By John Hall | My Purchasing Center
In late October last year, Kentucky State Police intercepted a tractor-trailer full of new cell phones allegedly stolen from a northwest Indiana truck stop. Valued at more than $12 million, the booty is on record as the largest reported single theft of cargo in 2013.
That may seem like a lot of money, but it’s not. In fact, the heist was as unremarkable as it was large against the backdrop of what top law enforcement officials claim is among the biggest commercial crimes today, exceeding $30 billion in annual losses. “The actual number of cargo theft incidences in this country is likely much, much higher than what’s reported,” a trucking industry source told My Purchasing Center. A year before, thieves in California allegedly stole $37 million of microchips in one fell swoop. In relative terms, a small haul.
According to the FBI, the vast majority of cargo thefts go undocumented because many companies don’t report cargo crimes “to avoid bad publicity, higher insurance rates, damage to reputation and embarrassment,” to name a few.
Schneider, one of the country’s largest logistics providers, however, is proud to talk about its cargo theft rates because for each of the past seven years, it has consistently lowered them through a variety of best-in-class solutions like heightened data security methods, proactive communication with shippers and consignees, rigorous driver training, and technology. It also attributes part of its success to better engagement with supply chain partners, including buyers. Since 2006, the 75-year-old Green Bay, Wisconsin.-based truckload, intermodal and logistics services firm has lowered its truckload thefts by 91% – a 37% decrease in total value per load.
It’s also employed a host of innovative solutions like sophisticated on-board “geofencing” systems that divert drivers from known high-risk areas, and moving high-value loads using driver teams, which creates velocity in the supply chain and ensures freight is continually moving and far less susceptible to theft. “We’re guided by the rule, ‘freight at rest is freight at risk’,” Walt Fountain, CPP, CCSP, Director of Safety and Enterprise Security, tells My Purchasing Center. Fountain came to the trucking concern in 2006 after serving in the U.S. Army intelligence service for more than two decades.
Why should procurement professionals worry about cargo theft? For one, intercepted product can delay manufacturing and production, tweak confidence across a supply chain and worse, tarnish a brand. There’s also the incredible risk that occurs if stolen products like food or drugs expire or become tainted, leading to massive recalls and possible health issues.
Cargo theft also can lead to higher prices, and ironically, higher prices can also lead to higher rates of theft. Consider what happened back in 2011. Law enforcement authorities blamed a rash of meat thefts to higher meat prices, which were caused by higher corn prices after severe droughts wrought smaller crop production. According to FreightWatch, a logistics security firm, meat thefts rose 58.82% during the middle of 2011 and continued rising throughout all of 2012.
Theft Rates Drop: Behind the Numbers
Cargo theft rates tend to correlate to overall economic conditions. Recent history is no exception. CargoNet, a freight security firm, has tracked and analyzed cargo theft since 2009. Until last year (in which the overall industry cargo theft rate dropped about 9%), overall theft rates have been rising in rather dramatic ways for several years. Cargo like pharmaceuticals, consumables and electronics have always been popular targets. After the Wall Street collapse in late 2008 and the subsequent tanking of the domestic construction business, metal thefts – particularly copper – became an easy way to score big profits.
Metal prices began ticking upward, and soared in 2012. Thieves quickly seized upon the trend, leading to a sheer doubling of thefts that year (one large heist of $2 million in copper ingots was reported in Arizona), according to FreightWatch.
In its 2013 Annual U.S. Cargo Theft Report, CargoNet reported on a number of notable trends, including the following:
- $99 million in cargo theft losses in about 1,100 separate cases were reported.
- Nearly 80% of cargo thefts occurred in just eight states – California, Texas, Georgia, Florida, Illinois, New Jersey, Michigan and Tennessee. According to one NBC network affiliate in California, cargo theft happens twice as often in that state than anywhere else, to the tune of $390 million in 2011 and 2012 alone. Cargo theft incidents within Georgia jumped 32%.
