the United States

• What criminals target and how they steal in-transit cargo

• Summary of downstream costs from cargo theft

• Overview of industry efforts to combat theft gangs

• Discussion of government supply chain initiatives and their relation to theft prevention

Known as the “silent” or victimless crime, cargo theft ultimately costs the U.S. economy several billion dollars annually. At this point we are only able to give an estimated magnitude of the crime. Across the country, trailers loaded with hundreds of thousands of dollars in electronics, pharmaceuticals, clothing, tobacco, and other high-value goods are being stolen at an alarming rate right out from under the noses of those who make, store, and ship the goods that fuel our stream of commerce. And while the cargo theft gangs turn huge profits for crimes that carry very little risk, their victims are left scrambling to pick up the pieces.

Truck stops, parking lots, and other unsecured locations are becoming a veritable battleground between cargo criminals and those tasked with moving and securing goods in transit. What’s more, the downstream costs incurred by our nation’s manufacturers and shippers as a result of cargo theft exacerbate the direct monetary losses due to hidden and typically unbudgeted charges.

These are the costs that inflate the total value of theft incidents exponentially—costs that manufacturers bear in the short term as they remake, replace, and reship goods to their originally intended destinations, but costs that are partially borne by them but ultimately paid for by all of us at the cash register.

According to FreightWatch International, 899 cargo theft incidents occurred in 2010, a record high since FreightWatch began tracking cargo theft in 2006 (Burges, 2010, p. 2). Other organizations such as CargoNet, Chubb Insurance, and the Supply Chain Information Sharing and Analysis Center (SC-ISAC) all report comparable numbers using a variety of methods of collecting statistics and incident data.

While definitions of cargo theft vary and estimates of product loss values range from $8 to $30 billion per year, it is clear that this problem is having a devastating impact on the bottom lines of companies. Understanding the full impact of cargo theft on supply chain operations—and creating cutting-edge technologies and solutions to stay ahead of the gangs—is the imperative of all professionals in and around the industry, not just the ones whose companies are currently suffering losses.

In 2009, more than $188 million in pharmaceuticals alone were stolen off America’s highways. The following year that sector suffered another $185 million in cargo losses. This is despite the fact that the drug industry has been securing its supply chains and fighting cargo crime on a national level since 2005, the year it became apparent to industry professionals that large-scale pharmaceutical theft had moved well beyond the discrete and seemingly random.

The forerunner in developing cargo theft prevention standards, however, was the high-tech industry, which has been tangling with theft gangs for well over a decade. Facing full-truckload losses of computers, cellular phones, televisions, gaming consoles, accessories, and more since the late 1990s, industry logistics and security professionals began sharing information. This led to the formation in October 1997 of the Technology Asset Protection Association, now the Transported Asset Protection Association (TAPA). As the number of thefts continued to rise into the 21st century, however, industry professionals became keenly aware that it was no longer a question of “if” a company was going to suffer a loss, but rather “when.”

With this dose of reality as the motivating factor and information-sharing groups such as TAPA the means, in-transit security policies and procedures and formalized warehouse security standards for the manufacturing and distribution network came into existence.

And sure enough, these protective measures worked. Companies that began hardening the supply chain by implementing security protocols saw a marked decrease in cargo theft. However, the cargo thieves did what they do best: they adapted. With the vast U.S. supply chain providing virtually unlimited opportunities, the criminals simply adjusted their operations to target the weakest links—focusing on trailers left unattended in unsecured parking areas, facilities with minimal security systems, and transportation providers and intermediaries not following standard security practices. By ratcheting up defenses at fixed sites such as manufacturing plants, warehouses, and distribution centers and in transit, these early adopters essentially made themselves less vulnerable than others and, in effect, just redirected cargo thieves to seek out facilities and mobile assets lacking adequate protection.

The lack of formal theft reporting results in wild variations in estimates of total annual losses. In 2006, as part of the PATRIOT ACT renewal, cargo theft was added to the list of crimes that must be reported to the Uniform Crime Report (UCR). Despite this 6-year-old mandate, data have yet to be collected and entered by the Federal Bureau of Investigation (FBI), the law enforcement agency responsible for the UCR.

Organizations and private companies that track cargo theft and share data within the supply chain industry are able to capture the majority of high-value cargo thefts through company records, informal networks, law enforcement sources, open source documents, and other means. However, it is the unknown quantity of unreported lower-value thefts that makes estimating the total value of cargo theft such an exercise in futility.

No one can say for sure the true impact of cargo theft because it is one of the most underreported and underinvestigated crimes in the nation—hence its “silent crime” label. Yet it is one of if not the property crime with the highest payoff in the United States. According to Jared Palmer, general counsel at AFN, a third-party logistics provider (3PL), if all types of thefts were combined, including identity theft, bank robberies, jewelry theft, and others, their total loss would not equal the amount of losses suffered at the hands of cargo thieves.

Even in those cases where cargo theft incidents are reported to police, investigations can be more basic and involve fewer details as police forces and their resources are pulled into other, more pressing criminal matters, such as violent crimes, and if a culprit is apprehended and convicted, sentencing is light, with prison time rarely served. Cargo thieves take full advantage of the justice system, as arrested suspects released on minimal bail immediately return to their lucrative activities.

