Cargo at Risk

Oct. 27, 2008
In spite of our nation’s efforts toward homeland security, our supply chain remains open to attack.
Remarkably, a debate exists over whether unattended transported cargo truly needs to be protected and secured. Documented losses through damage far exceed those from supply chain theft. In some industries, losses through counterfeiting, diversion and fraud also exceed quantifiable losses from theft. So where should businesses rank a secure supply chain in their budgets and corporate strategic focus, and what should they do about it?

Who’s Responsible for Loss?

Who will be held responsible for a cargo loss? Who is responsible for implementing the security necessary to prevent loss? The Carmack Amendment to the Interstate Commerce Act defines limits of liability to carriers and allocates cents on the pound for freight regardless of the commodity, its actual loss value or the collateral effects of the loss. Based on this protection, carriers can reduce their insurance coverage to bare minimums, and they may fail to implement security unless it is tangibly beneficial to their operational efficiency and collaterally helpful to their clients.

Law enforcement once worked to stem the illicit transfer of stolen goods. Today, however, most federal funds once earmarked for cargo security have been redirected to address other national security issues. Supply chain disruption, through an act of cargo terrorism, would bring the economy of the free world to its knees. Cargo security is clearly a component of national security, but it has somehow been left out of this equation.

Even when law enforcement does work to recover stolen cargo, recovery in some cases means more problems to shippers than the loss itself. For instance, ingestibles need to be destroyed if recovered by law, and the cost of destruction is then borne by the shipper, further compounding their loss.

Instead of relying on external remedy by carriers, third-party logistics providers, or law enforcement, shippers need to protect their own interests against any condition of loss.

The Real Value of Cargo

Some cargo losses are simply written off because the value of the goods is low. But vulnerability to theft, product contamination and economic terrorism is not related to the value of goods. In today’s economic climate, where a just-in-time supply chain is the norm, losses of any kind radically disrupt a company’s business logistic continuity and escalate the actual cost of the loss to many times that of the cargo itself.

It is as necessary to protect a truckload of chewing gum as a truckload of pharmaceuticals. An item’s desirability to thieves directly correlates to the speed with which the product can be fenced or absorbed into economic obscurity. Soap powder, diapers and toilet paper can be as desirable to thieves as computer chips in certain areas.

Everything from fire engines to pesticides can be used as terrorist tools. The less scrutiny a unit receives, the more valuable it is to terrorists; yet in the industry, the lower the cost of the item, the less attention is paid to protecting it. Meat, seafood and cigarettes can be targets for theft, while a container of lawn chairs can be a conduit for the introduction of a weapon into our country.

Corporate Complacency Compounds Concerns
At the boardroom level, the implementation of security remedies to conditions of loss is often looked upon as an economic obstacle rather than a mandate. Management’s complacency toward security issues is due to many factors, including potentially flawed or manipulated theft information being filtered up through several departments.

Many domestic businesses have expropriated responsibilities that used to belong to the security department and split them up among logisticians, HR, risk managers and purchasing. This means remedy is determined not by experts looking for prudent functional choices, but by sometimes disinterested third parties basing their decisions on economics alone. In many cases, the purchasing department decides what should be bought to reduce risk, without carefully considering what is actually needed. Also, when departments other than security compile loss data for management’s use in budgeting for cargo security, that data may be inaccurate. They may be unaware of all the threats, and may attempt to minimize or spin any statistics or figures that reflect poorly on their own corporate function.

Remedying conditions of loss has changed in recent years to a knee-jerk approach rather than a proactively planned security approach to supply chain issues. This attitude is pervasive in the truck, air and rail industries and with many shippers, although they are all equally linked to the fallout from a theft or terrorism-related supply chain loss. Issues involving the vulnerability of intermodal freight have also been consistently ignored because of our government officials’ failure to specifically outline viable remedy.

Government Program Falls Short

C-TPAT, the Customs Trade Partnership Against Terrorism, is a tremendous preventative theory with no current viable benefit and no specific mandate for compliance. C-TPAT is a voluntary government-business initiative through which import traders and their supply chain partners assess their own supply chain security measures and provide evidence of compliance with security guidelines to gain “trusted” status. In return, they receive reduced screening requirements for their imported cargo.

