Evidenced by the most recent statistics, progress has been made against cargo thieves in the US. The value of stolen cargo is down. The number of retailers that report being victims has dropped. Busts have disrupted the activities of major theft rings. But in today’s retail world—where the ability to ship anything from anywhere and to anywhere within a short time frame is increasingly paramount—that progress will surely be tested.
As retailers’ products travel more miles to find their way into customer hands—residing less often under the controlled confines of store walls and well-established LP programs—losses in the supply chain are amplified. Developments in the supply chain, which previously may have not raised an eyebrow, can become, quite suddenly, materially important to the retail loss prevention mission.
Transportation networks, for example, are becoming more fragmented as each entity throughout the supply chain seeks to minimize its own costs and liability. So a typical shipment of retail goods has more hands touching it than in years past, and more hands increases the exposure of retail goods to loss, noted Glenn Master, loss prevention director for commerce services at Pitney Bowes and former regional loss prevention manager for Office Depot.
“A retailer might have a contract with company X, but they in turn will use an extensive transportation network to manage that process all the way to a customer’s doorstep,” explained Master. “From a [distribution center] to a consumer, multiple companies will be touching that product, and every time there is a touchpoint, there is a risk for it to be lost or stolen.” Moreover, as shipments get closer to the customer endpoint, it’s likely that the carrier transporting that product will be smaller and less sophisticated, thus reducing the visibility of in-transit orders.
Truth be told, cargo theft has never mattered all that much to retailers and LP executives, say some industry leaders. With contracts that make them whole again in the event of loss, diversion in the supply chain has always been more nuisance than priority. “But now, if you have thousands of customer parcels stolen from a truck in Burbank, by a driver five companies deep in the supply chain network, the cost to retailers is substantial,” explained Master. In addition to the resources required to manage claims from all those disappointed consumers, there is the real risk that you’ve lost them forever as customers.
The e-commerce transformation isn’t yet complete, according to the director of loss prevention for a home furnishings retailer. Retailers continue to focus on removing customer obstacles, to facilitate purchases no matter when, where, and how shoppers want to make them. “It’s about the customer experience and how you can get the product to them at their convenience-and we haven’t seen the end of that evolution,” he said. He added that it’s important for loss prevention to be part of planning as retailers innovate, whether it is ship-from-store, order online and pick-up in store, or “into scenarios with autonomous delivery, Uber-like services, and other last-mile issues.” Case in point: Kroger said in December that it has started delivering groceries via an autonomous vehicle with no driver from its Fry’s Food Stores to homes in the Scottsdale, Arizona, area. Such developments completely transform cargo security models.
Retailers are currently grappling with the new consequences from supply chain loss, according to Byron Smith, CFI, LPC, corporate asset protection manager for 7-Eleven. “It has become top of mind for retailers as sales change,” he said. “It’s being looked at as an issue of maintaining consumer confidence in that brand, whether customers are buying products in store or they’re being delivered to them by a third party.”
If a product isn’t in the store when shoppers go to buy it or it doesn’t arrive when it’s supposed to, that confidence can be easily shaken. That can have severe consequences for the retail business, suggested Smith, who is chairman of the International Supply Chain Protection Organization (ISCPO). The task is also growing more complicated alongside the increase in the number of direct international shipments that bypass traditional US carriers. “You can pretty quickly experience brand erosion from losses and delays from shipping partners,” Smith warned, adding that loss prevention and asset protection leaders need to involve themselves in the supply chain process to align with its growing significance.
As e-commerce takes on a greater share of traditional retailers’ revenue streams, shipment delivery and retailer reputations become intertwined. The consequence of crime disrupting supply chains isn’t only about insurance claims and loss of revenue; it’s about brand protection, customer loyalty, and future sales.
So it’s not only gains in supply chain security that will be tested but also perhaps the value of LP professionals themselves.
In the Yard
The risk of theft in retailers’ distribution centers (DCs) is much as it has always been—and the best strategy to prevent it is too, according to one director of loss prevention. “There is no silver bullet. It’s just a matter of having a strong overall security program, where you’ve got good people, and layer in technology, and work to deter crime with the same approach that you have in stores,” he said.
Just as stores are more likely to be hit when they are in disorder, distribution centers need to appear “buttoned up” to dissuade crime, he said. That means walking your fences, checking your lighting, implementing robust video surveillance, instituting tracking systems for both trucks and product, and having well-defined access-control programs. As a blueprint, some LP leaders noted that it helps to follow the physical security attributes identified by the Customs-Trade Partnership Against Terrorism (C-TPAT), the voluntary supply chain security program led by US Customs and Border Protection, which was created to improve the security of private companies’ supply chains with respect to terrorism.