With cargo theft up 144% from 2006 through 2010 and no indication that thieves are becoming less active, the onus is on the logistics and supply chain security professionals to be forward-thinking, creative, and proactive in instituting effective in-transit and physical security procedures.

Evolution of Cargo Theft

And the problem is growing. Cargo theft increased annually by 5 to 15% from 2005 through 2010. Additionally, the average loss per incident increased dramatically, by more than 60% over the same time period. Single thefts resulting in seven-figure losses have become commonplace as thieves target specific, high-end products that can be fenced and sold easily on the black market. Prolific cargo theft gangs travel across the country, from south to north and east to west, seeking goods they have been tasked to steal and then transporting them, often to major cities on the East Coast or Los Angeles for sale on the black market, or to maritime ports for export principally to Latin America and Europe. From there, the stolen products are sold through a variety of methods, sometimes being reshipped to the United States for reintroduction into our domestic supply chain. This presents a twofold loss for the owner of the goods—not only do they not reap the benefit from the sale but an end consumer acquires their product at a significantly lower price.

The impact of a cargo theft goes well beyond the monetary loss that results from the stolen load or a warehouse burglary. Effects can be in the form of increased cost of goods to higher insurance premiums to decreased market share. Companies hit repeatedly by cargo thieves are compromised in their ability to deliver safe and reliable products on time and intact to the marketplace, resulting in loss of consumer confidence. Looking further downstream, additional costs resulting from cargo theft include manufacturing replacement goods, lost time and efficiency, potential product recalls, increased consumer prices, and the loss of intellectual property rights. All of these have direct impacts on the victimized company, the industry as a whole, and the U.S. consumer market, all of which pay for cargo theft.

Because of this, corporations are losing their tolerance for cargo losses, with many adapting more aggressive strategies to prevent theft. Using internal resources, external supply chain security consultants along with mandating security procedures to 3PLs and others who have the cargo in their care, custody, and control at some point, corporations are leading the way in cargo theft prevention and innovation. At the same time, they are growing more and more determined to see thieves prosecuted.

Unfortunately for the corporate security manager, it is an uphill battle, as well-organized, internationally connected and highly motivated cargo theft gangs continue to adapt their methods and redouble their efforts, meting every prevention strategy/tactic with another way to get at high-value, theft-attractive products. Furthermore, criminals who are arrested, even ones charged with thefts of goods worth millions of dollars, face notoriously low bail and shockingly light prison sentences—if they even bother to appear for trial. By avoiding violence in the commission of their crimes, unlike armed robbers, cargo thieves fly largely under the radar of most law enforcement, as well as the media whose coverage of these crimes could begin to shed some light on the serious scope of the problem.

Despite the significant toll cargo theft can have on a company’s bottom line and a nation’s productive output, surprisingly little is known about the gangs that repeatedly manage to steal full truckloads of multimillion-dollar product, make six-figure profits for a few days’ work, and then vanish without a trace. The most prolific of these are the Cuban cargo theft gangs. Based in south Florida, primarily the Hialeah area, they have applied their knowledge and skills to a more lucrative trade, stealing cargo for brokers who have already made arrangements for their sale in bulk on the black market or to foreign companies that specialize in repackaging and reselling products to legitimate companies.

South Florida is not the only base of operation for cargo theft gangs. Los Angeles, Dallas/Fort Worth, and the New York/North Jersey areas are also known hubs of cargo theft activity, where cell members, while connected by ethnicity, work under a loose structure, different from traditional organized crime groups.

Targeting

There’s a reason why cargo thieves target high-value, easily moveable, and “marketed” items. Cargo theft is a market-driven crime, and thieves simply steal what consumers want to buy by simply understanding our purchasing patterns. There’s a method by which cargo theft gangs operate. With hundreds of thousands of tractor–trailers crisscrossing the United States on a daily basis, thieves generally do not simply pick a truck at random and see what they get nor do they decide one day to go out and steal a load of televisions or pharmaceuticals. For structure and direction in this seemingly endless sea of available cargo, they look for guidance from the broker.

Brokers, individuals who make their living buying and selling stolen merchandise on the U.S. black market, as well as through international firms (both legitimate and illegitimate), drive the market for stolen goods. These are the people placing the orders with professional cargo theft gangs for certain products, especially name-brand high-value commodities. But these are not purchase orders per se. They are orders to steal, and the broker pays the thieves pennies on the dollar, knowing he will make between 20 and 40% of the load’s retail value.

To determine which products to target, the broker first asks the question that ultimately powers the nation’s economy: What will the consumer buy? Televisions, computers, cell phones, bottled drinks, clothing, and pharmaceuticals—these are all products that can be found in households across America. And if the consumer will buy it, the cargo thief will steal it.

The purchasing of illicit products is not as foreign as one may think. “Who purchases stolen product?” is a common question. The answer is we do or, more accurately, consumers do. Indeed, brokers are incredibly skillful at reintroducing stolen product into the legitimate supply chain through shell companies, often based in Latin America. By offering discounted rates on high volumes of products, they easily sell to low-margin retailers who are unaware ...