The Surprising Costs of Cargo Theft

The Surprising Costs of Cargo Theft

 

Cargo theft is a multi-billion-dollar business. The National Cargo Security Council (NCSC) has estimated the monetary impact of cargo loss on a global scale exceeds $50 billion annually.

semi trucks shipping yardThieves today have turned to identity theft and sophisticated fraud to steal drugs, electronics, and high-value items.It doesn’t matter whether your cargo is transported via air, land, or sea – your cargo is always at risk any time it is at rest.

Cargo thieves have become expert cyber criminals. They hack into databases, falsify electronic records, and use RFID readers to determine what unmarked cargo is more valuable. Criminals falsify credentials, create fictitious loads, hack brokers’ sites, and more.

Freight trucks have always made a convenient target for thieves because they move transportable quantities between manufacturers, ports, and warehouses. Containers can be stolen before or after loading, or whole trucks can be stolen with or without the driver. Tech-savvy thieves are innovative and are stealing using fictitious pickups by posing as drivers.

Organized criminal gangs have a specific target in mind: high-value, easy resale products like alcohol, clothing, electronics, and pharmaceuticals. Food, rather than electronics, is the most sought-after item, as it is for the most part, untraceable. Once it is eaten, there is no method of determining where it came from.

Offloading stolen merchandise is simple. Most simply offer it online, usually avoiding any undue attention from authorities by offloading in small quantities with modest discounts. Others may have individual arrangements with unprincipled wholesalers who are happy to purchase products without the relevant documentation.

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Hidden costs add up.

It’s not merely the loss of the physical cargo which you need to consider. Cargo theft inevitably disrupts the continuity of goods in your supply chain and directly impacts your ability to deliver products on schedule. The ripple effect includes the cost of supply chain interruptions, replacement shipments and expedited deliveries, additional customer contact and service requirements, rising insurance rates, and criminal investigations, as well as the outright costs of lost business and damage to your brand or reputation.

Cargo-CostsUnfortunately, many supply chain managers don’t accurately calculate all the elements of cargo loss. Consequently, they don’t fully realize the impact on their bottom line and how investments in logistics might mitigate the losses. Not factoring in supply interruption, replacement products, damage to customer relationships, lost sales opportunities, loss of brand awareness, and the effect of a public relations disaster on the brand, can mean that key elements are not factored into the true bottom-line effect of cargo theft.

Figures available suggest the indirect costs from cargo theft, which are non-reimbursable, are four to six times higher than the direct cost.

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Review risks and implement a strict chain of custody.

Trying to stem the tide of criminal enterprise is a costly and dynamic process. There is an inverse correlation between reported property thefts and the state of the broader economy. When the economy goes down, thefts go up, and vice-versa. The most crucial element for calculating the cost of security is conducting a risk analysis.

Quite often, incidents involving cargo theft will highlight critical gaps in a company’s security measures. Regular logistical reviews will help identify these gaps so problems can be corrected.Knowing at which point in the process, or at wha geographical point your shipments are at risk, allows you to take appropriate security precautions when determining what routes to use.

Since cargo usually travels through many pairs of hands—airlines, handlers, transport companies—employers must develop and implement a robust chain of custody system. It’s vital you know who has responsibility for your cargo at any given time. In every instance where you transfer cargo, your procedures must include a formal, traceable custody transfer procedure.

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Invest in security technology.

According to cargo security professionals, air cargo is the most secure mode of transportation. However, your air cargo isn’t always in the air and, similarly, your shipping container isn’t always safely sailing across the oceans. On occasion, your cargo may even sit around completely unattended before or after loading.

Companies are now investing in technologies that secure the vehicle and cargo to limit the opportunities for theft. Most companies have already shelled out for the simple fixes like hard-shell trucks, secured warehouse facilities with badge authorization or RFID technology, and improved cargo locks. Further investments in secure, well-lit parking areas and landscaping to address physical security at shipping locations might be worth investigating to minimize risks.

As the awareness of cargo theft increases, requirements to install sensors for tracing and tracking have been added to the cost of doing business. If the trucking company or carrier isn’t aware that a box contains high-end or valuable cargo, they may not ensure it is protected appropriately. Logistics managers can use cargo security seals and relevant tracking systems to substantially minimize their cargo losses with a strict chain of custody. A properly run risk assessment can let you know if specific routing of shipments or alternate routes may be required to minimize loss.

Placing sensors Quote

Inexpensive solutions include placing sensors on the goods themselves, as in RFID tags, so partial loads can be followed if lost. The challenge with this is that thieves can use RFID readers to determine if your goods are worth stealing, lowering the impact of this much-touted logistics strategy.

Preventative locking devices which disable engines, like Lojack, and standard GPS trackers have found a permanent place in the shipping expense line. These items are more expensive, but the drawback is outweighed by the effectiveness and cost-saving strategy from loss prevention.

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Monitor and train employees.

Companies will spend additional funds on watertight hiring procedures and pre-screening employees who might increase risks. They’ll have to invest in technology to monitor employees, once on board, for suspicious behavior and require background and criminal record checking. Law enforcement professionals estimate that roughly 80 percent of cargo thefts involve someone on the inside. Often an employee passes on information to others who commit the actual theft.

