Rising Concern about Cargo Thefts

Stephen DeAngelis

August 7, 2012

According to an article published in Supply Chain Standard, in 2011, “the United States, Mexico, Brazil and other South American countries reported substantial increases in [cargo] theft.” [“Cargo theft rates increase,” 23 March 2012] The article based that claim on data obtained from FreightWatch International, an Austin-based cargo security firm, which had released its annual global threat assessment. The article continued:

“The study found that rates of theft in Europe were down for 2011, but it warned that a lack of reporting continued to be a problem. Theft rates across Africa and Asia remained steady. ‘As global supply chains adapt to a changing economy, so are cargo criminals,’ said FreightWatch chief Barry Conlon. ‘Theft gangs are becoming increasingly active, stealing cargo in significant quantities and making huge profits on the black market. To develop a comprehensive security plan, industry professionals must first understand the complexities of the risks they face.’ The Global Threat Assessment looks at each region of the world and the countries considered major players in the world’s supply chain, analysing cargo theft rates, criminal tactics, targeted goods and government efforts to curtail this growing problem.”

According to CargoNet, some of the increase in cargo theft may be attributable to better reporting rather than increased criminal activity. This is particularly true for the U.S. [“Record Reporting of U.S. Cargo Theft Attributed to Improved Data Sharing,” SupplyChainBrain, 23 March 2012] The article reported:

“A rise in cargo theft reporting is attributable to improved collaboration and data sharing between the insurance and transportation industries and law enforcement, according to a report from CargoNet. Formed by Verisk Analytics and the National Insurance Crime Bureau in 2009, CargoNet developed and manages a national cargo theft database and secure information sharing system. Although the primary focus of the system is to enhance the immediate operational sharing of data between theft victims and law enforcement, the growth of the database allows a deep and detailed analysis of cargo theft in the United States.”

Analysis of the 1,215 reported 2011 cargo thefts in the U.S. showed that electronics appeared to be a major target (229) incidents closely followed by prepared foodstuffs and beverages (200) incidents. Other goods with significant incidents included base metals (116) and apparel and accessories (105). The data also showed that most thefts occurred on Fridays (227) followed closely by Saturdays (202) and Sundays (198). The locations which appeared to be targeted were “truck stops, carrier/terminal lots, and unsecured parking lots.” Cargo being transported in tractor trailers is the most vulnerable. “With more than 2 million trucks on the road in the U.S., some 63 percent of all freight travels in trailers.” [“Cargo Theft: The New Highway Robbery,” by Daniel Grushkin, Bloomberg BusinessWeek, 25 May 2011] Grushkin pointed out in his article that historically the most prized cargo has been pharmaceuticals. He also points out, however, that monetary loss is not the only concern associated with cargo thefts. He related the story of the theft of a single tractor trailer carrying over $10 million worth of pharmaceuticals. The loss of those drugs, he claimed, “threatened the nation’s drug supply.” Grushkin continued:

“The drugs were owned by the U.S. division of Tokyo-based Astellas Pharma. … Within a week, Astellas withdrew all the drugs on the marketplace from the same lots as those on the stolen load. Pills—even legitimate ones—in drugstores and hospitals nationwide had to be destroyed. The $10 million theft ballooned into a $47 million loss. It wiped out 10 percent of the company’s North American sales for the quarter—a sudden, multimillion-dollar setback that’s becoming increasingly common for companies who rely on America’s highways.”

That’s a chilling story on many levels. Susan Chandler, executive director of the American Trucking Association’s Supply Chain Security and Loss Prevention Council, told Grushkin, that no cargo is safe. “You name it,” she told him, “they’re taking it. Do I think there’s a surge? Absolutely.” Grushkin continued:

“Thieves exploit the weak links in this supply chain, including poorly guarded warehouses and truckers who fail to heed shipping rules. … The biggest vulnerability, however, is a lack of coordination across jurisdictions. Police departments are geared for local crime, but when the target and the crook are both passing through, the location of the theft becomes incidental. By the time patrolmen begin investigating the lost trailer, the truck is likely out of the county. If a criminal is arrested, the sentences are often so light that many county attorneys don’t bother prosecuting. ‘The problem is that it’s so lucrative and the risk is so low,’ says Ed Petow, the former commander of the Tomcats, a task force in Miami-Dade County that unites local and state police detectives with federal agents to combat cargo crime. ‘By comparison, every bank robbery in the U.S.—whether they take $10 or $10 million—is ultimately investigated by the FBI,’ says Chuck Forsaith, chairman of the Pharmaceutical Cargo Security Coalition. ‘Cargo theft is different. A tractor-trailer stolen in Opelika, Ala., with $10 million in fragrances, or pharmaceuticals, or tobacco—you know who’s going to investigate that? The midnight guy in the Opelika P.D.'”