Still, it’s not enough to have the right tools and protocols in place. It takes ongoing investigation, assessments, and audits to ensure vigilance against ever-present adversaries. For example, access-control systems generate a wealth of data, but it can only point to a driver’s suspicious after-hour visits to a distribution facility if it’s scrutinized. “If you’re not looking at what your tools are telling you,” an LP director warned, “then they’re not doing you any good.”
Overall, retail LP teams do a good job of preventing theft at distribution facilities from causing material harm to their businesses, according to security consultants and supply chain LP professionals we interviewed. “We all have our cases now and then—people will go into cartons and take onesies and twosies—but it’s not enough to really move the shrink needle for a company,” said one. “If your DCs are secure, and your yards are secure, then the opportunity for theft to cause significant damage is pretty minimal.”
The bigger risk for theft today comes as a package leaves the control of a retailer and is placed in the hands of third-party logistics providers (3PLs), say experts. While subcontractors and small carriers may pose more risk, experts say that even the big carriers like UPS and FedEx have issues inside their buildings and operations that result in loss. Problems are likely to worsen under today’s labor shortage, particularly the acute issue of too few drivers for too many packages. “I think the 3PLs are suffering like everyone else under the labor shortage,” said one LP supply chain professional. “They’re having to take what they can get to move boxes.”
America is short about 50,000 truck drivers, according to the American Trucking Association. If the current trajectory continues, that number could exceed 174,000 by 2026, says the group. Fewer drivers can cause trailers to be staged loaded for long periods of time, putting shipments at added risk. It also puts shipments in the hands of drivers that may not have passed a rigorous background screening a few years ago. Realistically, retailers will likely have to come to terms with paying more to transport shipments and that drivers they probably wouldn’t want will be in control of their packages, experts believe.
On the Road
Data on cargo theft is, generally, trending positive. Both CargoNet and SensiGuard’s Supply Chain Intelligence Center have tracked year-over-year declines in the number of cargo thefts for the three years leading into 2018. The FBI reported an increase in the number of thefts in 2017, but that likely reflects an increase in the number of law enforcement agencies reporting cargo theft data. (In 2017, a total of thirty-three states and the Bureau of Indian Affairs participated in the submission of cargo-theft data.)
A new study by the National Retail Federation (NRF) reports a major drop in the percentage of retailers that say they were victims of cargo theft in 2018. And everyone’s data seems to point to a conclusion that the total value of property stolen in cargo thefts has been falling or holding steady.
What’s behind the better numbers? Experts suggested a number of factors have put cargo thieves on their back feet. These include:
- Successful law enforcement investigations and the formation of cargo-theft task forces;
- Increased use of GPS tracking devices to monitor shipments;
- Better locks on trailers;
- Fleets and drivers adopting team driving; and
- Better cameras and recorded footage of thefts and identification of suspects and vehicles.
“The technology piece is interesting,” according to Tony Pelli, a supply chain risk consultant at BSI. “Tracking devices are becoming a lot cheaper. And instead of tissue box-size or even larger devices, we’ve moved to much smaller devices, and even throw away ones where reverse logistics is not necessary and you don’t have to worry about getting them back.” He added that—because everything is Internet—connected these days-there really is no excuse to not have visibility into cargo shipments. “Increasingly, everything in a truck is connected to the Internet: the driver’s cell phone, the truck’s engine, and so on. You’ve already got things on board that you can track.”
While that does add a new layer of responsibility—to make sure devices that are tracking and reporting locations of shipments aren’t vulnerable to being hacked—it’s helping to alter the cost analysis on which cargo shipments are worth tracking. “It’s becoming possible to track cheaper shipments like food and beverage and other products on which, in the past, it might not have been worth it to do tracking,” advised Pelli. With Sensiguard reporting that food and drinks were the third-most stolen type of cargo in the third quarter of 2018, that’s good news.
Using technology to monitor shipments seems to yield value, according to recent research, including tests conducted by researchers in a paper for Technical Transactions, “The Cost of Risk Evaluation in Intermodal Transport,” Dec. 2017. In the study, researchers compared intermodal shipments (a) without location monitoring, (b) with location monitoring, and (c) with location monitoring plus cargo parameters, such as notification if container doors are opened, temperatures exceed a certain limit, and other deviations from standard events.
