Last month, during our Managing Retail Deductions Workshop in Charlotte, NC, John Tabor, Vice President of Supply Chain Support at National Retail Systems, Inc., delivered an eye-opening presentation about managing shortage claims by reducing theft. Because this presentation was so well-received, we wanted to share some of the highlights here.
According to Mr. Tabor, the FBI estimates that $15 billion is lost in the U.S. each year as a result of lost or diverted goods. From stolen tractor trailers to warehouse break-ins, these are serious, costly crimes. A report from FreightWatch indicates that there was an average of 2.1 incidents of trucking cargo theft per day in 2015, with an average loss of $184,101.1
One prime example of the problems facing the retail industry is the leakage that occurs when a group of thieves, perhaps posing as a legitimate company, steal goods from a trailer. They break into a trailer by bypassing the seal, remove a portion of the goods from the trailer, reseal the door on the trailer, and deliver the goods to the shipper with the seal intact.
When the shipment arrives and a product shortage is discovered, no theft is believed to have occurred because the seal is seemingly intact. This leads to claims being filed back and forth between shippers, transportation providers and even insurance companies.
The Cost of Theft
A stolen tractor will cost $75,000 - $125,000 to replace. A stolen trailer will cost $40,000 - $75,000 to replace. The value of a trailer full of merchandise can vary significantly, but typically falls into the $20,000 - $15 million range. Stolen goods translate to lost sales and profits.
Consider the indirect costs associated with a loss. For example, there are labor costs associated with investigating theft and processing new freight. Insurance companies could raise premiums and deductibles. Brand reputation suffers in the eyes of trading partners, vendors and the end consumer. A single incident of theft can have expensive downstream effects.
So why is theft such a problem? Unfortunately, some crimes cannot be stopped. Today's thieves are highly sophisticated, organized and persistent. They often have fake credentials that appear to be authentic. However, in many cases, shippers and carriers aren't doing enough to secure goods.
What Shippers Need to Do Better
Many shippers need to conduct more thorough vetting and background checks before allowing a company to haul their freight. Shippers should also retrieve the insurance certificate directly from the insurance broker instead of the carrier because fraudulent carriers will often create phony insurance documents. Insurance brokers should also be verified to ensure that they're not involved with a scam.
Shippers tend to be very lax with security procedures. For example, shippers should mandate that the carrier puts a lock on the trailer. It may seem obvious, but seven in 10 trailers don't have locks. Many shippers use bolt seals, which can be easily removed and reapplied to cover up the crime. Tin seals with hardened padlocks should be used to protect goods in transit.
Shippers should also mandate that carriers must not stop for at least 200 miles after picking up goods. Thieves tend to follow truckers out of a warehouse, waiting for the truck to stop. When you drive at least 200 miles, thieves are more likely to give up and look for another target.
Multiple forms of GPS should be used, not just on the tractor and trailer, but inside the products being shipped. Although external GPS devices are easily defeated by thieves, they usually don't look for internal devices.
It's not uncommon for shippers to underestimate the value of their goods and assume they won't be targeted. In reality, food and beverage (27 percent) is the most commonly stolen product category, far ahead of electronics (14 percent), home and garden (10 percent), and metal (10 percent). Even low-value goods are highly desirable to thieves and must be protected just as vigorously.
What Carriers Can Do Better
Carriers often misrepresent that they provide secure facilities. A building protected by nothing more than a fence and a locked gate can be broken into by a teenager with bolt cutters. A truly secure facility has a locked gate, good lighting, video surveillance, motion sensors and, in some cases, live security guards.
Similarly, many carriers misrepresent that their employees have been trained to follow security procedures. They may provide a list of security procedures that transportation providers must follow and that document may have the appropriate signature. However, if that document isn't passed along to the dispatcher and driver, it's nothing but a piece of paper.
Drivers also need to be notified about security measures related to the load being hauled. Suppose a driver pulls into a rest stop, grabs a bite to eat, and returns to the parking lot to discover that their tractor trailer was stolen. Most drivers wouldn't be able to tell you the make and model of the trailer or the license plate number. This delays the investigation and makes it easier for thieves to get away with their crimes.
Drivers should be issued a card or electronic data each time they're dispatched so information can be reported immediately after a loss. The Department of Transportation requires a visual inspection before leaving, so drivers should also take photos with their phones.
However, many carriers fail to notify the shipper or the proper authorities when theft occurs. Some don't want the police involved because they don't want their insurance premiums to go up. Other shippers call the police, but they fail to conduct their own investigation. Carriers should contact a cargo theft task force that specializes in investigating crimes such as tractor trailer theft.
Hiring the Right Business Partner
A best-in-class business partner should follow best practices for security and have at least one person dedicated to improving security. That includes securing facilities, tractors and trailers, training drivers, conducting background and reference checks, and other security-related responsibilities.
Most importantly, shippers and transportation providers need to collaborate on a regular basis. They need to constantly re-evaluate the supply chain, learn about the current theft "hot spots," upgrade security technology and procedures if necessary, and gain a better understanding of risk.
By hiring the right business partner, collaborating with that business partner, and following best practices for securing goods in warehouses and in transit, you can dramatically reduce the risk of theft and protect your investment.
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