Cargo Security: Protecting the Supply Chain

Tags: 3PL, Warehousing, Supply Chain Management, Security, Legislation, Public Policy, and Regulations, Partnership, Global Logistics, Transportation, Safety

Illustration of a criminal's and a businessman's hands on a container

Whether on a truck, in a warehouse, or at a port, your shipments are vulnerable to theft. Learn how to reduce that risk and keep your valuable cargo safe.

Each year, about $30 billion worth of cargo is lost, according to the Federal Bureau of Investigation, and incidences of cargo theft reached record highs in 2012.

Monetary losses from theft—along with the dangers posed by criminals sneaking illicit materials such as bombs or drugs into containers in transit—make strengthening supply chain vulnerabilities critical. To secure cargo, supply chain professionals employ a multi-layered approach that incorporates the latest technology and fine-tuned basic practices, such as extensive staff training. Meanwhile, federal laws and initiatives work to boost cargo security at the nation's borders and ports.

Most important to securing the supply chain is continually evaluating areas for improvement. Sometimes, companies aren't aware of vulnerabilities until thieves strike.

Take the third-party logistics (3PL) provider that approached Fair Lawn, N.J.-based investigative firm Danbee Investigations complaining of theft, decreased warehouse productivity, and a mysterious increase in work-related accidents.

Using three undercover operatives, Danbee's comprehensive investigation revealed a rampant cocaine problem within the operation, complete with two employees moonlighting as drug dealers and supplying other employees with drugs. A human resources employee acted as an accomplice, alerting workers before drug tests to ensure they passed.

The drug ring created numerous problems for the 3PL. "Not only do on-site drug problems pose a safety issue, but they also create a theft risk, because workers who are buying drugs may be tempted to steal the goods they are handling to fund their habit," says Barry Brandman, president of Danbee Investigations.

A Growing Problem

The 946 cargo thefts reported in 2012 was just one more than in 2011, according to logistics security firm FreightWatch International, but the number set a new record nonetheless. Experts partly blame the economy for the increase. Tight times push some unscrupulous insiders into criminal activity to pad their paychecks.

Experts also blame antiquated cargo theft laws that carry weak penalties. Minimal jail sentences prompted some organized crime syndicates to branch into cargo theft.

"The cargo theft problem has intensified in the past decade, because cargo value has increased, and thieves have grown more sophisticated," says Richard Murphy, president of Murphy Warehouse Company, a Minneapolis-based 3PL."We're not talking about chump change; it's a big deal."

Historically, cargo thieves targeted big-ticket items, such as electronics. Supply chain professionals responded by implementing robust measures to secure shipments. The measures have been so successful that thieves shifted their focus to low-value cargo, creating new problems.

Murphy Warehouse Company took several steps to address these problems. To track inventory, Murphy employees count products daily, allowing staff to quickly discover any shortages or overages. The company uses surveillance cameras, and works with armed, uniformed off-duty police officers who make unscheduled rounds.

GPS systems accompany products on trailers. The tracking technology incorporates geofencing, which allows users to define geographical boundaries. "If a truck drives beyond a certain route radius, an alarm will sound," says Murphy.

Once the alarm sounds, the dispatcher or security personnel try to reach the driver to determine why the truck left its course. "Being unable to contact the driver may indicate a problem, such as a hijacking," Murphy says.

If drivers know a road detour will force them outside the allowed area, they can call or text an alert to the dispatcher. Trucks also come equipped with technology that allows Murphy's team to remotely shut the engine down if necessary. "If a thief steals that truck, we can just stop it from moving," Murphy says.

Some trucks are equipped with multiple GPS units, but thieves quickly caught on to that method. Nevertheless, the time it takes to dismantle the second system sometimes saves the load from theft.

Thieves can also outwit GPS devices without dismantling them. One of Danbee Investigations' covert operations unveiled a scheme where company insiders would load extra product on a truck, then alert the co-conspirator driver of the excess. The driver would arrange to meet accomplices at various points along the delivery route to hand off merchandise.