The conclusion: “Conducted tests made it possible to confirm the benefits of implementing a system for positioning and monitoring cargo parameters, especially for high-value goods.” Devices for monitoring both location and cargo parameter resulted in lowering costs by an average of 53 percent. Using a system to monitor location only cut costs up to 31 percent. “These results showed that using those systems could bring great benefits,” the study concluded.
Overall, Pelli says that trends in cargo theft remain fairly consistent. With a few fluctuations, thieves are primarily hitting the same products and in the same states as in recent years. “These are certain areas around major transportation nodes where you have very active cargo-theft gangs,” explained Pelli. Southern California is one such hotbed, where retail consumer goods arrive from Asia through the Port of Long Beach and then move into Riverside County. “So you’ll see gangs operating there, targeting trucks in those areas and hitting warehouses.” Occasionally there will be a crack down in a specific geographic area that disrupts cargo-theft operations. “So crime may decline for a time in that area, but then after a while, it comes back.”
The Chicago area recently rode that wave, according to Steve Covey, special agent at the National Insurance Crime Bureau and former head of the Midwest Cargo Theft Unit for the Illinois State Police. After a several months lull at the end of 2017, cargo thieves became very active in early 2018, with more than a dozen thefts, all more than $100,000. “Cargo theft is still pretty rampant,” warned Covey.
And while cargo-theft data overall seems to suggest that shipments are growing safer, experts insist that loss prevention practitioners need to stay consistently engaged as obstacles and opportunities cause cargo thieves to shift tactics. Cargo thieves are opportunists, explained Sergeant Peter Lee, in the California Highway Patrol Southern Division’s Cargo Theft Interdiction Program. “[They] will scout possible locations for easy opportunities, whether unsecured load on docks to distribution facilities with limited to no security. Other thefts may involve use of fictitious documents to steal cargo from facilities with untrained security.”
SensiGuard’s yearly report similarly noted that the decline in reported cargo theft doesn’t mean thieves are backing off—just that they’re refining operations and honing in on soft spots in the supply chain and on shipments they know can be easily fenced. That is one reason for the rise in mixed-retail-load thefts—shipments that are typically a mix of product destined for a brick-and-mortar store. “Diligent and organized thieves can still utilize their criminal network to identify the contents of these loads, which if they contain desired products, typically have less security measures in place than a dedicated trailer of one high-value/targeted product,” warned Sensiguard analysts.
This trend is also evident in the rise of large pilferage events, according to Sensiguard. “Thieves have learned that valuable intelligence can be gathered while obtaining high-value merchandise by penetrating a trailer, stealing some of the product, and then drawing back to see what—if any—response occurs.”
Pelli has also noticed cargo thieves becoming more strategic, including using information found online to create false identification and set up bogus trucking companies, or to steal the identity of a legitimate trucking company and book loads and shipments under the company’s name. To an unwitting distribution center, the pick-up seems completely legitimate. “Like in all areas of security, risk is increasingly at the intersection of cyber security and physical security,” Pelli said.
Some trends, which can seem to have little relationship to cargo theft, are also impacting risk. The nation’s clogged roadways are one example. “With traffic increasing around major cities, more retail deliveries are being made to stores in the middle of night so that drivers don’t have to contend with traffic,” explained John Albrecht, vice president at Transport Security, which has provided locks and other cargo security solutions to retailers for forty years. “And it’s tough for retailers to protect at that point. You can’t put a fence around it.” To secure shipments as they sit unprotected, he suggested that retailers should consider upgrading to tougher locks that have been developed in recent years and are able to withstand the determined efforts of ORC gangs. Another smart solution is to place a tracking unit inside a trailer after it arrives at the store and until it’s unloaded, so store staff can receive an alert if it’s moved, he said.
Shrinking law enforcement resources also pose potential risk. Successful police investigations have been touted as a cause for declining cargo theft rates, but some jurisdictions are now scaling back cargo theft interdiction units. “It depends on the jurisdiction, but in my state, for example, the cargo theft unit is now manned by a single person,” said Special Agent Covey.
The Bigger Picture
The supply chain is infinitely intricate. So risks are, naturally, far more extensive than those inherent in warehousing or transporting cargo within the US. And this broader picture of risk is growing darker, according to Bryan Strawser, principal and CEO at Bryghtpath, a strategic advisory firm specializing in global risk, business continuity, and crisis management.
He thinks supply chain risk is growing, a result of a combination of two factors: (a) the increasing complexity of the global supply chain and (b) a substantial shift and growth in geopolitical unrest. “I think LP practitioners need to adopt a very broad view of supply chain risk because executives’ concerns transcend the issue of cargo theft,” he advised.
