A New LP Challenge

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Every retail loss prevention professional is familiar with the traditional avenues through which loss occurs. Shoplifting, both amateur and professional, employee theft, and refunding schemes are all addressed during the course of doing our day-to-day business. However, there is a larger problem that looms on the retail horizon—losses sustained from thefts within our supply chains.

For the first twenty-three years of my career in retail loss prevention, like most other LP professionals, I barely gave a second thought to any type of loss that occurred outside the immediate, traditional environs of the retail store or warehouse. Then I came into the retail/wholesale business and had a rude awakening.

Warehouse losses, truck hijackings, carton pilferages, and shortages proved to be everyday events. I quickly learned these types of losses cut into corporate profits in ways other than what one might think to be a traditional venue of retail profit loss.

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The Economic Cost

While it is true much of the “actual” loss sustained in the supply chain is recovered via insurance claims, it must be remembered that the actual recovery is generally only the base product cost or base wholesale cost. Some companies have a higher threshold and recover full retail value, but at what economic cost?

High insurance premiums and erosion of sales and product value through theft and resale of stolen goods in the “grey” and “black” markets both cut heavily into bottom-line profits.

Additionally, in an era of “just in time” deliveries, supply-chain losses mean disappointed customers, as the expected merchandise cannot be delivered as promised. In most instances, this merchandise cannot be replaced in time to meet seasonal product delivery schedules. What Northeast retailer wants a new line of walking shorts to arrive at the end of August? This can result in reduced customer expectation and lower future sales—the start of a vicious cycle.

The FBI estimates supply-chain thefts in the U.S. alone amount to $15 to $18 billion annually. As staggering as that sounds, the estimate is probably conservative. Indeed, Michael Wolfe, of North River Consulting Group, authored an essay in Journal of Commerce, citing “the unholy trinity of theft, smuggling, and terrorism” that, including myriad indirect costs, takes the total cost of cargo theft to “well north of one percent of GNP, or $100 billion.”

What is the impact these thefts have on the economy at large? Using the low end of the FBI estimate of $15 billion, cargo losses from criminal activities cost every man, woman, and child in the U.S. $50 every year. That’s $200 for a family of four from only one single element of criminal activity. Wolfe’s high-end figure of $100 billion raises that per person cost to $335, or $1,340 for a family of four.

Unfortunately, the public, as well as most politicians and many security professionals, are blissfully unaware of these losses and the bite they take out of their weekly paycheck. Until they do become aware and start to raise the flag about this issue, it will be hard to affect any significant change.

Whatever set of numbers you use, one thing is clear. Supply-chain thefts are a real and growing problem and, if left unchecked, could threaten the very foundation of our economy.

Why is supply chain theft so rampant? Because the rewards are worth the risks. Penalties are low, with most states and localities treating them as mere property crimes. Low-risk, high-reward crime is a formula for economic disaster. Until supply-chain and cargo theft is identified by its own unique criminal code, the true dollar loss impact may never be truly known and cargo thieves will continue to operate virtually without impediment.

Addressing the Problem

The Florida Department of Law Enforcement (FDLE) is preparing to take definitive action in an attempt to change the federal Uniform Criminal Reporting (UCR) codes. This past February, the FDLE held a summit in Tallahassee to address this very issue. To stress the importance of the summit, it was opened by Gov. Jeb Bush and attended by a cross-section of Florida’s law enforcement agencies, federal law enforcement agencies, and private-sector security personnel. The outcome of the summit was the drafting of a “National Cargo Theft Strategy” proposal. The plan breaks down the strategy into four distinct categories:

  • Designate a separate supply-chain/cargo theft code.
  • Develop a structure for the creation of task forces and a means to fund them properly
  • Conduct a threat assessment in the form of an econometric study to establish the financial loss to our nation’s economy as a result of supply-chain theft.
  • Develop an intelligence and information database that would be accessible to all law enforcement personnel across the country, with portions to be made available to the private security sector.

This summit and the resulting proposal is an extremely important first step towards putting the economic impact of supply-chain theft in the national limelight. Florida is to be commended for taking the leadership role.

Why is a separate UCR code needed? It would establish supply-chain theft as an identifiable crime. A unique criminal code will allow the overall impact of this crime to be measured and studied as an independent unit.

It would also establish appropriate penalties and sentencing guidelines for those convicted of supply-chain theft and eliminate the notion that it is a get-out-of-jail-free type of crime. This is the mentality that currently prevails among cargo thieves.