"The GPS never revealed anything out of the ordinary," Brandman says. His team uncovered the guise by hiding video cameras inside gym bags and briefcases in the warehouse. The crooks were caught on tape exchanging merchandise for large bundles of cash, making the case an easy one to close.

Despite thieves' abilities to surmount even the most sophisticated security measures, the protections have worked. Increased security, combined with serial numbers that help identify stolen goods, have led thieves to seek new targets.

LOW-VALUE PROTECTION

In 2007, electronics accounted for 32 percent of all cargo thefts, according to FreightWatch International. By 2012, food and drink had replaced electronics as the most-targeted cargo type, accounting for 19 percent of all thefts that year. Meanwhile, electronics thefts dropped to 12 percent.

Although most companies shipping low-value cargo don't use special technology or other methods to protect it, that may soon change. Logistics providers sometimes offer high-value security protection for low-value goods as a customer service, says Chris McLoughlin, cargo risk manager for Eden Prairie, Minn.-based 3PL C.H. Robinson.

"Shippers are becoming more aware of the need for cargo security," McLoughlin says. "Shippers that understand the bigger picture risk are generally more apt and willing to expand the budget when necessary. If they want an armored car to move their freight, a 3PL can arrange that."

Many companies, however, would rather take a hit than spend more for anti-theft measures. "For some companies, there's a level of acceptable loss," says Erik Hoffer, president of security products company CGM Security Solutions, Bowling Green, Ohio. The company provides inexpensive security measures, such as tape that, when removed from a carton, reveals the word "opened." Even with inexpensive solutions available, however, some companies still hesitate to invest in security.

For all types of cargo, increased communication among shippers, logistics providers, carriers, and law enforcement is helping to boost security. Databases and alerts from companies such as FreightWatch International and CargoNet—a Jersey City, N.J.-based theft prevention firm—help supply chain professionals stay aware, and represent a key element in the effort to keep the supply chain secure.

C.H. Robinson recently partnered with CargoNet to stay up-to-date on theft trends, including types of goods targeted, methods used, and locations impacted. Getting the big picture view of cargo thefts outside C.H. Robinson allows McLoughlin to better protect the company's shipments. For example, if a rash of thefts of a particular type of merchandise occurs, McLoughlin alerts his network to enact heightened security measures for shipments of those types of goods.

CargoNet's database of stolen goods also helps catch perpetrators. "Law enforcement might arrest someone for a theft unrelated to your stolen cargo, then discover your shipments among other stolen goods in the thief's possession," McLoughlin says. "Through the CargoNet system, they're able to identify the goods and tie them to other thefts."

FreightWatch offers a similar service. The week before Thanksgiving, the company emailed a Thanksgiving Holiday Awareness alert. "During this time, electronics and clothing/shoes move up on thieves' wishlists—in a three-way tie with the ever-popular category of food/drinks for the most targeted product type," the memo read. "Covert GPS tracking with an active monitoring program is vital to mitigate threat, and an invaluable asset to the recovery process in the event of a theft."

This communication is key. Historically, companies have been leery of discussing security issues, not wanting to make losses public, or give criminals too much information. Openness, however, can help the industry come together and stay ahead of thieves.

Generating buy-in from law enforcement is another critical component of combatting cargo theft. Although federal agencies have begun taking the crime more seriously, considering it a gateway crime to more nefarious activities—including terrorism—many local jurisdictions consider cargo theft a business-to-business issue that doesn't impact the community.

C.H. Robinson contracts with a third-party theft investigation team that works with law enforcement. If stolen goods are reported, the investigators make sure a listing appears on the National Crime Information Center, a database available to law officials nationwide, and work with police to recover the merchandise.

A Customized Approach

Combatting cargo theft requires a multi-faceted approach customized to each situation, and incorporates strategies at all levels within an organization.

