Thwarting Cargo Theft

Thwarting Cargo Theft

Tom Vander Neut

Consumer goods, especially in the high-tech industry, are vulnerable to theft during shipping. And the problem is threatening to become bigger. Here’s what you can do to prevent losses from adding up.

Cargo theft reigns supreme as the number one cause of loss in the shipping industry. And it is getting worse. Industry observers say there has been a crime surge in recent years, spurred forward by increasingly sophisticated thieves targeting highly valuable cargo.

According to the most recent numbers gathered by the American Association of Insurance Services, 28.8 percent of all inland marine losses in 1997 were due to theft and disappearance. And 8.4 percent of losses were due to the more violent acts of burglary and robbery.

While it is difficult to put a dollar figure on cargo theft losses, industry observers say that cargo theft is currently responsible for as much as $10 billion in losses per year. Ten years ago, this figure was $5 billion, and 10 years before that it was $2 billion. In addition, indirect losses–including lost business, investigation costs, security costs, and insurance premium increases–are estimated to range anywhere from $30 billion to $60 billion.

And now more than ever, it is critical for shippers to invest in cargo theft prevention. Ten years ago, shipping companies did not worry much about cargo losses because insurance companies would pay off the loss without much fuss. But in the 1990s, tremendous increases in cargo theft have reduced the willingness of insurance companies to do this without increasing premiums, says Ed Badolato, chairman of the National Cargo Security Council in Annapolis, Md.

As a result of increased premiums, many shippers are converting to self-insured programs or taking large deductibles.

Factors contributing to the rise of cargo theft in recent years include the increase of global trade, which creates global markets for selling stolen cargo, and a lack of preventive measures, effective punishments, training, and education, says Badolato. “Unless we really fix all these things, cargo crime is going to expand drastically.”

Also contributing to the problem is the use of larger trailers that increase the value at risk per unit, as well as a lack of data that could be used to encourage law enforcement involvement outside of the major cargo theft areas and insufficient penalties to discourage criminals, says Barry Tarnef, a loss control surveyor with Chubb Group of Insurance Cos. in Philadelphia.

But, the problem could be even larger than industry estimates indicate because cargo theft often fails to be reported as such. It may fall under a category such as truck theft, or companies may deliberately hide the problem so as not to discourage business partners or to avoid increased insurance premiums. And, “if a thief is really good, a trucking company might not know whether cargo was lost or stolen,” says Ken Siegel, vice president and deputy general counsel of the Alexandria, Va.-based American Trucking Association, which has created an anti-cargo theft coalition. “A lot of what could be cargo theft will be reported as lost because there was not proof it was stolen.”

While cargo theft is perpetrated by employees looking to make a quick profit, the majority of cargo crime is conducted by organized gangs and other sophisticated thieves who often have inside assistance. As much as 80 percent of cargo theft involves insider collusion, says Badolato. Inadequate background investigations and cargo handling protocols only aggravate this problem.

“The trends in cargo theft pretty much mirror the trends in our consumer appetite,” says Tarnef. “If something is selling very well, trust me, there’s going to be people who want to steal it.” The goods often stolen include the latest fashion or sports wear and other popular items such as cigarettes and alcohol, he says.

But the goods seeing the highest increase in theft have been electronics. The typical loss value of a technology cargo theft has risen to $750,000 from $5,000 in 1991, according to a member company of the Technology Asset Protection Association, a high-tech security association in California that offers cargo handling security guidelines to member companies, such as 3COM and Intel Corp.

The exposure of technology cargo to theft has increased as worldwide distribution channels to emerging markets have increased. And as global technology manufacturing has expanded, so has the demand for high-tech products and the market for stolen goods.

Recognizing the lack of data on cargo theft as a major obstacle to prevention, the ATA has developed CargoTips, an online real-time database run by the ATA’s Transportation Loss Prevention Security Council. CargoTips reports theft information on cargo crimes across the United States, enabling motor carriers to assess theft risks in particular areas and assisting law enforcement in tracking crime patterns. Although its data is only accessible by participating motor carriers and law enforcement, the CargoTips database accepts theft notices from shippers. It was because of CargoTips, Siegel notes, that a gang of thieves in eastern Pennsylvania, New Jersey, and Delaware was apprehended by the FBI. The gang had gone undetected by local authorities because there was no other single database covering such a wide area that identified its theft pattern.

The ATA is currently promoting cargo theft prevention legislation that will, among other things, raise the status of interstate cargo theft to a federal crime and include mandatory sentencing and federal data collection; increase the penalties for interstate cargo theft; provide funding for multi-jurisdictional cargo theft task forces; and provide motor carriers, through the Department of Justice, with access to a national criminal background database for all employees and contractors, both current and prospective.

Ample Opportunity

The irony in American business is that as companies have sought to increase security in their plants, similar loss prevention steps have not always been taken on the cargo handling front.

