grade – intelligence review 2012 supply chain threat analysis · • guatemala • honduras •...

Copyright © 2012 BSI. All rights reserved.

Dan PurtellBSI Supply Chain SolutionsJanuary 9, 2013

GRADE – Intelligence Review2012 Supply Chain Threat Analysis

Copyright © 2012 BSI. All rights reserved. 2

Agenda

2012 Supply Chain Risk Review Emerging Trends in Supply Chain How Political Stability can Impact the Supply Chain Country Overview – Italy Conclusions

Copyright © 2012 BSI. All rights reserved. 3Copyright © 2012 BSI. All rights reserved.

2012 Supply Chain Risk Overview


2012 Supply Chain Risk Review

• The Good:• Global adoption of C-TPAT Minimum Security Criteria is reducing cargo theft loss levels

and crimes of opportunity• C-TPAT awareness levels among global suppliers is on the rise • Many of the US’s largest trading partners are low risk origination countries• Security countermeasures have reduced certain attacks against the supply chain

• The Bad• Political Instability is adding to supply chain risk and has the potential to significantly

disrupt the flow of international trade• Economic downturn has increased supply chain disruption in many countries which will

continue into 2013

• The Ugly• Organized crime is stepping up attacks on the supply chain• Countermeasures are being defeated in some markets ‘early adopters’ which in time

will spread to other markets


Chain of Custody Exposure

Control and level of security

Leve

l of

disr

upti

on

High

Low

Elevated Low

Hig

h

Factories; DCs

Less-than-full truck load

Full truck load

Elev

ated

Rail

Air

Sea


• BSI Cargo Disruption ratings define overall country-level of exposure and supporting supply chain

• Elements of BSI Cargo Disruption ratings:• BSI Cargo Theft Loss Forecast

• Modality Tampering

• Hijacking Exposure

• BSI Unmanifested Cargo Introduction and smuggling exposure

• Counterfeit product production, export and document falsification

• Piracy

Cargo Disruption Defined


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Copyright BSI 2013


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Copyright BSI 2013

BSI GLOBAL ANTI-WESTERN TERRORISM EXPOSURE


Emerging Supply Chain DisruptionAttacks and Trends


Supply Chain Terrorism – Turkey

• Resurgence of activity by the Kurdistan Workers’ Party in the summer of 2012

• Wide range of supply chain attacks:• Burning cargo trucks• Taking truck drivers hostage• Placing explosives along train tracks• Attacking oil and gas pipelines

• Attacks serve multiple purposes:• Leverage for extortion of businesses• Undermine economic growth• Portray the Turkish state as impotent and

unable to secure even the most basic economic functions

• Seven attacks during July and August of 2012. More sporadic attacks continued in October

• Attacks primarily took place in eastern Turkey

1/17/2013


Supply Chain Terrorism – Egypt• Militants exploit poor security and instability to

attack pipelines in the Sinai Peninsula

• Weapons Smuggling:• December 2012: Rocket launchers and other weaponry

seized from a cargo ship in Naples, Italy bound for Egypt• May 2012: Lebanese officials seize weapons from a

Germany bound ship that originated in Alexandria, Egypt• Multiple seizures of weapons from Libya en route to Gaza

via the Sinai Peninsula

• Pipeline was attacked over 15 times in 2011-12• Militants overwhelm inadequate security• Plant explosives underneath pipeline• Gas flow suspended on several occasions

• Part of a gas delivery deal with Israel• Point of contention since ouster of Mubarak• Attacks part of a strategy to pressure current regime

• Suez Canal potentially a target• Police arrested militants plotting to target vessels in the

waterway in May 2012• More robust security around the Suez Canal mitigates risk

of an attack on the facilities or shipping but threat remains1/17/2013


Unmanifested Cargo Trends – “Blind Hook” Method

• Method to introduce illegal drugs into legitimate cargo without the company’s knowledge and to avoid suspicion from customs services

• Known as the “gancho ciego” in Spanish

• Frequently used for drug shipments leaving Ecuador and entering Spain for distribution throughout the EU

• Seal on a container is removed at origin port, drugs are introduced, and the seal is replaced. Same process is repeated at destination after removal of the contraband

• Original seal re-attached or fake seals used

• Requires penetration of port operations by drug trafficking groups

Cocaine inserted into a shipping container destined for Spain using the “blind hook” method.