- Fictitious pickups increased 44%. (Schneider believes thieves are more likely to target smaller companies that lack the dedicated resources to protect themselves from this threat.)
- Cargo theft incidents were most prevalent in warehouses/distribution centers, truck stops and parking lots, and least prevalent in drop lots. Cargo theft in secured yards increased 66%.
- Food and beverage were the most popular targets for cargo theft, followed by metals, electronics and household goods. While pharmaceutical theft rates are considerably down, the value of goods stolen still tend to eclipse most other categories – dwarfed only by electronics thefts, which totaled $31 million.
- Of the loss values recorded for cargo theft incidents in 2013, most single theft incidents were valued up to $50,000.
- Cargo theft occurred far more often on Fridays than any other day of the week, and least often on Tuesdays. About 80 cargo theft incidents per month are reported.
According to Schneider, nearly 80% of all freight moved in the U.S. makes its way from point-of-origin to consignee via truck. That statistic is not lost on a firm whose fleet of 13,000 trucks are traversing millions of miles on asphalt carrying 11,000 loads every day.
One area of vulnerability is the intrinsic web of complex handoffs, particularly when intermodal methods are involved. In China, it’s not uncommon for freight to change hands as much as 15 times before it reaches port. In Mexico, freight can change carriers as often as three times.
“Once you get to the U.S., if you’re not going intermodal, most cases you’re probably have one company transporting from origin to destination,” Fountain says. “If you’re going intermodal and putting freight on the rail, then you could be talking four to five handoffs”.
Staying Ahead of the Curve
Schneider is not unlike any other freight company when it comes to being challenged by the level of sophistication with cargo theft; there are plenty of random “smash and grab” operations, but there are also highly sophisticated crime rings, many of which use cargo theft profits to finance other kinds of criminal activity, the FBI has reported.
“Thieves are getting smarter, more aggressive and more selective in their targets,” Schneider notes in its recent security white paper. “They now excel at identifying the loads that carry high-value goods. Plus, their techniques for pulling off the heist have grown so sophisticated it takes a lot more than a simple lock to stop them.”
“Some of these crews are very organized,” Fountain tells My Purchasing Center. “Their business plan is to steal our freight. Are they surveilling the shippers and consignees, the manufacturing sites, the distribution centers that handle the freight they want? Are they aware of which carriers have the contracts for the freight they want? Absolutely. Are they sophisticated enough to even know the seal patterns on the backs of trucks? Absolutely.”
Greater Exposure, Vulnerabilities
Globalization has made supply chains more complex than ever, so it’s no surprise there are greater opportunities for theft. In spite of mounting cargo theft rates in recent years, many firms dismiss the problem as a fait accompli. “There needs to be a lot less willingness for folks to say cargo theft is simply the cost of doing business,” Fountain says.
Many companies become complacent, unwittingly overlooking even the simplest mistakes. “It’s surprising to me how much paper is floating around out there,” Fountain adds. “Although this is not something we do at all and it’s not that common, some companies still allow bills of lading to actually be tucked into document folders on the sides of trailers or containers. A thief doesn’t even need to open up the back or break that latch to see what’s inside. We as an industry can clearly do better.”
Moreover, far too many companies also are either too trusting or make too many assumptions, according to Schneider.
For example, shippers often assume their carriers and intermodal providers are doing everything possible to prevent cargo theft, the company notes in a recent white paper. “That assumption, in itself, is dangerous. There are countless opportunities to reduce risk and secure a supply chain throughout the life of a load — whether it’s moving on the road or on the rail.”
Creating a Security Mindset
Schneider’s success in reducing cargo theft over the past seven years is based on a holistic approach that harnesses technological solutions while imbuing a “culture of security“ in every employee from front office staff to drivers, according to Fountain.
