In the past couple of years, cargo crime has taken an enormous toll on the consumer. Between $30-$50 billion dollars is the annual guesstimate given by authorities when it comes to overall loss value. This range is extremely vague for a number of reasons but one thing that the security industry can agree on is that the true cost to the consumer is well understated. Despite this seemingly enormous figure, cargo crime continues to be the “silent killer” within the manufacturing industry. I refer to this epidemic as a “silent killer” because there are very few companies who recognize the long-term impact of this crime, the overall cost to the consumer and the loss of product integrity to the market. What companies have also failed to grasp is the total financial impact to their stock value each time a container of their product is stolen. For instance, how many companies effectively measure these factors as “expenses” when cargo crime occurs: 1. Operational costs to manufacture the product the first time — items within this category would include items such as wages of the personnel. One could take the argument even further when speaking of things like rent, utilities, etc. For each box of product that is produced, companies gauge their efficiencies when comparing revenues to expenses. If 100 boxes of widgets are produced for distribution and they are stolen in transit, it will take twice the operational expenses to produce the same amount of product. The manufacturer will have a lower “revenue to expense” ratio. This amount is rarely if ever factored into the total impact to companies and thus contributes to the cumulative effect of the “silent crime”. 2. Percentage of Invoice value versus retail/market value — when cargo is stolen, the value of the product is rarely a “projected market/retail value”. In fact, only a known invoice value of the product is generally factored by companies who have had product stolen. When one factors in the amount that is actually recovered through insurance, we see a large delta between the retail value and the amount recovered. In essence, we have lost visibility to the actual profitability on the product and therefore do not report the total impact from the loss. 3. Loss of customer base – a portion (albeit possibly small) of the market that would have purchased the product legitimately, would it have not been stolen, is now lost…they were able to buy the product at a drastic reduction through other channels. 4. Increased insurance premiums through the carrier. Very similar to our health insurance, the more times the cargo insurance carrier covers claims involving the same manufacturer, the higher the future premiums will be. These increases are incrementally charged back to manufacturers by 3PL (3rd Party Logistics Provider) and will further erode the Revenue to Expense ratio. Insurance, as it relates to cargo crime, is one of the key components to the “silent crime”. This is not to suggest that insurance providers are to blame; obviously insurance has value in certain instances. However, if a company is shipping thousands of widgets in a given year, the actual cost of insurance per container will seem low. In fact, some manufacturers may not even ask for their carrier to itemize all costs per container. The point is that the overall cost of insurance can continue to increase year over year without companies having sticker shock to that one line item. Companies are not willing to pay for counter-theft measures in the 3PL network and do not have an incentive to decrease the cost factor if the customer continues to pay for this cost of doing business. 5. Lost time for product on market. If your product is not on a distributor’s shelf because of a container theft, a percentage of customers will purchase a similar product commodity that is available. This is probably the most difficult aspect to gauge overall impact but there is no question that this situation certainly exists. Companies who employee a direct build model have the most at risk with a container theft as it relates to customers. Since their customers have effectively already chosen and paid for the product, they have an expectation for that product to arrive on time. Not being able to follow through on this commitment can only impact future sales. What factors Contribute to Overall Cargo Loss? There are numerous factors that contribute to cargo loss but I believe factors can be broken down into two basic categories: 1) primary risk factors and 2) secondary risk factors. Primary Risk Factors - these are inherent risks that the manufacturer or 3PL does not necessarily have control over. One such example of a primary risk factor is the “High reward/low risk” ratio that cargo crime offers. Each container may contain up to $2, $5 or even $15 million in product in some cases. One theft of this particular container provides a huge reward. Couple this with the fact that container theft, if well orchestrated, sometimes does not require interaction with a true “victim” in a traditional sense. It is often (in the case of the United States) without driver interaction, violence or weapons and is then subject to much more lenient sentencing. Finally, everyone has heard for years about the war on drugs and well known task forces targeting this segment of crime. Federal funding, political platforms and attention have been assigned to this issue; however, compare that organized inter-agency effort with the lack of funding or political attention that has been given to cargo crime. Some policing agencies have recognized the obvious need for a specific, well trained unit targeting this epidemic. The TOMCATS of Miami, Florida is one example of an extremely effective department focusing on cargo crime. However, to this day there is not a federal, inter-agency focus on cargo crime. The combination of these primary risk factors has drawn numerous hardened criminals away from more risky drug trafficking to cargo theft. Another example of a primary risk factor would be that of geographical or language barriers. Cargo criminals operating in Europe understand the various degrees of complexity agencies face when trying to deal with cargo crime. While Europol is making headway in collating data, there is a difficulty in