EU Recession Increasing Frequency of Attacks

• Cargo Disruption throughout Southern Europe on the rise

• Italy, Spain, Portugal and Greece and Southern France impacted

• Violence used in many attacks where both transport company and local police are outgunned

• EU Economic Crisis adding to incident frequency increase

• 2013 EU Recession will increase:• Footprint of incidents• Commodity Targeting• Illicit Trade / IPR imports• Cargo Theft & Hijackings

Aftermath of a cigarette truck hijacking in Touret-de-l’Escarane, in southeast France, March 2012


In-transit Risk - Moving Truck Robberies in Romania

• Cargo theft method observed in 2012 – gaining access to trucks as they are in transit

• Two vehicles used: one in front to stall the cargo truck, one in back to gain access to cargo

• Captured on camera by Romanian police as part of a sting operation, led to 20 arrests• Gang stole $376,500 worth of cargo• Stolen cargo was later resold in a market in

Bucharest• Goods stolen included TVs, cigarettes, and coffee

• Use of this method also reported in Algeria, China and Ukraine, though less sophisticated

1/17/2013


Increase in Cargo Truck Thefts in Argentina

• Known colloquially as “piratas del asfalto” –pirates of the asphalt• Typically operate in gangs of 3 to 10• Different members responsible for specialized

tasks (hijacking, storing stolen goods, fencing, etc.)

• Compartmentalized to minimize contact; “muscle” may not know sellers

• 1,628 cargo truck hijackings recorded between August 2011 and July 2012• 25% increase over the previous year

• Around 80% of incidents are hijackings• Cargo thieves are often willing to engage in

violence• Private security personnel have been killed

during hijacking attempts• Some companies have started to transport

high-value loads in armored cars

1/17/2013

A stolen cargo truck recovered in Argentina


Unmanifested Cargo Trends – Precursor Chemicals

• Chemicals used to manufacture illegal drugs- primarily methamphetamines & cocaine

• Crackdown on chemical imports in Mexicoforced cartels to shift to Central America• El Salvador• Guatemala• Honduras• Nicaragua

• Originate in China, typically shipped in verylarge amounts in sea shipping containers

• Falsely manifested• Difficult to monitor• Shell companies disappear after one or two shipments

• Destined for front companies in GuatemalaCity, San Pedro Sula, and elsewhere

• One example of transshipment through theUnited States in 2012• Three tons of chemicals seized at Los Angeles

International Airport in May

Methylamine chloride seized at LAX. May 2012

Seizure of drug precursors from a Guatemala warehouse


Unmanifested Cargo Trends - Ecuador• As countermeasures are implemented, criminal

elements will seek out alternative means • Ecuador is not a producer of illegal drugs, but

is emerging as a major country for the introduction and shipment of cocaine from Colombia (Transshipment Exposure)

• Number of major seizures from cargo in 2012• Canada• Hong Kong – largest ever drug seizure. $98 million• Ukraine• Western Europe (Belgium, France, Germany, Italy, Spain,

United Kingdom)

• Smugglers exploit legitimate cargo shipments in every step of the transit process in Ecuador• Cargo trucks enter Ecuador from Colombia with cocaine

concealed in false walls and compartments• Drug traffickers introduce cocaine into legitimate cargo

shipments at Guayaquil port• Corrupt port employees on both ends facilitate the

movement of contraband

1/17/2013

Location of Guayaquil within Ecuador


Political Stability Impact on the Global Supply Chain

1/17/2013


The Senkaku-Diaoyu Island Dispute• Series of small islands in the Pacific Ocean

• Claimed by China, Japan, and Taiwan

• Japan announced their intention to buy three of the five islands, escalating the dispute

• Sparked anti-Japanese protests in China, diplomatic protests from China and Taiwan


The Senkaku-Diaoyu Island Dispute

• The islands are located near 6 of the 20 busiest ports in the world

• 177 million TEUs move through these ports and shipping lanes near the island every year


Senkaku-Diaoyu: Impacts of the Political Dispute• Boycotts of Japanese products in China

• Auto companies lowered production numbers • Japanese exports of auto parts to China are expected to

fall 40 percent, some projections anticipate a 70 percent drop-off in sales of Japanese cars in late 2012

• Boycotts of Japanese pharmaceuticals and books also reported in China

• Slowed customs clearance of Japanese cargo

• Potential long-term effects:• Japanese companies diversify investment away from China• Development of new sources of rare earth metals• Potential halt to negotiations over free trade areas

• Similar disputes are likely in the future• Early 2012 dispute between China and the Philippines• July 2012 dispute between China and Vietnam• Other unresolved territorial claims


Anti-Austerity Protests in Western Europe

• Strikes and protests have impacted sea, ground, and air transportation in a number of countries

• Regular labor strikes occur in solidarity with anti-austerity strikes and vice-versa

• Strikes that impacted the movement of cargo occurred in Italy, France, Greece, Portugal, and Spain

• Portugal port strikes• Strikes at major ports of Lisbon and Setubal since

October• May permanently reorient shipping in the country away

from larger ports to new, smaller ports• Estimated cost of $1.3 billion

• Continent-wide strikes on November 14• Coordinated labor actions across several countries,

affecting multiple transport modalities• General strikes in Portugal and Spain• Shut down the largest port in Italy• Railway strikes in Italy, Greece, Portugal, and Spain

Copyright © 2012 BSI. All rights reserved. 23Copyright © 2012 BSI. All rights reserved.

