More than 63 times each month - twice a day - someone in the U.S. reports their inventory stolen.¹  Specific commodities, including pharmaceuticals, electronics and jewelry, are often targeted while in transit or wherever they can be found in large quantities.  “It’s a known fact that high-value shipments are targeted well in advance by organized theft rings,” says Thomas Neumann, security manager at UPS Capital. “They typically have a buyer in place to fence the stolen merchandise, which makes recovery even more difficult.”

The Challenge: Manage Supply Chain Risk While Growing Your Business

Businesses must protect their vulnerable high-value products all along the supply chain, even when the products are sitting “securely” inside a warehouse. Unfortunately, too many businesses take these risks for granted, rather than take advantage of the solutions available to them.

In fact, roughly two in three businesses describe their effectiveness at managing supply chain risk as “low” or “don’t know.” Few have assessed their end-to-end logistics risk in any way. But risk can be costly. One study notes that companies that had a major supply chain disruption, sales declined 93 percent and operating income declined 107 percent.² 

The Impact: High Tech

Outside the U.S., global shipments of high-tech cargo are increasing. According to a UPS study, technology firms are extending supply chains into high-risk markets like Mexico, Brazil and Russia, and most expect export growth to continue in coming years.³  

Despite being one of the most protected product categories, electronics accounts for nearly one in six cargo thefts in the U.S. and a growing share worldwide—second only to “Food & Drinks” as the most stolen product type. The average loss is worth more than $370,000, making electronics the category with the highest average loss value in 2016.⁴  TVs, computers, mobile phones and other personal devices are targets of choice, since a stolen device can easily be resold for up to half its retail value in cash.

Nevertheless, just over a quarter of North American technology firms have purchased or were considering supply chain insurance for their high-value cargo.⁵

The Impact: Healthcare

Healthcare products are targeted for the sheer value of the cargo. While the total volume of pharmaceutical thefts dropped by nearly a third in 2016, the average value of the losses increased by 11 percent to more than $265,000 per incident. But the cost to a business could be much higher if they have to destroy an entire lot of drugs as a safety measure. The cargo is insured, but not the ancillary losses, which might add up to millions in indirect costs, including harm to the company’s brand value and reputation.⁶  

In one case, thieves hijacked a load of insulin, and then sold it on the black market outside of environmental controls, resulting in several very ill patients. In another, a hijacked truckload of pharmaceuticals was discovered spoiling inside an ocean container at 150°F. And the losses don’t only occur in transit. A 2010 warehouse theft in Connecticut yielded 49 pallets of drugs, valued at $80 million.⁷

Despite these alarming incidents, only 25 percent of pharmaceutical firms consider themselves unsuccessful at managing product security, according to a UPS survey.⁸ 

The Impact: Luxury Retail

Online sales of luxury goods are projected to double from 2014–2019, to around $42 billion.⁹  This represents a great opportunity for local businesses to expand.  However, when watches, jewelry and loose stones worth up to $300,000 or more are shipped routinely, risk mitigation is a necessity. Total dollar losses from crimes committed against U.S. jewelry firms are more than $69 million annually, according to the Jewelers’ Security Alliance.¹⁰ 

There has also been a marked increase in the number of thefts for high-end clothing and shoes, particularly in California and Florida. In the third quarter of 2016, the average value of these thefts was over $239,000.¹¹

The Evolving Threat: Tech-Savvy Criminals

“Many of these high-value cargo thefts are carried out by organized criminal gangs, whose tactics are constantly evolving,” notes Scott Brown with AIG Client Risk Solutions.

The gangs may use portable 3D printers to create counterfeit security seals, jamming devices to foil the signal emitted by cargo tracking devices, a “cube” to defeat motion sensors and enter warehouses undetected, even fake drivers or phony trucking companies to fraudulently pick up high-value loads. “Shippers and carriers stand a good chance of becoming just another statistic in the loss column if they do not manage their risk of cargo theft effectively,” Brown says.