communication and responsiveness that enables cargo crime to proliferate in areas. A criminal who has stolen cargo in Europe has the ability to cross three or four countries in less than a normal workday! That factor in and of itself makes for very difficult tracking and follow up with multiple agencies. Secondary risk factors are ones that 3PLs and manufacturers do have more immediate control over. These are aspects that collectively can make an impact on overall cargo loss and therefore, increased profitability for all. An example of a secondary risk factor would be the “commoditization of the LSP” as an industry. The concept that all carriers or 3PLs have identical risk mitigation processes, similar technology for tracking shipments, identical secured staging points and identical driver training programs, as it relates to counter theft measures, is false. While manufacturers are constantly seeking ways by which to reduce overall costs of their products, they are driving 3PLs to reduce cost, and in essence, utilizing less capable carriers in doing so. What companies fail to realize is that front end investment in technology, training and processes would have an overall impact on long-term losses. When delivery contracts or “lanes” are bid to 3PLs, frequently the Requests for Proposal are extremely detailed in every area except security expectations. Generally, few companies are including requirements such as secured staging locations, asset protection plans in place for each staging location, specific rules as it relates to the brokering of loads, solo vs team driver specifications, etc. A comprehensive list of industry standards should not only be included in the RFP but also evaluated prior to agreeing with a 3PL. Specific attention should be given to the quality of their programs; this front end cost may be more expensive in the short term but as a long term investment will certainly provide a lower overall cost. Another secondary risk factor would be one way communication flow from the manufacturer to the 3PL. At first glance this would appear very similar to the commoditization aspect of the industry. In fact, they are similar but this issue is slightly different. Think about the breadth of experience that a large 3PL might have as it relates to transporting product. Think of any aspect when it comes to shipping product – the type of product, the value of product, the roads by which they travel to deliver the product, the flexibility of various carriers to deliver product, the known success they have had with various carriers as it relates to getting product delivered on time and in its entirety, etc. There is no question that the 3PLs are the resident experts when it comes to getting product to your end customers. However, how often does a manufacturer consult with the 3PL and understand all these variables when estimating shipping costs and delivery times? How flexible does the manufacturer become when the 3PL may have a safer, but slightly altered, recommendation as it relates to carriers or delivery schedules? Chances are, this is not ever discussed and it is one part of the process that could benefit from an open discussion as it relates to the security of the product. These secondary risk factors are ones that companies should actively target when asking themselves how they can mitigate the risk associated with transporting their product. Cargo crime by region Some general comments can be made concerning cargo crime as it relates to various parts of the world. For instance, in the United States, cargo crime is very much an opportunistic crime. Because of the limited attention this crime has been given as it relates to funding and overall driver awareness training, the M.O. in the US is quite simple: the cargo criminal will conduct a thorough reconnaissance on a manufacturing facility or distribution center and will observe full loads departing these facilities (evident by the trailer door seals). After they have learned the tendencies of each carrier, ,they will then simply follow the trailer and wait for the driver to stop. Areas that are notorious for cargo crime in the US would be restaurants and fuel stops. The driver will leave the load unattended and will return to find their truck gone. Criminals, who have already leased warehouse space, will secure the stolen merchandise until they can then introduce it into a legitimate supply chain for their end destination. Their European counterparts could be considered “more advanced”. Their years of narcotic smuggling have provided this group with a comprehensive understanding of the supply chain and distribution process. Various methods have been employed to steal containers: some reports have shown the use of “gas” released into the air conditioning systems while the driver sleeps. The driver is rendered unconscious while the criminals are then free to pilfer the container. Another method is for criminals to actually acquire police uniforms and weapons; they then employ mock “police checkpoints” along certain roads. One other item worth mentioning is that the Europeans, more so than any other area, will utilize the firearms and violence as part of their M.O. Finally, Asian crime syndicates are similar to their European counterparts in terms of their infrastructure. Most of the attacks committed in this area are actually “theft to order”. While the line haul FTL (Full Truck Load) may not be as rampant in this part of the world, one thing is certain: warehouse robbery and supply chain leakage is very high. The report of violent attacks and the use of firearms is increasing at an alarming rate in this part of the world. Until all regions take a proactive approach when dealing with this epidemic and the criminals that engage in this activity, the opportunities for quick financial gain are too enticing to ignore. Additionally, companies that do not recognize the value in front end risk mitigation will continue to contribute to the record losses year over year. Another way to put it: those companies who do utilize creative risk mitigation opportunities that are available will be less desirable from a criminal’s point of view. This in turn will ultimately give that company a competitive advantage in one area of their product pricing.