The International Cargo Security Council’s (ICSC) website, www.cargosecurity.com, has a downloadable article by Lt. Ed Petow, a long-time veteran with the Miami/Dade Police Department. Lt. Petow supervises the renowned South Florida TomCats, which is Miami/Dade’s cargo theft/hijacking task force. This article offers valuable insight into the criminal minds of cargo thieves and how they operate.

“People say I should write a book because I’ve dealt with every type of criminal activity. If and when I do, I’ll devote several chapters to cargo crime,” says Petow. “You see a little bit of everything when chasing cargo thieves. There are the semi-trailer hijackers and those who break into containers. Then there are those ‘honest’ retailers and distributor businessmen who turn merchandise into cash, about 30 cents on the dollar for the crooks. It amazes me when ‘honest’ business persons tell me they did nothing wrong; that they didn’t do the stealing. They really don’t get it.”Petow adds, “Some people think cargo crooks are ignorant, poor stiffs who barely made it out of the sixth grade. Fact is, they are pretty smart. They are inquisitive, intuitive, and creative. They develop low-tech ways to defeat high-tech deterrents. We’re winning a lot of battles, but the war goes on.”

The International Cargo Security Council

While looking around for answers to my own company’s internal cargo theft issues, I found several trailblazers in the retail industry who understand and are already actively involved in addressing supply-chain losses. Companies such as Target and Kmart were early leaders in the war on cargo theft. From these companies, I was lead to the National Cargo Security Council (NCSC). The sole function of this organization is to combat supply-chain losses and the effect of those losses on the national economy. The events of September 11, 2001, expanded the mission of the NCSC by adding the element of antiterrorism.

The membership of NCSC is made up of security professionals from across the spectrum of the supply chain, including land, sea, rail, and air carriers, warehouse logistics, manufacturers, insurance companies, retailers, and federal, state, and local law enforcement. The membership is professionals actively involved in cooperative efforts to reduce supply-chain theft.

In networking with these professionals, I was amazed at how ignorant I was in the arena of supply-chain security and how, by educating myself, I could impact my company’s bottom line. I became involved immediately by becoming a member of the Retail Cargo Theft Committee and then assuming the chairmanship of that committee. Last year I was honored to be elected as the 2004 chairman of the National Cargo Security Council and ended the year as the chairman of the renamed International Cargo Security Council.

A Global Response

I learned one very important fact by becoming involved with NCSC. Supply-chain theft is not just a local or national problem. It is a global issue. So last year the NCSC took the fight globally. We quickly learned that cargo and supply-chain losses in Europe were estimated to be as large as the problem in the United States, $15 to $20 billion annually. We also found that European security directors are just as eager as their U.S. counterparts to begin cooperative efforts to address these issues.

Recognizing that supply-chain theft and terrorism are linked, global problems requiring international cooperation and collaboration to combat them effectively, a meeting was held in Brussels to finalize formation of a European Chapter. The NCSC became the International Cargo Security Council (ICSC). Plans for ICSC-Europe are well under way, directed by its steering committee chaired by London-based Michael McIvor, European security manager for Estee Lauder Companies.

ICSC’s drawing board includes plans for chapters in Canada, Mexico, Central and South America, Australia and East Asia, and other continents.

On December 17, 2004, at the National Press Club in Washington, DC, I introduced the ICSC as an international organization. Terrorism and cargo theft are worldwide problems affecting the security and economies of all countries. What’s needed to assure safe and secure commerce everywhere are closely aligned global networks of people, best practices, and technologies. In Brussels, McIvor expressed his enthusiasm and optimism. “European cargo-security managers have long wanted to be part of an experienced, broader-based organization like the ICSC in American to improve

In Brussels, McIvor expressed his enthusiasm and optimism. “European cargo-security managers have long wanted to be part of an experienced, broader-based organization like the ICSC in American to improve security of international shipments. The U.S. organization has about fifty members from fifteen countries which provides a solid base to launch ICSC-Europe and units in other parts of the world.

Beyond Loss Prevention

Every year, some ten million containers are transported on vessels into U.S. ports and tens of millions of tons of air, truck, and rail freight enter the U.S. If we are to ever truly get our arms around this problem of supply-chain theft, we must begin by collaborating with our colleagues throughout the world to assure safe and secure movement of the world’s commerce. This is why ICSC helped to establish, promote, and support volunteer government initiatives that extend beyond our borders, such as the Customs-Trade Partnership Against Terrorism (C-TPAT) and Container Security Initiative (CSI), and industry initiatives like Smart and Secure Tradelanes (SST) and Free and Secure Trade (FAST).