Satellite tracking devices on tractors and trailers and electronic seal that transmit instant alerts if a trailer or container seal is breached, are two applications. Another is geofencing, a sophisticated GPS system that applies an electronic “umbrella” along each vehicle’s route, providing real-time information to drivers about high-risk theft areas (based on CargoNet data) and the safest locations to refuel or rest and alerting headquarters when a driver gets into trouble or suffers a mechanical issue. Schneider has identified as many as 35 high-security drop lots throughout the United States, for example.
The geofencing tech is invaluable to the company. “We get to see not just our losses, but the industry’s losses,” Fountain says. “We’re able to identify high-risk areas as those where we’ve had any incidents of cargo thefts in the past three years at any location or if the industry has had three or more incidents of cargo theft in the last 12 months at any location. The key feature of geofencing is it begins an important conversation between us, the driver and his supervisor.”
Evidence has shown that companies adopting a culture of security have shown a decline in freight thefts — some as much as 75% in recent years, according to Fountain. Part of that culture is hiring the right people, vigorous training that continuously emphasizes security awareness, vigilance about data security and proactive communication.
“The key piece here is all about communication,” Fountain says. “We train our drivers when they first onboard and quarterly thereafter, as well as conduct annual qualification and re-certification. We have many touch points with drivers, but what we really want to do is make sure when there is an active threat, we communicate that in a timely way. It’s important to be mindful that while drivers are constantly faced with competing pressures, we need to be able to clear the fog for them and tell them when a security issue needs to bubble up and get priority.”
When drivers are assigned to high-risk loads, a three-way call is conducted between the driver, supervisor and customer service to ensure everyone is informed about potential threats and in synch with the necessary precautions, Fountain says.
“It’s easy to set drivers up to fail,” he adds. “For example, you can tell the driver he can deliver to the consignee between 10 and noon, but no one realizes that the consignee isn’t open or available during that time slot on that particular day. By having that three-way call in advance to talk through issues, we find most issues melt away. We have millions of miles a day we’re putting on the fleet, so there’s a lot of risk out there. Our job is to manage all these things. If we identify the concerns, when things crop up we didn’t anticipate because of weather, etc., we can start to rally around and prevent bad things from happening in the first place.”
Engaging the Supply Chain
All of the internal precautions in the world are wasted if a logistics provider fails to engage its supply chain on mutual security issues and concerns, according to Fountain. To stay ahead of thieves, buyers should work with their carriers to identify and close any gaps in supply chain security, engage with every entity that will be touching freight along the way, and remain vigilant about potential or real theft risks. In turn, procurement staff should hold their carriers accountable for executing tested best practices around personnel, information and physical security.
In the eight years Fountain has been at Schneider, he’s witnessed greater awareness and cooperation over security with its intermodal partners, particularly the railroads. “They’ve really picked up the ball lately,” he says. “There’s a much higher degree of security in their yards now and in loading procedures.” For example, Schneider works with the rails to load high-risk shipments first in the bottom holds of containers. “The incremental cost of doing things like that is close to zero,” he adds. “There are a surprising number of no-cost, low-cost, low-tech solutions.”
Still, conversations with supply chain partners can be challenging. “There was a time when it wasn’t normal for carriers to raise their hand and acknowledge cargo theft was a real problem and admit they may need some help managing,” Fountain says. “We may never be able to solve it completely but we certainly can reduce the impact and some of the disruptions to the supply chain.” Part of that conversation means not asking customers to take needless risks for the company’s convenience. Conversely, if customers ask Schneider to expedite a shipment and ignore known or potential security risks, it refuses the business.
“We have worked very hard over the past few years to make sure our sales agents understand the issues of safety and security, and that they engage the buyers in those conversations so that they understand this stuff doesn’t just get teleported from point A to B,” he says. “There’s a lot of risks involved in the movement of freight. So we try to engage with buyers over these things up front.”
Engaging supply chain partners, including buyers, becomes an easy conversation if everyone understands the risks and the impact theft can have, says Fountain. “We engage our customers because we recognize that both parties do have control of at least some of the journey freight takes,” he says. “We may touch as little as 30% and as much as 80% of it, but every bit of that counts.”