Assessing Supply Chain RiskCountry Overview - Italy

1/17/2013


Assessing Country Risk

• C-TPAT 5 Step Risk-Assessment requires infusion of country risk factors

• Traditional ‘intelligence’ such as State Department or Travel Security may not spell out the true risk factors associated with your supply chain

• 90% + of cargo disruption incidents / attacks occur within your supplier’s control of your goods

• Weight risk variables based unique risk dynamics of the originating / transshipment country(ies)

• Look at the down-stream and in-transit risk (outside the walls of your supplier’s or your own factory operations)


Understand Unique Country Risk Factors

• Targeting of high-value shipments• Cigarettes• Pharmaceuticals• Seafood

• Activity moving north within southern regions due to police crackdowns

• Coupled with other illegal activity• Cigarette smuggling• Counterfeit production, import, and distribution

• Some evidence of organized criminal activity in areas even farther to the north• Veneto• Emilia-Romagna

• Aggressive hijacking methods used• Firing of automatic assault rifles at drivers• Driver kidnappings

1/17/2013


Defeated Countermeasures

5,500 FTL Hijackings past

24 months

The 5 Band Super Heavy Duty Adjustable Cell Phone Jammer Range over 50 meters. Jamming GPS,GSM, DCS,PHS,3G $3

This GPS tracking jammer 10 meter coverage. Popular item with sales personnel and delivery drivers, who wish to take lunch or make a personal stop outside of their territory or route "off the radar". $119


Supply Chain Security Best Practices & Countermeasure Effectiveness

1/17/2013


CEE Review: Pharmaceutical, Health, and Chemicals• Greatest Threat(s):

• Counterfeiting & Product Authenticity• In-Transit Chain of Custody • Cargo Theft / Shipment hijacking• Some legitimate products used for illicit products

• Hijacking of Pharmacuticals Products• Reported in eight different states in 2012• Violence used in several cases• A number of attempted hijackings were reported as well

• Diversion of Chemicals to illegal drug production• Most often for the production of methamphetamines• Chemicals shipped from China to Mexico and Central American

countries.• One seizure in the U.S. in 2012, at Los Angeles International Airport • Smuggled in both sea and air cargo shipments

• World Health Organization estimate of Medical Devise within the Health Sector• 8% of all Medical Devises Sector are Counterfeit

Removal of contraband chemicals from a shipping container in Guatemala

Sophisticated counterfeit lab in India. Drugs often transit through Africa to Europe and the US.

Precursor chemicals ready to ship from China.


CEE Review: Petroleum, Natural Gas, and Minerals

• Greatest Threats:• Supply Chain Terrorism• Piracy• Environmental damage

• Oil ships targeted in West Africa• Hijacked and then have oil siphoned• Not held for ransom as in Somalia

• Colombia, Egypt, Turkey, and Yemen all hotspots for attacks on oil and gas pipelines• Approximately 68 FARC pipeline attacks in 2012, forcing

the government to lower its annual production goals• Resurgence of PKK activity in Turkey• Instability in Egypt fuelling activity in the Sinai Peninsula• Ongoing conflict in Yemen

• Tanker hijackings• Brazil, Honduras, Mexico, and South Africa all

experienced multiple incidents in 2012• Evidence of criminals systematically targeting oil tankers

for hijacking and extortion in Honduras

2012 piracy incidents in West AfricaYellow = attemptedRed = successful


African Horn Rule of LawImpact on Global Cargo Crime


Trend in Somali Sea Piracy – Successful Hijackings

1/17/2013

0

10

20

30

40

50

60

2006 2007 2008 2009 2010 2011 2012

Number of Hijackings

Source: 2012 IMB Piracy Reporting Centre


Sea Piracy – Effective Countermeasures

• The peak of sea piracy near Somalia was 2009 when one in three attempts resulted in successful hijackings

• Effective countermeasures now in place have greatly reduced the number of hijackings

• The number of sea piracy incidents dropped 65% in 2012

• June 2012 marked the first full month in over five years with zero piracy incidents near Somalia

• Decreased numbers are clear indicator that countermeasures are working

• Helicopter gunships began attacking pirate bases on land

• Ship captains have now been trained how to accelerate and evade attack

• There have been no known successful hijackings against ships with private security escorts

1/17/2013


Conveyance Security Best Practice

1/17/2013


Conclusions

1/17/2013


Conclusions• Operations, Sourcing and Manufacturing is becoming more

interconnected and it’s critical to understand how a single-event can lead to a global impact

• Being prepared for the unknown: • Build resiliency / redundancy in global operations and supplier base• Develop transparency of risk to point of predictability

• Ensure you are using the right intelligence & risk factors when conducting your C-TPAT 5-Step Risk Assessments

• Pay attention to down-stream supplier risks:• Full Chain of Custody – all touch points• Container Stuffing Locations• Transportation Service Providers• Transshipment exposure

• Countermeasures are effective, deploy them in the right markets when risk dictates

• Contractual language doesn’t negate from having to assess suppliers


Contact Details:

Dan PurtellSVP Supply Chain [email protected]

Thank You!

grade – intelligence review 2012 supply chain threat analysis · • guatemala • honduras •...

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