Preventing cargo theft in the luxury goods industry

As the luxury market continues to expand, cargo theft is a growing headache for high-end retailers, costing the sector over €43 million in 2013 alone. Good risk management is the key to prevention: Phil Skelton and John Edwards of ACE Group offer practical advice for risk professionals.

Despite weak growth in Europe and signs of a slowdown in emerging markets, sales of luxury goods in the UK and Europe continue their upward trend. European luxury goods sales increased by 5% in 2014[1] and are predicted to top $405 billion by 2019[2]. The UK is leading the charge, thanks to its strengthening economy and the draw of London’s numerous luxury flagship retail outlets and high end hotels. It is predicted to become the largest luxury goods market by 2018 with a 19.6% share of the European market[3].

However, as the sector continues to grow, cargo theft remains a constant menace for luxury goods retailers and manufacturers. In 2013, 16% of the 1,145 cargo theft incidents reported to TAPA (Transported Asset Protection Association) were of luxury goods, with an average value of €235,000. This means cargo theft was responsible for the loss of over €43 million of goods in one year alone.

Cargo theft incidents affect a wide range of industries from wine, spirit and tobacco importers, clothing, and cars to high-tech companies.  Cargo theft poses a serious threat for luxury goods manufacturers and retailers both in the UK and across Europe, causing not only financial loss, but also supply chain risk, and loss of potential sales.

So what can risk managers and insurers do to better support manufacturers, distributors and transport companies in the luxury goods sector?

Trends in cargo theft

As key luxury goods production and distribution countries, France and Italy suffer from particularly acute cargo theft issues. This is especially the case around the greater Paris and greater Milan logistics hubs, including distribution centres and cargo areas at the airports.

Criminals tend to operate in two ways:

• Non-violent intrusion theft of the road trailer during overnight parking: Secure public truck parking is very limited in Europe. Without care and planning, the typical soft-sided unprotected cargo can find itself in vulnerable locations during a compulsory overnight rest stop.
• Hijacking: Usually highly organised, hijacking tends to occur just after the truck and trailer have left the shipper, but before they reach the motorway entrance. Criminals use their own vehicle to force the truck to stop, sometimes impersonating police personnel with cars and uniforms, and hijack both the truck and the driver before taking them to a hidden location where they normally transfer the cargos into their own transport. The driver is then left in the nearby countryside without a mobile phone. Of 125 theft incidents around Paris in 2013, half were violent. Due to its aggressive and violent nature, hijacking is more difficult to combat.

Other significant methods of theft include theft from warehouses such as those operated by smaller logistics companies who fail to invest in adequate security (227 incidents reported to TAPA in 2013[4]) were linked to fraudulent pick-up, collusion between drivers or transport operators and thieves, or deception during the delivery.

How can cargo theft risk be better managed?

Good risk management is key to preventing cargo theft and demands a mix of security measures tackling physical, technological and logistic aspects.

First, physical deterrents such as security escorts in vulnerable areas or shatterproof glass in the tractor unit, can deter and slow down hijackers whose main objective is to transfer goods as quickly as possible as they are aware that most cargos are tracked by GPS. In addition, engine immobilisers and other GPS or GSM tracking systems can alert operators when a truck has been hijacked or stolen and can be used to immobilise the vehicle remotely. Similarly, covert tracking systems within the pallets of the product are a useful tool to aid in locating stolen goods.

Yet however effective those tools might be, criminals are often familiar with those techniques. For example, panic buttons in the cabin of the truck and other alarm systems rely on both the driver being able to use them in a violent situation, and the criminals being unaware of them. To avoid criminals obtaining information pre-shipment, it is paramount that information on protection measures is tightly managed and limited to as few people as possible within the supply chain.

To this end, risk managers should always ensure that routes are carefully pre-planned with secure parking for overnight rest stops and back-up options. Shipping companies in sensitive locations in particular should avoid repetitive behaviour, such as driving through a high-risk area on the same route on the same day every week.

Ultimately good risk management is about embedding cultural and behavioural change throughout an organisation’s operations. Companies need to be prepared, with the help of their insurance market partners, to stay on top of the changing issues and work with their supply chain partners to develop a flexible response.

Ultimately, this type of mind-set is best evidenced by agreeing security measures in an annual service level agreement between the shipper and their shipping companies. This allows all parties involved in the transportation of luxury goods to understand what is expected of them and provides a useful prompt for regular review, helping them to proactively manage theft risk.

Phil Skelton is head of transportation risk management, ACE Overseas General, Marine. John Edwards is transportation risk manager, ACE European Group.