The Solution: A Layered Risk Approach

Helping avoid losses from the start can pay for itself many times over. To mitigate the risk of loss for high-value goods, many professionals recommend a “layered” approach that minimizes gaps in security with several layers of defense. That way, a lapse or weakness in one layer does not easily permit a threat to become a loss. Layers may include:

• Quality and prescreened carriers
• Security partnerships with logistics partners, suppliers and experts, including law enforcement and insurance partners
• Visibility and tracking systems
• Physical security, such as advanced seals, immobilization devices and armed guards
• A defined cargo handover process, to prevent fraudulent pickups
• Contingency planning for security alerts or unforeseen incidents

The last line of protection should be some type of insurance to mitigate the financial impact in the event of a loss. Many companies believe they are covered by standard carrier liability, but reimbursement can be a far cry from the sale price of the goods. Others may think their business owner’s policy covers losses, but they may be shocked to find there are limitations or they are dropped after multiple claims. The best approach is a cargo insurance policy that is designed specifically for the business, based on risk tolerance and supply chain characteristics.

A large chip and semi-conductor manufacturer took this approach to heart. After experiencing some theft of shipments, the company worked with the carrier to develop a security protocol that minimized handling by moving goods directly to the airport. They also layered an insurance policy through UPS Capital Insurance Agency, Inc., to cover every shipment up to $25,000 in the event of loss. This approach immediately helped mitigate losses and provided coverage for smaller, more frequent shipments.

UPS Can Help

Supply chain risk mitigation requires supply chain expertise. It is critical to select partners who have a deep understanding of best practice security protocols at every point of transit. Look for companies that will assist you in matching the level of security with the level of risk and who offer special services, such as proactive 24/7 monitoring or the addition of guards when necessary.

Use known and trusted carriers—ones who are experienced in moving commodity-specific, high-value products. Verify they have a culture of security that includes a documented security policy, regular auditing and testing of security procedures and contingency plans, well-screened and trained drivers, and environmental controls for temperature-sensitive products like pharmaceuticals.

UPS^® is a member of the Transported Asset Protection Association (TAPA), a global coalition of shippers, carriers, insurers and law enforcement working together to prevent cargo crime through cooperation, information sharing and development of supply chain security standards. In addition, with more than 100 years of transportation, logistics and global supply chain expertise, UPS is uniquely positioned to help protect companies from risk in their supply chains. 

UPS and its subsidiaries, including UPS Capital^® Insurance Agency, Inc., can help structure a plan that includes local expertise in operations and security, and supply chain insurance solutions, including:

• High Value Goods - ParcelPro™ — Protect high-value jewelry, loose stones and wristwatch shipments through proprietary risk mitigation tools with coverage up to $150,000 for shipments within the U.S.
• UPS Proactive Response^® Secure — Protect critical time- and temperature-sensitive shipments with 24/7/365 monitoring and intervention with coverage for expediting expenses and/or product loss.
• Cargo Insurance  — Protect multi-modal, multi-carrier, in-transit shipments, as well as warehoused goods, against loss or damage. Policies include coverage for imports, exports, concealed damage, theft and natural disasters.  

Learn more about how these solutions can help safeguard your company's most valuable products at UPS Capital.

 

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[1] Transported Asset Protection Association (TAPA), "2016 IIS US & Canada Annual Report." Issue 2016.4 (January 2016) [pdf]

[2] Kevin B Hendricks, Vinod R Singhal, "An empirical analysis of the effect of supply chain disruptions on long‐run stock price performance and equity risk of the firm"
Production and Operations Management, Vol. 14, No. 1 (Spring 2005)

[3] UPS Fifth Annual Change in the (Supply) Chain Study, "Optimized for Growth: High-Tech Executives Adapt to Meet Global Demands" (2015)

[4] TAPA, "2016 IIS Annual Report"

[5] UPS, Fifth Annual Change in the (Supply) Chain Study.

[6] FWI, "U.S. Cargo Theft 2015 Annual Report" (February 2016) [pdf]

[7] US Justice Dept., District of Connecticut, "Florida Man Involved In $80 Million Drug Theft From Eli Lilly Warehouse In Enfield Pleads Guilty." (2 May 2014)

[8] UPS Eighth Annual Pain in the (Supply) Chain Study (2015)

[9] Technavio, "Global Luxury E-tailing Market, 2015-2019"

[10] Jewelers' Security Alliance, "2015 Annual Crime Report" (4 March 2016) [pdf]

[11] Transported Asset Protection Association (TAPA), "Q3-2016 IIS US & Canada Quarterly Report." Issue 2016.3 (July-September 2016) [pdf]