The pandemic has only served to highlight how interconnected and how easily destabilized global supply chains can be. In this episode, Rafael Lopez, Associate Managing Director and Regional Leader of Kroll’s Security Risk Management practice in Latin America, discusses how cartel theft affects the supply chain and its impact on organizations across the globe. Rafael reviews the strategies corporations need to consider, including robust travel security protocols with GPS coverage, employee training communication, monitoring and protection so employees can respond quickly when attacks happen and minimize the percentage of goods that might be lost.

 

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Passage from the Episode

How is Supply Chain Theft Impacting the Overall Supply Chain in LATAM?

“Today's podcast is going to be another in our series on supply chain security, more specifically one on supply chain theft and how it's impacting the overall supply chain down in Latin America. To do this, we've brought in our specialist and a head of our Latin American region, Rafael Lopez. This is an interesting topic as we're doing this series on the supply chain and how it's been impacted either by COVID or by Etheft or by any number of things. I know that you've been working quite a bit with companies making sure their supply chains remain intact in your regions. I want to jump right into some questions. One of them and most pressing question would be, what do you think is behind this pretty rapid increase in the overall theft of supply chain and the theft of product as it's moving through in your particular region? Is there something behind this? Is it something that we really need to take a look at?” – Jeff Kernohan

“Yes, Jeff. I believe that there's been a combination of factors really. The first factor would be the pandemic. It has impacted in every way the supply chain in all corporations. No matter what type of business you are, you've been impacted by it in Latin America. The second one would be the strengthening of the cartels in Latin America as well. If you take a look, 75% of the thefts in Mexico in particular, they occur in just 10% of the highways, and most of these highways are very important highways for also the movement of drugs for the cartels. So there is no way that small teams for these cargo thefts can operate without consent of the cartels. So when you mix the relaxation of security measures against the cartels, and also the impact that the pandemic has produced in the supply chain, then you get these type of numbers increasing every year.” - Rafael Lopez

Quantifying the Effect of Theft to the Supply Chain

“That's fascinating. I'm tying it into a direct impetus for why this is actually happening. That makes a lot of sense now that you bring it up. When we're talking about these companies that may be impacted by this theft of the supply chain while they're trying to move product around, how is it really impacting these companies? Is it something that we can quantify how hard they're taking these hits when they do lose these products?” – Jeff Kernohan

“Yes Jeff, we can quantify the value of the stolen goods depending on the type of goods that were stolen. For example, the most wanted goods in Mexico are electronics, which could go from mobile phones, tablets, laptops, all of these, either new or refurbished is a very, very good for the cartel. But we have also received reports from companies that, for example, there's an increasing number of thefts in flour. And you would say, "Well, flour is not a very valuable good," but then the mix that I told you before about the cartels and the groups that are dedicated for the cargo theft working together, you can actually see that flour it's a very important element for trafficking of drugs, specifically cocaine. So everything is connected. Maybe the flour is not very valuable in the black market to sell it, but for the cartels, it could be very valuable in terms of hiding cocaine shipments that are going mostly to the US. So it is quantifiable, but you need to know the context upon why it has been stolen and for what reason.” – Rafael Lopez

“So the businesses that are being impacted by this, they're taking a financial hit. Is this to the point now where there's businesses that are essentially losing their ability to continue operating because of this increase in the overall threat of theft of their products?” – Jeff Kernohan

“Absolutely. All the insurance policies are going higher. They need to pay more. In some occasions, insurance companies, they will not ensure the goods. Why? Because of the high probability of theft. There is no way that insurance companies are going to take that hit when they know that sometimes 60% of the shipments are being stolen. So companies are being forced to either stop the production of certain goods or certain chemicals or certain products. Why? Because there's a very high chance of them being stolen and then taking financial hits, and no insurance company is going to respond for that.” – Rafael Lopez

“Yeah, I have to imagine if you have a 60% failure rate on your transport of your product, the insurance companies are going to take a very serious look at making sure that they're not going to be covering people that are going to be losing at that level.” – Jeff Kernohan