Strawser, who served Target for nineteen years as senior director for global crisis management, business continuity, and intelligence, sees geopolitical uncertainty impacting today’s retail supply chains. “It’s everything from the collapse in Venezuela and the nationalizing of assets to the more general instability as it relates to the current state of diplomacy and rise in tariffs-and the risk that these actions lead to more aggressive behavior.”
The Risk Advisory Group released its Strategic Outlook 2019 in December, and it offers a similar warning. “Across nearly every region, we forecast that authoritarian, right-wing, and nationalist governments and movements will grow in strength and influence,” according to the group. For example, it predicts that extreme right-wing groups are likely to grow in strength and influence in Europe during 2019, negatively affecting security, and that authoritarian governments across the Asia Pacific region will pose a risk to stability in 2019 and beyond.
Increasing geopolitical competition will make it more difficult to jointly tackle challenges like climate change, environmental degradation, and water scarcity, serving to perpetuate insecurity and instability, limit development, and drive migration. “This feeds a cycle of complex risks that will become even harder to resolve,” the group warned.
A Call to Action
Although fewer retailers report falling victim to cargo theft, respondents to the NRF’s 2018 Organized Retail Crime Survey said that inattention to risks to goods in transit is one reason that ORC continues to increase. “Retailers say they often are unable to counteract the problems due to staff shortages, a ‘do-nothing’ policy, and lowered supply chain security,” according to the new report.
For some LP departments, assuming a more proactive role in managing supply chain loss will be an easy transition. “I think some organizations have done a good job of LP getting involved, especially those that have developed organized crime task forces,” said Smith.
For others, it may mean starting from scratch. LP has a history of either not being consulted on matters of supply chain loss, or not infrequently, it has willingly turned a blind eye to the risk. “We’ll sometimes have to educate LP on their own [supply chain] processes because they’ve been excluded from a seat at the table by their own camps,” said Master. “And it blows me away that, even at the VP LP level, I’ll find myself having conversations with executives that show they don’t know their own processes because they are so exclusively focused on brick-and-mortar.”
Master’s advice is simple. “Get engaged,” he said. “Honestly, engagement is everything.” On that front, he’s observed some encouraging signals. Over the last two years, as e-commerce has continued to grow, he says LP executives have become more involved in conversations around loss and risk in the supply chain, and some retailers have started to allocate more manpower to address the challenge. The nature of engagement will naturally depend on where the supply chain hits a retailer’s business.
For one retailer without an e-commerce component, focus has been on ensuring that the 3PLs it does business with are up to the challenge. “Our goal is to have good, strong agreements in place with third parties,” explained the retailer’s top supply chain LP executive. “We devised a document that spells out our company’s transportation security requirements that you have to meet to do business with us.” On a monthly basis, they conduct an audit of providers to assess compliance and hold them strictly accountable. “We’re giving the 3PLs the security answers. There is zero reason they should fail these audits,” he explained.
Auditing also plays an important role for 7-Eleven, to ensure the quality and integrity of deliveries by 3PLs to stores and to ensure that “they are delivering exactly what the store ordered, no more and no less,” said Smith. Providers are required to hit certain plateaus on key performance indicators, “so if 99 percent gets to the store, we can drive that change to get 100 percent.” More than fraud, human error can pose a challenge for carriers trying to make convenience store deliveries quickly. 7-Eleven stores help to cut down on the risk of errors by making it a priority to review orders, having internal resources that make it possible, and by doing the scanning necessary to validate that all product is received.
Monitoring theft trends will also continue to be important. The risk of criminal activity associated with cargo in transit has always been strongly linked to specific goods, days, locations, and routes, making planning and routing of transportation an important consideration in mitigating risk to cargo. And some experts suggest that the rise of e-commerce could alter the risk landscape. For example, pool distribution models or the use of smaller distribution centers to speed consumer deliveries may change where and when cargo is stolen.
Some changes may already be showing up in the data. In a 2011 study of cargo theft, which analyzed the previous five years of cargo theft, data showed theft occurred significantly less often on Wednesday and Thursday, at just a fraction of the rate on weekends and substantially less frequently than on Friday and Monday. Cargo remains at its most vulnerable on the weekends, according to the latest data, but Wednesday has emerged as a higher-risk time, with thefts now occurring at a rate on par with Friday and Monday. As cargo moves more frequently, to more places, it’s starting to look like no day will offer refuge to shipments in transit.