"A cookie-cutter approach doesn't work for security," says Dan Purtell, senior vice president, supply chain solutions for BSI Group, a business standards firm based in London.

Building good relationships with all business partners is key—and with inside jobs so common, the need for strong relationships extends to employees.

Limiting turnover and properly training employees helps shore up logistics providers' operations. C.H. Robinson implemented a high-value freight training certification that employees must undergo bi-annually.

Securing freight also requires air-tight processes. The frequency of deceptive pickups—in which a thief poses as a legitimate driver and simply hauls a load away—spiked 763 percent from 2009 to 2012, up to 61 incidents, according to FreightWatch International. This trend has prompted companies to enhance driver identification procedures.

Tightening the Security Net

Many companies have adopted detailed processes that, when layered, tighten security and help ensure only legitimate drivers pick up merchandise. Steps include logging the driver's name and equipment numbers, snapping photographs of the driver and license plate, and photocopying the driver's license.

Training employees to follow all the steps and notice details—such as verifying that the logo on the truck door is for the company the driver claims to be employed by—can mean the difference between a mega-dollar heist and a failed theft attempt.

Technology also helps thwart deceitful pickups. Brandman once worked with a client to install a device that would take digital snapshots of a driver's face, CDL and manifest, and store them in a permanent record. In case of a fraudulent pickup, the facility could send the driver's images to law enforcement. Posting notifications of the photo-taking policy served as another deterrent.

Before installing the equipment, the company had three bogus drivers make off with trucks over two years. Five years after installing the equipment, the company has yet to report another incident.

Even companies that enact stringent security measures sometimes discover vulnerabilities after it is too late. In 2010, a Cuban gang stole $90 million worth of medication from a Connecticut warehouse operated by pharmaceutical company Eli Lilly. The thieves entered the warehouse through the roof, disabled the alarm system, and loaded the goods onto tractor-trailers, according to the FBI.

"Eli Lilly didn't skimp," Brandman says. "The company appropriated what it felt was an adequate budget for security, but subsequently learned that having security that's good enough isn't good enough—not when it comes to professional thieves."

Pharmaceuticals, although accounting for just three percent of all stolen goods, receive attention because of the danger stolen, and subsequently reintroduced, goods pose to consumers.

The Eli Lilly heist generated robust discussion in the pharmaceutical industry about risk mitigation, notes Chuck Forsaith, chairman of the Pharmaceutical Cargo Security Coalition (PCSC), an organization comprised of pharmaceutical industry professionals, law enforcement and government entities, cargo insurers, carriers, and risk management advocates dedicated to preventing theft of pharmaceutical products in transit.

After the theft, Eli Lilly carefully reviewed the incident and uncovered vulnerabilities that it shared within the industry. "That shared insight strengthened the pharmaceutical industry's ability to protect itself against these types of illicit intrusions," Forsaith says.

The pharmaceutical industry employs many of the same protective methods as other industries, including focusing on layers of security. To keep cargo safe, companies may use teams of drivers, GPS tracking technology, and remote vehicle disabling in transit. In the warehouse, measures might include increased lighting, and strict visitor identification.

Sharing is Caring

The pharma industry has also focused on sharing intelligence through annual conferences, daily alerts, and topical updates for PCSC members and stakeholders, such as law enforcement and logistics providers.

These measures significantly reduced pharmaceutical cargo theft. In 2009, the industry counted 47 thefts with a total value of $197 million. By 2012, the number of thefts dropped to 30, with a total value of $5 million. In 2014, the industry plans to expand its focus and reduce theft internationally.

Cargo security measures aim to protect merchandise from theft, but they also secure containers against incoming materials, such as bombs or drugs. These concerns multiply when shipping goods into the United States through borders, ports, and airports.

To tighten security around inbound pharmaceuticals, the FDA recently began accepting applications for the Secure Supply Chain Pilot Program (SSCPP).

