Combating Cargo Loss at the Army & Air Force Exchange Service

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Since the first formal post exchanges were established by the War Department in 1895, an exchange system has served side-by-side with U.S. military troops both in the field and in permanent facilities on military installations around the world.

Now in its second century of service, the Army & Air Force Exchange Service (AAFES) remains committed to its mission to provide quality goods and services at competitively low prices and generate earnings to support military morale, welfare, and recreation (MWR) programs. In order to accomplish this mission, AAFES must move merchandise to and from facilities in more than thirty countries, five U.S. territories, and forty-nine states.

The AAFES motto—“We Go Where You Go”—best summarizes its commitment to America’s modern fighting force. At any given time, some 450 military and civilian AAFES associates are deployed to more than fifty facilities scattered throughout the combat theaters of Operation Enduring Freedom (OEF) and Operation Iraqi Freedom (OIF).

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The Logistics Challenge

The logistics team at AAFES understands that the exchange benefit military personnel and their families have come to depend on would cease to exist without a viable logistics loss prevention program as there would be no merchandise on the shelves of the Air Force base exchanges (BX) and Army post exchanges (PX) operated across the globe.

AAFES relies solely on commercial carriers and military convoys to get goods to our BX/PX operations in and around the contingency theater. While the purpose of a viable logistics program at AAFES is the same as any other retailer, the scope of operations can be much more complex due to the locations exchange shoppers are called to serve.

The logistics industry deals with all means of conveyance in order to get merchandise from vendors to distribution centers and ultimately to the store. In AAFES, fleet operations refer to the military command’s privately-owned over-the-road tractors and trailers. AAFES also relies on different commercial carriers for its other conveyance needs, including air, land, and sea transportation.

An important program for any retailer with a privately-owned fleet is backhauling, as the system allows merchandise to be directly routed from a vendor to a distribution center that can disperse merchandise to the store level. Backhaul programs save tremendous amounts of money in transportation costs associated with the use of commercial carriers or vendor deliveries.

The Impact of Cargo Theft

The logistics industry continuously experiences increased losses due to cargo theft. These stolen goods and property cause companies to suffer direct and indirect losses. Direct losses, of course, are the loss of cargo and, in most cases, the tractor and trailer or container. Indirect costs include expenses related to price increases often used in an attempt to make up for losses, increases in fleet operations to get replacement cargo to its destination, and the laying off of human resources because of the negative impact on profits. If loss recovery is attainable, there may be expenses for overtime or even part-time labor to get replacement shipments to the rightful owners. Indirect expenses are also associated with investigations, filing and paying claims, as well as researching and purchasing security technology.

According to statistics from several different study groups, annual direct losses due to cargo theft in the United States are estimated in the range of $10 to $20 billion. If the indirect losses are factored in, this figure could easily exceed $50 billion. Unfortunately, these numbers may not reflect accurate losses, as many carriers fail to report losses for fear of increased liability insurance premiums or a negative reflection to their reputation that could cause a loss of business revenue.

Because cargo theft almost always involves interstate and often international boundaries, law enforcement may not be the best possible defense. Once stolen, cargo is often hard to track and just as hard to identify if and when it is recovered. Additionally, law enforcement personnel often are not adequately trained to recognize and investigate cargo thefts. As a result, a majority of investigations and cargo recoveries are dependent on logistics loss prevention professionals and the partnerships they have developed with other agencies.

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The AAFES Cargo Security Program

Because AAFES has a dual mission to support MWR programs, our team takes cargo theft very seriously as every dollar lost can negatively impact critical military quality-of-life programs. As a matter of fact, roughly two-thirds of AAFES earnings are paid to MWR programs. In the past ten years, $2.4 billion has been contributed by AAFES to MWR programs to spend on quality-of-life improvements, such as youth services, armed forces recreation centers, arts and crafts, aquatic centers, post functions, and golf courses.

Technology. Today, AAFES employs several proactive measures to reduce cargo theft and, in turn, bolster annual contributions made to troops and their families. The use of global positioning systems (GPS) in tractors and trailers, for example, is helping monitor cargo routes to quickly locate property. GPS can even identify whether or not a driver is on course and locate units that may be in need of emergency assistance.

Radio frequency identification (RFID) technology is also widely used to track cargo in fleet operations. RFID technology is required by the military in the OEF/OIF theaters so that cargo can be tracked from port to container holding yard, through different designated checkpoints.

RFID readers are set up along routes in designated areas and at entry/exit points at ports and military installations. With RFID technology, AAFES can determine whether cargo either missed a checkpoint or failed to hit the checkpoint within the required timeframe. Our team is also able to find the last time and/or place a tag was read as well as reconstruct the history of a container from origin to destination. By researching the history, we can determine how long the cargo was at a port or in a holding yard, which aids in dealing with delayed deliveries.

Although not fully accepted by the logistics community, RFID is nearly as effective as and less costly than GPS. It is typically more versatile than GPS, depending on the information required to put on the RFID chip.

Partnering. Possibly, the most proactive approach AAFES is pursuing is partnerships with other fleet operators and law enforcement at all levels. The FBI, for example, has made cargo theft a priority and several corporations are employing their own task force or partnering with other similar task forces.

There are many cargo security councils that are extremely active in identifying cargo theft. These councils, operating regionally, nationally, and internationally, are very informative and willing to partner with other organizations and agencies to stop cargo theft.

