Cargo prevention: cost vs. investment

Cargo prevention: cost vs. investment    I recently had an opportunity to revisit an excellent article ('Ripped off,' May 2010 American Shipper, pages 48-55), which did a fine job of describing the problem of cargo theft. But it strikes me we should take a look at two issues that were not fully addressed in the article:
   ' What is the real cost of cargo theft?
   ' What are the best practices available to prevent cargo theft?
   The first question was considered in a study done by the RAND Corp. about 10 years ago, which concluded the real cost of most cargo thefts was three to five times the actual cost of the goods lost. While that conclusion has been treated as conventional wisdom since the study was published, our understanding of 'cost' may be different now and the 'real cost' issue should perhaps be revisited.
   Let's consider, for example, theft of branded consumer electronics. The manufacturer has invested in the costs of research and development, marketing, sales, shipping and production, and retailers have allocated shelf space for the product. If the cargo is stolen, the thieves will likely sell it in the manufacturer's own market at a significant discount, thereby competing with the manufacturer's appointed retailers. The manufacturer may even have to honor warranty claims on the stolen units since the end buyers, who are likely innocent parties, bought a brand name item and have a reasonable expectation that the manufacturer will stand behind the product. 'Costs,' in this instance, represent all of the manufacturer's investment in the product, loss of market, a threat to brand integrity and the retailer's allocation of their shelf space to other, and possibly competing, products.
   Another kind of cost occurs when the stolen product is a consumable. Food, especially frozen food, can be contaminated by mishandling and, if then sold, can make consumers sick. If the food producer's brand name is on the product, the fact that the food was stolen and sold illegally is a weak defense for the producer in the face of potentially serious illness caused by the branded product, no matter what happened to it in transit. The risk is even more significant with pharmaceuticals where improperly handled product can become toxic. 'Cost,' in these instances, especially if a recall of all product in a partially stolen lot is necessary, can exceed the selling price 10 or 20 times over.
   Consideration of the second question begins with what should be an obvious answer ' prevention of cargo theft is better than reaction to cargo theft. The costs of responding to cargo theft are an expense. The costs of prevention are an investment.
   What preventive practices, protocols, technologies and risk management approaches work best in reducing or preventing cargo crime or, at least, mitigating the results?
   Most cargo thefts are preventable. the Transported Asset Protection Association (TAPA) has studied hundreds of cargo theft events, and, in almost every case, the circumstances leading to the loss were found to be the result of poor practices, inadequate training, carelessness or foolish mistakes. Poorly planned logistics, such as releasing a load on Thursday for delivery 40 miles away on Monday, can result in a load sitting unattended and vulnerable when release of the load on Monday morning would have prevented a major theft. Proper investment in security technology, training and vetting of drivers, and security oriented logistics could prevent hundreds of thefts each year.
   Creating a secure supply chain means looking at all of the parts, building in security as a part of corporate culture, and designing security systems in layers so the failure of any one layer is not catastrophic.
   This is only an introduction to the kind of thinking we should be doing about the real costs of cargo crime and the need to invest in prevention. I hope you will consider covering these issues in the future with a focus on the global nature of this problem.

Alan F. Spear
chairman, the Americas,
Transported Asset Protection Association,
assistant vice president, Midwest loss control manager,
Chartis,
Chicago