However, I believe the promise of the carrot and the absence of a stick has made what was a credible program into a sham. Despite thousands of signatories all trying their best to do what is needed to protect our borders, DHS has failed to take any decisive action.

This nebulous logistic security plan has left many shippers and transportation companies with little to show for their compliance costs and no tangible results. Many continue to use little or no viable protection technology for their sea cargo because they’re waiting for Big Brother to show them the way. Customs and Border Protection (CBP), TSA and DHS have all been remiss in allowing such a well-intentioned program to be left out to dry with nothing behind it but words.
In the absence of specific remedy guidance, shippers must perform due diligence, analyzing their own security needs and choosing the appropriate technologies and processes to address them.

Harden the Target

Technology is available to secure cargo throughout any supply chain, both from container losses and from the introduction of contraband. Simple physical barrier technology, such as container locking bars, needs to be set as a minimum standard of care to control access to containerized cargo the world over.

Beyond that minimum standard, appropriate security choices need to take into account the level of potential loss, degree of risk and severity of the threat, as well as the reasonableness of the cost. In cases where no particular remedy is prescribed or known, industry best practices should be sought.

Countermeasures reduce your risk. Associations such as TAPA (Technology Asset Protection Association) and the ICSC (International Cargo Security Council) have specific expertise in helping choose the appropriate physical protection technology for you, your supply chain and your product.

When you choose a seal, a shipping or inspection protocol, or a best practice to secure your product, vehicle, pallet, or supply chain, keep in mind that the best choices specifically address the threat head on. A simple threat matrix will identify the severity and components of your threat so you can make an informed choice. Many lazy shippers have looked to ISO standards such as 17712 to choose a protection technique because, like CBP, they choose to use a standard of care without regard to its viability or effectiveness.

ISO, for instance, recommends a bolt to secure a container, but a bolt can be bypassed surreptitiously in seconds on any swing-door trailer or container. As a testing organization with no responsibility for any condition of loss, ISO’s product-based recommendations have no real bearing on loss control but merely on the physical attributes of the seal type. Blindly following a program puts you at risk. This does not mean the bolt is not a viable physical seal, but it does mean that a bolt cannot effectively secure all trailers or containers against a thief or a terrorist. You have to decide if this fits your plan or not.
Hard-wired electronics in the form of seals and entry detectors have been proposed to secure containers and domestic trailers, but they cannot always be effectively deployed or monitored. Domestic portable electronic truck and cargo tracking has come a long way and is ideal for certain cargo under certain conditions. However, the speed with which a breach can be effectively addressed is still questionable.

Electronics used in a sea and salt environment are generally impractical. Although there are situations in which specialized military technology has been used effectively to secure sea cargo, the practical nature of this technology in the world supply chain is remote.

RF signals emitted through or on metals are attenuated and therefore cannot be effectively read or monitored. Deployment in a dynamic sense, worldwide, is unlikely due to cost. Also, monitoring of these devices by handlers and ports is impractical due to the myriad of infrastructure requirements needed throughout the world. No one has even chosen a recommended frequency. Recovery of the device, ownership and legal responsibility have yet to be worked out, and of course, there is always the issue of the battery going dead. Even the ethics associated with electronically monitored cargo have been brought into question. Who is the caretaker of the data, and is the network secure to outsiders?

A Significant Economic Threat

The cost of stolen cargo is dwarfed against the potential price of economic terrorism. Each of us needs to spend a few minutes thinking of what would happen if terrorists compromised cargo to cause a massive seaport or airport closure. The cost to our national economy would be massive, but few companies have adopted appropriate security countermeasures to protect us from this possibility. Inaction seems to be the rule.

It seems we as a country are slow learners. Without specific governmental intervention regarding cargo security processes and technology, the domestic supply chain will remain fogged in and remedy challenged.

Erik Hoffer is president of CGM Applied Security Technologies Inc. (, which he created in 1977. In the past 37 years he has designed and patented a number of theft control, authentication and tamper-indicating products to protect cargo, vehicles and intellectual property. For the past five years Mr. Hoffer has been the chairman of educational events for the International Cargo Security Council. He is the former chairman of the ICSC Seal Committee. He is also a member of the Truckload Carriers Association, American Trucking Association and ASIS International.