The most effective loss prevention professionals will need to answer some basic questions in order to measure their command of supply-chain operations.

  • How many loss prevention professionals know of the government initiatives mentioned above and the impact they will have on our businesses? If you don’t, you need to learn, as they will, in large part, control how we do business and redefine how losses may occur.
  • How many of us know of and how to contact the various cargo-theft task forces that exist in many key areas of the country? If you don’t, you need to learn of these task forces made up of federal, state, and local law enforcement, because they will be instrumental in helping us address our supply-chain loss and post 9/11 terrorism issues.
  • How many of us know that the Florida Department of Law Enforcement (FDLE) is leading a national charge to make cargo crime a felony by changing the Uniform Crime Reporting codes? If you don’t, you need to learn why this is important and what you can do to help the process.
  • Most importantly, how many of us really know the true extent of the supply-chain losses we are sustaining in our companies and the true impact these losses are having on our bottom lines? If you don’t, you had better get involved, because you will be amazed at what you find. For example, one pair of shoplifted designer jeans may represent a loss of $50 to the retailer, but a stolen container of those jeans could mean a loss of a half-million dollars or more at retail. This is a virtually untapped resource for an effective loss prevention program

ICSC sends its 1,200 members alerts on hijacked trucks and trailers. These alerts go to law enforcement and private companies alike and act in much the same manner as an “Amber Alert” acts when a child is missing. They have been responsible for the recovery of numerous cargo loads over the past years; recoveries that might have never been affected if not for these alerts.

ICSC’s pledge to manufacturers, retailers, and the nation remains true to its founding charter—to assure the integrity and security of every shipment.This is accomplished through:

  • Government-Industry Partnerships.These are true partnerships with information and benefits flowing in both directions, guarding against kneejerk regulations that add little value in safeguarding our citizens and goods and, in the end, actually punish the victim.
  • Involvement in Key Legislation.ICSC is actively participating at all levels in the updating of the UCR codes to include supply-chain theft as a separate entity.
  • Educational Conferences, Seminars, and Roundtables. Education is key to addressing the issue of cargo theft. That includes education of law enforcement professionals on how to recognize and react to instances of theft in the supply chain; education of private sector loss prevention and security professionals so they understand the true impact that supply-chain thefts have on their corporate profits; education of government officials to ensure they understand and appreciate the needs and problems faced by the business community; and education of the public at large so they know the impact supply-chain theft has on their lives.
  • Publishing Best Practices Guidelines. Putting together the collective knowledge of our members to establish a proven roadmap for the detection and prevention of supply-chain crimes is a critical component. Our 1,200 members collectively comprise a cadre of the most intelligent, experienced, and dedicated cargo, security, loss prevention, law enforcement, and logistics professionals in the world. They are eager to share their knowledge and experience with like persons in every corner of the world and also to learn even more from their counterparts.
  • Certification and Training Programs.ICSC is rolling out a supply-chain security certification program that is backed by college accreditation. In addition, twice each year, ICSC partners with the Merchant Marine Academy at King’s Point in New York to put on a full week program focusing on supply-chain security

What the Future Holds

Current ICSC chairman Scott Harrison Smith concluded in a recent article in Cargo Security International, “Three driving forces assure success for the new ICSC: cargo security has moved from the dock to the boardroom, it now is a strategic operational issue in major businesses; there are proven direct links between improved supply-chain security and operational efficiency; and cargo security is universally recognized as an interdependent global issue requiring international collaboration.

”By joining the collective talents of law enforcement, loss prevention professionals, cargo carriers, manufacturers, and insurers, and by expanding their efforts on a global scale, the ICSC is working to combat not only the issue of safe delivery of cargo, but preventing the use of the supply chain for purposes of terrorism.

 

DAVID A. JONES, CPP is vice president of corporate loss prevention and security for Tommy Hilfiger USA, based in Cranbury, New Jersey. He is responsible for controlling all avenues of loss in both wholesale and retail operations. Jones has more than thirty years of loss prevention experience with Bamberger’s/Macy’s, Tiffany & Co., and The Home Shopping Network. He is a certified protection professional (CPP) and previously chaired ICSC’s Retail Cargo Security Committee. He was ICSC chairman in 2004 and is a member of the 2005 ICSC board as immediate past chairman.

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