In our previous post of the “Cargo Theft Series,” we discussed the different ways thieves in India carry out planned and unplanned cargo theft. Not only were the cargo theft tactics eye-opening for fleet managers, but they also helped them understand what they were up against. But here’s the most important question to ask — “How cargo theft impacts the Indian supply chain?”
The second instalment of the series will share six major areas where cargo theft has a major negative impact. We will discuss how cargo theft impacts the companies involved in the supply chain and conclude this chapter with a few groundbreaking preventive measures. So, let’s cut to the chase and dive right in!
6 Major Impacts of Cargo Theft Across Indian Supply Chain
Cargo theft impacts the entire supply chain in more ways than we can imagine. Here are some of the major impacts of cargo thefts that you should know —
1. Direct loss of goods and trust
This is a given. Until the investigation finds out the precise location of the lost cargo, the companies involved in the trade are set to suffer immediate financial losses.
In our previous post, we shared several examples where companies lost crores of rupees to cargo theft. At the same time, the parties involved might end up losing trust in each other because cargo theft can also be an inside job.
Furthermore, the impact of cargo theft will be experienced by consumers, who will feel the heat of higher prices due to the costs associated with stolen goods replacement and increased security measures.
2. Insurance-related impacts
Cargo theft, ideally, is an insurance issue across the manufacturing and logistics industries. However, the real-life scenarios aren’t straightforward and the issues are not resolved simply through the claims process.
For example, in case cargo theft happens, the party with the insurable interest, i.e., the immediate owner of the stolen products, will file a claim against the insurer. In this case, the insurer will consider the claim through policy terms, conditions, and loss ratio.
But, the buck doesn’t stop here.
Each and every stakeholder in the supply chain, for instance, the manufacturer, third-party logistics provider, transportation provider, and channel partners for consignment handling, storage, and transportation will have an insurable interest: result — a long chain of insurance claims that might cause stakeholder conflict and delays in the overall insurance process.
2.1. Coverage-related issues
When it comes to insurance, the stakeholders can insure the cargo in more than one way.
Companies can insure the product’s retail cost, replacement cost, and other related expenses. For example, replacement costs insurance does not generally include the loss in sales and the transportation costs, so the premium for such coverages is lower.
The companies can also insure the wholesale costs, however the policies for the same seek higher insurance premiums. There is a better alternative available to manufacturers and product owners and it’s termed “cost plus.”
In this, they are compensated for all the theft-related expenses like cost, insurance, and freight, while adding 10-20 percent of the total coverage to cater to the unknown and unplanned costs. What are these unplanned costs? Well, an employee will put effort into submitting the claims, which will require extensive time, research, and accounting of the unquantifiable.
2.2. Ownership-related issues
Which party can make a claim for the cargo theft will be determined through the terms of sale.
For international trade, insurance companies follow the International Commerce Terms or INCOTERMS developed by the International Chamber of Commerce. There are thirteen different terms of sale in INCOTERM.
For example, if the term of sale is “EXW” or Ex Work, then the buyer will become the owner of the cargo the moment the consignment leaves the shipper. In this case, the buyer will file the claim if the cargo went missing in transit.
For domestic trade, however, the insurance companies follow the terms of sale, as mentioned in the Sales of Goods Act (1930), which legitimises the parties involved, goods, transfer of ownership, price, and consent, and ensures the parties’ legal capacity.
2.3. Delays in investigations
The delays in the claim process can significantly impact the recovery efforts.
These delays can be due to truck drivers’ incapacity to communicate the cargo theft. There are times when the fleet owners decide to investigate the cargo theft themselves. The delays can even happen if the carrier fails to identify the appropriate authorities to file their complaints.
Such delays in the investigation can be prevented if fleet owners use GPS-enabled locks as these provide recovery teams enough information to get leads for the stolen cargo.
2.4. Higher premium
Insurers want to stay profitable despite the increased number of cargo thefts.
Individual cargo theft cases, as mentioned in the previous post, tend to impact the entire logistics industry. Insurers are keen on tracking the trends and generally lean on the statistical data regarding theft losses to raise insurance premiums.
In other words, the decision to introduce cargo theft-preventing solutions needs to be industry-wide.
3. Cargo theft impacts company’s reputation
Cargo theft is a plague and the cases generally make it to the news.
The moment a company’s name is highlighted in relation to cargo thefts, chances are no other company would like to work with it. This is because the industry will assume the company’s lack of ability to securely and effectively move the cargo throughout the supply chain.
B2C companies with repeated cargo theft incidents are bound to lose customer confidence, reflected on their sales sheet and overall revenue.
4. Supply chain disruptions
A disrupted supply chain has several major impacts.
First, cargo theft will lead to significantly delayed deliveries. The entire supply chain schedule will have to undergo major changes, eventually, affecting customer satisfaction.
Secondly, supply chain disruptions will trigger production delays as the raw materials required to make goods might be stolen. If a significantly large consignment goes missing, it might even bring the plant to a halt or complete shutdown.
Thirdly, the companies involved in the cargo theft case might undergo market share loss. After all, the inability to take care of the consignment and deliver goods on time can be catastrophic in such a fiercely competitive market.
5. Legal representation and compliance costs
Once the supply chain undergoes cargo theft, the legal issues tend to spark conflicts between the stakeholders.
In such cases, the companies involved will incur costs of legal representation in their quest to recover the cargo, process claims from the insurer and even prosecute the accused.
Additionally, the companies will have to strengthen their compliance game and invest in resources to meet the set cargo theft prevention regulations.
All this will add to the operational costs and again, the consumer will feel the after-effects.
6. Ripple effects of cargo theft
Finally, we have the ripple effects of cargo theft, where companies will have to incur indirect costs, which can be very extensive in nature.
We are talking about costs related to faster shipping in order to meet the gaps in the supply chain, replacements of lost goods, costs related to repayments of taxes and duties, and more. Cargo thefts impact the EOQ or Economic Order Quantity, which might affect the relationships between suppliers and fleet owners.
Most importantly, cargo theft events, especially the ones involving internal employees or members of the organisation create massive trust issues. Such events can even involve violent exchanges wherein probability of significant damage to life and property is high.
How to deal with cargo theft impacts?
Losing cargo in transit is an experience no fleet manager wants to be a part of. So, how can we reduce the number of cargo theft incidents?
Three words — Introduce Preventive Measures.
See, thieves are becoming increasingly sophisticated, especially with the advent of the internet and readily available smart hardware and software technologies.
Therefore, we recommend all supply chain stakeholders level up by investing in technologically advanced cargo tracking, locking, and monitoring solutions that can alert them the moment activities related to cargo theft are detected.
However, if you are looking for effective cargo locking, CCTV, and telematics solutions, choose a company that provides you with both hardware and software solutions so you receive complete one-point customer support. In our upcoming post, we discuss cargo theft prevention in much detail. So, stay tuned for our future posts on the blog.