Another expense is hiring security consultants so you have a security presence on valuable or high-risk carriers and routes. Training all employees to manage carjacking situations and what to look out for will put them in a better position to deal with risks. Training employees, particularly drivers and loading and offloading personnel, on how to identify potential problems can reduce the incidents of cargo theft also.

For certain high-value products, many companies instruct drivers to avoid stopping immediately after picking up cargo. Limiting travel during particularly dangerous periods like evenings and weekends also reduces the theft risk.

Hiring security guards at the premises, or adding personnel to high-risk routes, can be a legitimate investment in lowering losses due to theft.

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Supplier’s theft can adversely affect your company.

Disruption to the supply chain will have severe consequences for the health of a business. The prevention of cargo delivery is the beginning of a cascading failure which touches every company in its path. Businesses that rely on carefully interwoven supply chains suffer when a supplier’s ocean containers or air freight are brought to a standstill. In some cases, manufacturing plants are even forced to close because of significant disruptions to cargo flow.

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In this way, cargo theft affects more than just the company from which it was directly stolen. It can impact companies all the way down the line which don’t receive necessary goods for their manufacturing processes.

Investments in security can have the same cascading effect, so it behooves companies to choose suppliers who invest in strict chain of custody and successful logistics tracking.

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Lost sales reduce opportunities and damage relationships.

Despite the circumstances surrounding a missed scheduled delivery, if your cargo is stolen, you won’t be able to deliver goods and collect for them. Stolen cargo can result in the added cost of replacement shipments, employee overtime, expedited deliveries, customer service calls, and rising insurance rates.

Customers might be understanding if it happens once. More than once, and there’s a chance your customer will have to take their business to another supplier to meet deadlines, which might prevent future sales opportunities.

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Also consider public relations and brand awareness issues.

Public relations and brand awareness are especially pertinent to pharmaceutical companies that have cargo stolen. It usually requires public health agencies to be contacted and, in some cases, doctors, pharmacists, and patients will need to be alerted. Although the company’s internal communication systems may be capable of managing these efforts, it’s common for a company to hire outside help. Paying professionals to organize and coordinate the response can be a costly business.

Many companies choose not to report a loss, thereby avoiding damage to their brand or reputation. One of the most crucial elements for a company’s continued success is brand awareness. Reliance on image and reputation is a business necessity for most.

When there are instances of property theft, the stolen merchandise is often reintroduced to the supply chain through various illegal means. This takes control of the product and its economic impression away from the brand owner. In most cases, the criminals responsible for the theft will tamper with the product and change the price. The final impact is felt by all the channel partners and by the end consumer.

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A way to avoid some of the potential risks is to minimize the use of company names, logos, or any information which may otherwise inspire undue interest from the wrong element. The more traditional plain boxed packaging is usually far less attractive to the impulsive or opportunistic criminals.

Of course, there will always be a need for slick marketing and pretty packaging to promote a specific product or brand. However, it’s a good practice to exercise common sense when striking a balance between relative risk and reward. It’s common for some companies to withhold information regarding their cargo losses, and they will go as far as to avoid reporting any breaches. They believe that retaining a positive public perception outweighs the costs of not reporting these incidences.

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Factor in insurance.

The ultimate cost of cargo theft on the overall economy of any region cannot be underestimated. Some of the most intensively motivated stakeholders in any retail industry are insurance companies, and they play a significant role in cargo security and the cost of doing business. Although many consider it to be an insurance problem, they discount the far-reaching economic impact at their peril.

In cases where the company reports their trucks as having been hijacked, the insurance premiums are increased the following year since the company may be unable to cover the entire loss. If a truck transporting merchandise is hijacked, the carrier pays for the stolen products and the loss. Recovering the entire loss may prove to be impossible depending on their policy.

Therefore, the rate for future shipments of similar product will be raised to cover the incurred losses. Additional costs will then be passed on to the retailers, who will invariably, pass those costs on to their client base.

This is why the financial damages arising from cargo theft—for manufacturers, carriers, shippers and, ultimately, consumers—is not merely an insurance concern but something that is felt throughout the entire economic spectrum.

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Conclusion

Any way you look at it, moving a commodity from the point of origin to its final destination can be a costly and complex business. When it involves the further complication of cargo theft, additional expenses are incurred by many of the stakeholders. It can’t be denied: This is a very real threat for many businesses—one which has a global economic impact.

It’s important to recognize the physical cargo loss isn’t the only cost involved with the theft. The disruption in supply chain continuity, the opportunity costs for missed sales, the damaged customer service and brand recognition, and the need for expedited replacement and delivery can also affect the bottom line.

Costs from cargo theft don’t stop there. The ripple effect includes additional hiring and screening costs for employees, and the need for tracing and tracking of goods during transit and hiring security personnel for training and hands-on situations.

Add on the lost business opportunities, the effect on your reputation, and the rising insurance costs, and it’s easy to see that cargo theft has an impact on your bottom line well beyond the obvious.

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