Another factor that makes catching cargo thieves so difficult is that they are organized and professional. Grushkin explained:

“Nearly half of all cargo thefts are committed by organized specialists, Petow says. A number of these, according to Petow and members of the FBI, are carried out by a syndicate based in South Florida, many of them Cuban. These crews roam the country’s interstates, targeting trucks carrying cosmetics, designer clothes, and electronics. The crews average $471,000 a load, according to FreightWatch intelligence director Dan Burgess. Pharmaceuticals, however, are the top prize. An average stolen truckload of drugs is worth $3.8 million, according to Burgess, and in the past five years, the number of pharmaceutical cargo thefts has multiplied more than four times. According to officials in the FDA office of criminal investigations, the thieves often pair with launderers who channel stolen or counterfeit prescription drugs, sometimes expired, back into the market.”

Petow told Grushkin that he believed that “50 percent of the stolen goods are exported to South America and the rest redistributed inside the country.” That’s why cargo theft is an international problem that deserves international attention. Cargo thefts involve billions of dollars worth of goods worldwide. The pharmaceutical industry has apparently taken actions to reduce its losses. In 2010, the average loss per tractor trailer theft was $3.8 million. In 2011, that average amount had decreased to an average loss of only $585,000 per incident (behind electronics which averaged $998,000 per incident). [“3 Simple Tips to Prevent Cargo Theft,” by Adrian Gonzalez, Logistics Viewpoints, 25 January 2012] Gonzalez reports there are some things you can “do to prevent cargo theft — or at least minimize the risk.” He claims these preventive measures are drawn from “what the statistics above are telling you.” He writes:

1. Keep the cargo moving. The longer a loaded trailer or container sits unattended, the higher the risk for theft. You should define limits on how long a loaded trailer or container can remain unattended under different circumstances. And you should collect data on where (and for how long) loaded trailers/containers sit along your supply chain to understand where you face the greatest risk for cargo theft. Just like you should ‘staple yourself to an order,’ you should ‘strap yourself to a trailer’ to find the inefficiencies in your transportation and delivery/receiving processes.

2. Focus on the ‘hot spots’ and ‘hot times.’ … Cargo theft is highly concentrated in just six states, and if you drill down further, in certain cities, neighborhoods, and truck stops and other parking areas. Also, thefts occur more frequently on weekends … and they spike during holiday periods. So, focus your security efforts in the places and times they are most likely to occur.

3. Know who you are working with. Having your cargo stolen from an unattended lot is one thing, but getting deceived by a thief in broad daylight because you didn’t perform proper due diligence is simply inexcusable. Thieves are getting more creative and sophisticated. … This means you must have a robust carrier qualification process and follow it consistently. The same is true for the brokers you work with and the employees you hire. Trust, but verify.”

Gonzalez’ last point is an interesting one. He reports, “[There is a] rise in deceptive pickups (29 incidents in 2011, up from 24 in 2010). … As the FreightWatch report states, ‘This [trend] is just one example of organized criminal gangs’ effective use of ambiguity in the supply chain process to obtain product — and in this case have the victims literally hand over the cargo to them.'” Fraud (including deception) is a problem in every transportation system. As Jeff Vielhaber, Vice President, Operations, TTS, reports, “Load board scams have run rampant in the transportation industry for a few years now.” [“How the $100,000 Surety Bond Can Fight Transportation Fraud,” SupplyChainBrain, 23 November 2011] Vielhaber continued:

“Carriers and brokers who are tired of losing money to scammers have implemented the only tactic available to them: a non-paid freight fee. However, this fee has not deterred scammers from proliferating and has only increased costs to all parties involved in transporting a load. Unfortunately, the current lethargic economic conditions have also contributed to an upsurge in scams as the unemployed have looked for quick solutions to their financial problems. With load board scams increasing in prominence, the federal government has been made aware of the growing problem and is taking steps to assist in the effort to remove scam artists from the marketplace. H.R. 2357, The Fighting Fraud in Transportation Act of 2011, supported by the Transportation Intermediaries Association (TIA), the Owner-Operator Independent Drivers Association (OIDA) and the American Trucking Associations (ATA), is the first step to eliminating scams. … One of the most controversial aspects of the bill is the requirement for brokers and freight forwarders to carry a $100,000 surety bond instead of $10,000. A larger bond amount means greater bond liability. This makes sureties stricter and raises the bar for freight brokers and their financial condition, making it harder for scammers to stay in business. While this increase is designed to weed out deceptive brokers, it will also make it much more difficult for small brokers to stay in business. … Most scam artists fail to obtain active authority before brokering freight, or they steal authority from a legitimate business to make themselves look trustworthy. However, with unlimited liability there will be no cap on suit amounts against the scammers. This combined with the high bond amount will make it highly unprofitable for scam artists to stay in business.”

Vielhaber contends, “If no action is taken, scams will only continue to proliferate.” Cargo thefts are a drain on the economy and, ultimately, have a negative impact on consumers as well. Better collaboration by stakeholders is required to prevent the problem from growing even worse.