SSCPP seeks to prevent tainted, misbranded, or unapproved drugs from entering the country. The FDA opened applications in 2013 for the two-year pilot security initiative, which began in February 2014, and provides qualified firms with expedited processing of cargo into the United States.

Shoring Up Security with C-TPAT

The U.S. Department of Homeland Security (DHS), along with Customs and Border Protection (CBP), have also enacted initiatives, such as the Customs-Trade Partnership Against Terrorism (C-TPAT), designed to provide tightened, multi-layered security.

Critics question the effectiveness of these initiatives, but many security professionals report safety has greatly improved over the past decade. Protections begin even before U.S.-bound cargo departs from foreign ports.

C-TPAT, a broad, voluntary security program that began in November 2001, aims to shore up what CBP says are the two most vulnerable points in the international supply chain: loading, and transit from loading to export. "C-TPAT is the largest supply chain security program in the world," Purtell says. "The beauty of the initiative is it secures cargo at the source."

To apply to the program, a company must submit an application and security profile to CBP, which then searches for the company in law enforcement and trade databases.

The 10,000-plus participating companies must follow special procedures, such as requiring supervisors to inspect containers before loading, and oversee the actual loading before immediately sealing the container.

In response, participating companies receive expedited shipping into the United States, and are four to six times less likely to have their cargo examined, according to CBP.

Vulnerabilities Persist

Although the program requires many checks, some supply chain security experts say it falls short. "It is naïve to assume a locked container is completely secure," says Jim Giermanski, chairman of Powers International, a Belmont, N.C., chain-of-custody technology provider. "Criminals can always find ways to access containers—and C-TPAT assumes the integrity of those overseeing loading."

Although no perfect system exists, Giermanski says the best defense is hiring and training trustworthy workers, and investing in technology tools. Container security devices, for example, help to alert those overseeing cargo if an unauthorized person gains access.

One year after launching C-TPAT, CBP started the Container Security Initiative (CSI). The program allows CBP to staff foreign seaports, in collaboration with the host country, to examine high-risk cargo to prevent weapons of mass destruction from entering the United States.

CSI operates in 58 ports including Cartagena, Colombia; Port Qasim, Pakistan; two ports in Israel, and others throughout Europe and Asia. About 80 percent of maritime cargo entering the United States originates in or passes through a CSI port, according to DHS. Once the ship arrives at an American port, CBP again scans high-risk cargo, says Kip Payne, manager of government relations for the American Association of Port Authorities.

Although CBP frequently cites the high percentage of cargo tracked, a 2013 Government Accountability Office report finds the screening program is absent at about half the ports CBP considers high risk. The report acknowledges limitations imposed by conditions in host countries.

Once on American soil, cargo at the nation's 22 busiest ports is supposed to undergo screening for radiation, under the Security and Accountability for Every Port Act of 2006. Although all cargo undergoes screening, a 2013 Office of Inspector General report finds the program has significant flaws.

For example, the scanners use technology on the verge of being outdated, and the Defense Nuclear Detection Office (DNDO), which manages the scanners with CBP, hasn't worked to develop replacement technology. The report also finds that DNDO and CBP fail to coordinate effectively, which has resulted in some scanners left unused and others not used enough.

"The port scanning programs are not being run as well as they should be," Payne says. "We want to ensure they are maintained properly."

AAPA is working with Congress and CBP to encourage adequate funding for additional scanners, and to upgrade the computer system that clears imported cargo.

"Securing the ports is key," Payne says. In 2012, 1.4 billion tons of cargo passed through U.S. ports.

Despite the critics, Purtell says these measures greatly increase security around the nation's points of entry. "Ports are much more secure than they were 10 years ago," he says.

The quest to continue beefing up security must continue, because criminals are always evolving their methods. "Thieves will try to find weaknesses in the supply chain, and will constantly use new methods to thwart the security procedures in place," Purtell says. "We have to continue to raise the bar."