Background Checks. There seems to be no problem with the cargo…as long as it remains in motion. However, problems can, and often do, occur when it comes to rest at a truck stop, rest area, drop yard, or even at the distribution center. Seaports in major cities are also a haven for cargo theft. Regardless of location, thefts are often accomplished by an employee, former employee, or someone with inside knowledge. For that reason, every new AAFES associate, including fleet drivers, are screened with a thorough criminal background check.

International Challenges. Fortunately, domestic cargo theft is not much of a problem for AAFES as most domestic cargo losses are a result of a commercial carrier violating contract provisions and not properly securing cargo. International operations, however, present unique challenges that have resulted in significant losses. Although AAFES operates its own private fleet, it does rely on commercial and contract carriers, especially in the OEF/OIF theaters.

Transporting cargo in a war zone normally requires a military escort running a convoy between the military installations. Convoys can be targets of improvised explosive devices (IEDs), rocket-propelled grenades (RPGs), and/or small arms fire. The results can be devastating. In almost every attack, the entire load is lost, including the container and the tractor.

Theft issues in the contingency theater cost AAFES, and by extension the military community, a significant amount of money, especially with the diversion of cargo. All containers shipped to ports in OEF/OIF are impounded until they pass through host-nation customs inspections.

Locks. Because this process can take several weeks, the favored modus operandi for thieves in the contingency theater is to remove locking mechanisms without compromising seals. This method allows merchandise to be removed and often replaced with planks of wood, rock salt, or paper products. When the locking mechanism is replaced, everything can appear to be intact.

To combat these types of thefts, AAFES uses a cable lock woven in a figure eight through the vertical locking rods. We are also using RFID to track movement of merchandise while the contract carrier has set up checkpoints en route to better monitor the containers.

AAFES has also limited the value of the merchandise each container holds in an effort to reduce losses. While these types of crimes can occur at any time, implementation of these measures over the course of the past year has played a prominent role in reducing thefts in the contingency theater.

Seals. Cargo seals are still critical to maintaining accountability as they must be strictly controlled from point of issue to receiving point. AAFES uses a variety of seals to secure cargo, including Tyden ball, cable, crypto, and bolt.

Serving a customer base stretching from Ft. Bragg to Baghdad and all points in between means that the use of multistop shipments and assured receiving is very important to AAFES as trailers may have cargo for several facilities located on a military installation or on a designated route. With assured receiving, one location may off-load too much merchandise or get products that belong to another BX or PX. In either case, it is imperative to strictly control and maintain accountability of cargo seals. A cargo seal must be used before leaving each facility and the seal numbers must be properly annotated on the manifest after each stop. If these procedures are followed, investigating and pinpointing a loss or diversion is much easier.

Focus on Safety

Safety is a very important aspect of logistics at AAFES. An increased focus on safety resulted in a 22 percent recordable accident reduction in logistics last year. Fewer accidents not only meant fewer people were involved in workplace injuries, but it also meant that the military command and the military community saved money as more associates were at work, instead of in the doctors’ offices.

AAFES uses a variety of methods to curb distribution center accidents, such as reviewing information from an accident report database to identify areas that require additional training and monitoring.

Fleet accidents can cost an exorbitant amount of money, especially when tractors, trailers, or cargo have to be replaced. Our private fleet rate for accidents for 2006 was 1.3 accidents per million miles driven. The industry standard is 12 accidents per million miles driven.

AAFES employs a fleet accident review board to review each fleet accident to determine preventability. The use of the review board and the fact that the drivers know each accident is carefully scrutinized results in a very safe fleet operation.

Merchandise could not be stored in distribution centers or loaded on trailers without the use of material handling equipment (MHE) such as forklifts. MHE accidents cause considerable damage to both property and associates. AAFES also employs an accident review board to address MHE issues. This board was instrumental in a 23 percent decline in MHE accidents in AAFES logistics operations last year.

Our MHE operators go through extensive in-house training with a certified training instructor and are required to be trained and certified on the specific MHE they use in the distribution center. Since AAFES uses several different types of MHE, some instructors can train operators on each type of MHE. This cross training allows personnel to quickly adapt to dynamic operational needs.

A very useful program used in the AAFES logistics MHE program is an annual MHE rodeo, where the top drivers compete for the title of “MHE Driver of the Year.” This effort has not only raised the awareness of MHE accidents, but has also proven to be very effective in the reduction of MHE accidents as competitors must be accident-free for the entire year to be eligible for the competition. The rodeos are fun and the MHE operators who want to compete operate the equipment in a much safer manner to ensure they don’t hamper their eligibility

Program Results

The seamless integration of technology used in the retail business world today, from logistics to sales, is imperative for success. Successful integration of technology capable of communicating with multiple business partners throughout the supply chain has placed AAFES among the front runners in inventory shrink. In 2006, the AAFES shrink was 0.93 percent of sales versus the 2005 industry average of 1.59 percent of sales.

In order to meet AAFES’ dual mission, its logistics program must be effective and keep costs and losses to a minimum. Those expenses may be associated with cargo theft, transportation expenses, internal theft, workers’ compensation payouts, or an effective safety program. Each program must work in unison to achieve success and ultimately strengthen the exchange benefit for America’s guard and reserve, active duty, and military retiree families.

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