Consequently, a gap formed–and has widened over time–between internal and external security, giving thieves the opportunity to pursue merchandise in the area of least resistance. Today, according to the Technology Asset Protection Association, 85 percent of all business security losses are attributed to the theft or loss of products in transit.

Most problematic are the numerous interchanges and many modes of transportation–airline, maritime, rail, or truck–during a typical shipment, offering many opportunities for theft and reducing individual accountability for a shipment. During an average 600 mile transit by truck, notes Tarnef, the cargo may be handled between six and 10 times.

Many losses occur when a driver leaves the cargo unattended. This is especially true when a driver leaves a truck parked overnight. But theft can even occur when a driver leaves a truck only momentarily to use a public restroom. “It’s gotten so sophisticated that … from the time the driver gets out of the truck to go into a truck stop and comes back, his trailer can be gone or his whole truck can be gone,” says Siegel.

Not only is there ample opportunity and high reward, but the relatively low stakes of cargo theft are luring thieves away from occupations such as drug trafficking. And the monetary reward for successfully stealing mass quantities of highly valued merchandise, such as computer chips or other high-technology items, which are becoming smaller and more portable, can be comparable to dealing drugs.

Also, it’s not illegal to possess cargo, as it is with drugs. Some thieves are even using stolen cargo as currency in the drug arena.

Thieves are also increasingly targeting food products, says Siegel. “They’ll steal a truckload of canned food or Pampers … and within 48 hours have it loaded into a container as a legitimate shipment for shipping overseas.”

Basically, all it takes to legitimize a shipment is to store the goods in a warehouse and then arrange for a motor carrier to take the goods to an overseas shipper, says Siegel. Generally, he says, no one checks to see where the goods originated.

Prevention Steps

Cargo theft is preventable. More often than not, it is the companies with inadequate security measures that are most likely to experience cargo theft. Ranging from proper locks to proper administrative action, steps can be taken to severely limit cargo theft.

Badolato advocates seven basic elements to fighting cargo theft. If a company puts these in effect, managers will have an effective cargo security program.

1. Have as much nonstop cargo shipments as possible. “The old saying that cargo at rest is cargo at risk has never been more true.” When cargo stops at interchanges, changes mode of transportation, or sits in trailers, it is most at risk.

2. Do not use packaging that gives away the contents’ of a shipment. This “steal-me packaging” only helps thieves identify valuable cargo. In addition, this security threat has to be communicated to the marketing department.

3. Be serious about cargo theft. Have corporate policies that encourage immediate notification to law enforcement authorities of a theft; without a report, law enforcement won’t know where to return confiscated or lost cargo. And perform post-theft audits to route out the problem’s source.

4. Control cargo documentation. Thieves may steal forms or counterfeit documents to enable pick-ups at cargo terminals. “There is tremendous amount of document fraud and misuse of documentation in the theft of cargo.”

5. For high-valued cargo, provide high-valued security. The majority of losses tend to be made up of high-valued items such as computers, electronics, furs, high-fashion apparel, and alcohol.

6. Know the people handling the cargo to prevent insider theft. Conduct thorough employee background investigations.

7. Perform an effective audit of physical security: traditional guns, gates, and guards. Use security that takes advantage of technical support, such as satellite and radio frequency cargo tracking, improvements in container locks and seals, nonintrusive detection devices such as X-ray monitoring, and security systems integrating cargo security with cargo transportation and Access.

Carrier Evaluation

Companies that do not have their own fleet of trucks have to carefully choose their carriers, says Tarnef. “I find that more and more companies are trying to do a better job in selecting the carrier that they use to transport their goods,” he says. Tarnef identifies critical elements for companies to evaluate when selecting a motor carrier:

* Condition and maintenance of equipment: Reflects financial wherewithal to purchase and maintain necessary equipment. Poor maintenance may lead to increased breakdowns on the road and thus increased exposure to theft.

* Driver screening practices: Does the carrier do background checks? A nationwide shortage of qualified drivers may force companies to soften job qualifications and screening processes.

* Experience hauling a particular product: For instance, a scrap metal hauler may not be adequately experienced or equipped to haul electronics.

* Financial stability: Speaks to company’s fortitude.

* Loss ratio: Indicates effectiveness of a motor carrier’s security measures. (Comparing loss dollars can be deceptive if comparing a large shipper with a small shipper or a shipper of more high-valued product deliveries with a shipper with more lower-valued product deliveries.)

* Turnover rate: High employee turnover could indicate staffing problems. Acceptable turnover for trucking companies is between 20 percent to 25 percent.

* Use of subcontractors or outsourcing: You cannot always be sure of how these outside entities will handle the cargo.

* Safety record: Speaks to potential damage to cargo.

* Security procedures: Ask whether the trucking company trains its drivers in hi-jack awareness and theft prevention.

COPYRIGHT 1999 Axon Group

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