Best Practice Companies Can Adapt to Keep Employees Safe and Try to Reduce Theft

“As you are down there and you are helping everybody get over some of these issues, what are those best practices? What do companies need to be doing to make sure that they are secure, and make sure their transports are secure, make sure that their raw materials as they come to them to make their manufacturing processes, make sure all of that is secure to continue their business? What are you doing? What are you recommending to them?” – Jeff Kernohan

“Well, what we have seen as a very successful strategy is to develop a thorough travel security protocol for specifically supply chain products, like if they were as important or even more important than the personnel of the companies. They need to have GPS coverage. They need to have specific protocols of communication, of monitoring and protection. These protocols have resulted very, very effective against the theft of the goods. Not in the sense that a protocol is going to prevent the criminal groups attacking your shipments, but in the sense that you will have your people prepared to respond in a very effective way, in a very fast way, and then minimize the impact.”

“The problem and the modus operandi that has been going on for several years in Latin America is that, for example, when you have GPS tracking on a trailer truck, it will disappear and the company will start an investigation of what is going on. Is it a failure of the GPS? The truck stopped for any reason? Did the GPS tracker end up without battery? There are many things that could go wrong. Meanwhile, the company is investigating what is going on or trying to get in contact with the driver, then the theft is happening.”

“If you have a very robust checklist and also specific protocols that can teach your employees how to respond effectively, then you will not waste this time. You will act immediately, and then these will prevent a great percentage of your goods to be lost. Why? Because you will have direct communication with the security forces in the region, they will respond immediately, and then probably you will recover if not all, a good chance of recovering the majority of the goods of that shipment.”

“So having your people trained, having robust protocols for the protection of your goods and a strong supply chain security as an integral part of your transportation, it's very effective against the theft.” – Rafael Lopez

“Yeah, and I assume that the insurance companies will also look at those programs, and if you have those robust programs, they're covering everything they would expect, you're more likely to be able to be insured when you're moving your product around. I think that's really going to be the key to a lot of this because if the numbers continue to increase, the ability to be able to have a security level that deters the theft and also the ability to get that insurance, it sounds like it's getting harder and harder to get, is going to be key for these businesses to continue functioning.” – Jeff Kernohan

The Harsh Reality of Supply Chain Theft in LATAM

“When it really comes down to the numbers that you're seeing, and the amount of thefts of the supply chain is this something that is a daily occurrence? How are these businesses being impacted? How often is this? You said something about 60% of the product potentially going away. In your experience there, what are we seeing for the amount of theft that's really taking place today?” – Jeff Kernohan

“Well, just to show a little bit how difficult the situation has become; there's an estimate of 36 thefts every 24 hours only in Mexico. So depending on the type of goods that you're moving and the amount of shipments that you are also moving, you will be hit harder or lesser, but you will be hit. They are not differentiating anymore between valuable goods or regular goods or whatever. They will find somebody interested in whatever they can get.”

“Of course, if your goods are electronics or chemicals involved in the production of drugs, then of course you have a very high probability of being attacked. But even if you're moving light bulbs, you will be hit as well. Not as hard as the most valuable goods, but you will lose also some shipments. Why? Because there's always a black market for everything specifically in Latin America.”

“So now insurance companies, like you said, are requesting security assessment and evaluation of the supply chain security. Specifically supply chain security. Why? Because they need to be pretty sure that you are doing the best you can to protect your shipments.” – Rafael Lopez

“Yeah, it makes a lot of sense. It's fascinating what you have to do in your position down there to try to control a lot of these things, and the amount of work that has to go into making your target less attractive than other targets. If you have that deterrent, even if it is a valuable product, if you have that deterrent to make it less attractive to them to try to steal, and they're doing all of these things, you're getting the benefit of having the cheaper insurance rates, but you're also getting the benefit of maybe pushing that particular group of people looking to steal to another target and making your product make it through. It's all a very fascinating topic and something that sounds right out of a Netflix documentary.”

“I really appreciate you coming on today and chat with us about this as part of our overall supply chain security discussions that we've been having over the last couple of months. I hope everybody found this all interesting, and we hope to see you guys on the next podcast.” – Jeff Kernohan

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