Tracking enhancements in theft prevention should also be a persistent priority for LP, suggests Ron Heil, CPP, CSC, CHS, senior security advisor with Business Protection Specialists, a security consulting firm. In addition to GPS and other tracking technologies, “old” solutions are getting an upgrade. “Seal technology is changing quite a bit,” Heil said. “It’s not as easy to counterfeit or remove and put seals back on.” On the horizon are perhaps transformative technological solutions. Brigid McDermott, vice president of blockchain development for IBM, says that blockchain technology, by making it easier to verify legitimate carriers and the loading and unloading of shipments, can help to deter and practically eliminate some forms of cargo theft.
Pelli’s advice is for retail companies to expand their view of risk. He says retailers are currently more concerned about the potential of physical vulnerabilities in their shipping partners, but that they need to start paying greater attention to whether the cyber security of those companies is also up to the task. The fallout of cyber vulnerabilities in the supply chain was underscored in 2017 when Maersk, which handles about one out of seven containers shipped globally, was crippled by a ransomware attack, causing weeks-long supply delays and disruption.
Cyber attacks become more viable as more nodes in the logistics chain are connected, even as that very connectivity may help to minimize cargo theft. In “Contribution of physical internet containers to Mitigate the Risk of Cargo Theft” (an article published in 15th IMHRC Proceedings in 2018), researchers from Georgia Southern University observed that using easy-to-interlock smart containers in an open, interconnected logistic system has the potential to reduce cargo theft. They concluded: “Results suggest that through the modularity and standardization, the application of physical internet containers will significantly improve the logistics performance and reduce cargo theft risks.” However, it is only possible to extract security gains from greater supply chain connectivity if cyber vulnerabilities are included in the risk management equation.
The growing importance of cyber security in cargo transport is perhaps most obvious in the rise of autonomous long-haul trucking. Outfitted with sensors and guided by self-driving software, several companies have already announced successful test runs of 18-wheelers across the country. A truly driverless truck would change the nature of trucking—and protecting cargo. To many analysts—and to the International Transport Workers’ Federation worried about the elimination of millions of trucking jobs—the expectation is that self-driving trucks will be crisscrossing the US in a decade’s time.
For LP professionals broadly, Smith thinks executives will need to continue the trend of involving themselves in supply chain issues and to work more closely with their operations team on identifying how LP can better support their companies as they navigate the e-commerce revolution. That very issue is a focus of the upcoming ISCPO annual conference in Irving, Texas, March 6-7, 2019. For retail companies, it’s important to bring more internal members to the table, “so we can look for ways to improve our processes year after year and to take advantage of LP’s particular expertise,” Smith said.
LP’s external relationships also play a key role in meeting retail’s evolving supply chain challenges, according to experts.
For example, Glenn Master and Byron Smith both noted the importance of using analytics to monitor loss trends and sharing data with logistics providers, such as an escalating number of consumer complaints in a select zip code. The more transparent the relationship, the more readily a provider can remedy emerging loss issues that pose a risk to a retailer’s business.
Another LP executive said it’s important to have good investigative partners you can call upon and suggested engagement with regional cargo-security councils to stay informed on risks and solutions. “It’s important to be able to learn from one another, to see how thieves are slipping seals and otherwise creatively compromising shipments these days, and to have people you trust that you can call if you see something you need more information about,” he said.
Agent Steve Covey noted that communication with law enforcement has room to improve, suggesting that retail organizations need to combine robust physical security with enhanced outreach to law enforcement units that work on cargo theft. “Cargo thieves and ORC gangs have fencing operations in common,” he said. “So that’s something retailers can get with law enforcement about.” Sergeant Peter Lee also sees communication with law enforcement as an important theft-prevention tool. “Direct communication with cargo-theft investigators result in quicker investigative response,” he said.
The importance of supply chain integrity is reflected widely. It can be seen in surveys that show consumer purchase decisions are increasingly swayed by issues such as seamless shipping, delivery, and returns. International Data Corporation predicts that more than 50 percent of consumers will name fulfillment execution as the top reason for loyalty by 2020. It’s clear, too, in the emergence of fulfillment as the top area of investment among retailers, which now allocates 29 percent of capital expenditures on transportation and logistics, delivery options, order management, and inventory visibility and returns, according to the Walker Sands’ Future of Retail Report. And it’s starting to be visible in the LP domain, as retailers and their LP leaders look to bring the success they’ve achieved in their upstream logistics downstream to consumers.