US rail cargo crime on the rise as thieves, methods gain sophistication

Cargo crime on US freight railroads is becoming a growing concern to industry stakeholders because it's become more sophisticated, organized and harder to combat in recent years, say railroads, trucking companies and shippers.

In the last two years, there has been a rise in targeted attacks in which specific containers on trains are breached.

"Five years ago, it wasn't a big enough issue to concern our executives, we wouldn't even talk about cargo theft," said one retailer shipper who did not want to be identified. "Now with all the [insurance] claims happening, it's on the radar screen of our executives and we're meeting with our asset protection division bi-weekly."

National attention was given to the issue in January 2022 after criminals littered the tracks outside of Union Pacific Railroad's (UP's) Los Angeles Terminal Center (LATC) with torn boxes and discarded cargo after ransacking containers.

Exporters have also been hit regularly over the last two years, namely agricultural shippers such as sausage company Johnsonville, which said some of its reefer containers have been broken into during the last year.

The surge in rail break-ins coincides with rising theft and pilferage on the highway as well, with thieves targeting a widening range of goods in trucks and trailers. Increasingly, theft and fraud are being carried out by organized criminal gangs using technology to target goods.

The crime wave has gotten the attention of US Class I railroads, especially in regions where organized thefts are happening, including Arizona-California-New Mexico, Dallas-Fort Worth and Memphis.

Retailer Nike has been victimized several times because of the demand for popular shoes on the black market. The Los Angeles Police Department took down a cargo theft ring this February that was responsible for more than $5 million in stolen Nike merchandise in domestic and international containers between Los Angeles and Memphis, according to the Los Angeles Times.

CSX Transportation has seen the problem near Memphis.

"There will be a train with 100 containers and [organized crime rings] know which box has the Nike shoes in it and go after that one to sell in the aftermarket. It's a big deal," CSX CEO Joe Hinrichs said in February at the Georgia International Trade Conference.

"We're working very closely with local police in places like Memphis, but also with the FBI, and we've invested millions of dollars just in Memphis alone on fencing, new gates, new cameras [and] more lighting," he added.

BNSF Railway is using planes and drones to catch thieves.

"Our police force is using several tactics," CEO Katie Farmer said at the North American Rail Shippers Conference in early May. "I don't want to get into specifics on our tactics, but it's a major problem we're working hard to address."

What thieves are doing

Craig Ingram, CEO of Asset-Based Intermodal in Dallas, said just as many domestic containers are being hit as international boxes. His company drays containers in Dallas and inspects containers for UP to document the damage for insurance purposes.

"Two years ago, we handled about 16 to 18 cases for the year," Ingram told the Journal of Commerce. "We're on pace to be around 35 this year, so a 100% increase since 2022."

The equipment used to break the container locks and seals is getting more heavy-duty too, replacing bolt cutters with portable grinders that have batteries attached for power.

"Standard locks are no protection at all. These guys can get through them in a couple of minutes," Ingram said. "You can cut through at least five trailers easily with the grinder before the battery dies."

How the crime rings are getting the information is also troubling, often coming from warehouse labor or drivers looking to pocket extra money. In the Nike case, for example, investigators found more than 1,100 text messages or calls between the ringleader and a number registered to a Nike employee in Memphis, according to the Los Angeles Times. Ingram said he's also been involved in cases where the evidence suggested an inside job.

Indeed, the visibility and transparency that intermodal and trucking shippers need to manage supply chains can also be turned against those supply chains.

"I can pull up 100 containers right now, look at the bill of lading, and see everything in the container by [stock keeping unit] number, by serial number, what train it is on, and when it's going to arrive," Ingram said. "That's scary and it is information available to the person loading the container and the trucker. It doesn't take much to take a picture with a smartphone of the bill of lading, call up his buddy to share the information, and get extra money on the side."

Protecting the cargo

Unfortunately, there are no perfect answers on how to combat organized theft.

There are high-end locking pins with brand names such as the Enforcer, the Goliath, the Hercules and the War-Lok, among others, designed to withstand attacks. Each comes with a specialized key, however, so it's not a viable option for exporters sending products overseas.

The retail shipper who did not want to be identified told the Journal of Commerce it uses specialized locks on the company's containers traveling between New Jersey and California. Out of 175 attempts to defeat the specialized lock, only one has succeeded, the source said. The others showed evidence of tampering, but the locks remained intact.

The retailer source said companies including Hub Group, J.B. Hunt Transport Services, Schneider National, STG Logistics and Swift Intermodal should buy a fleet of specialized locks and provide the option to shippers for a fee.

"The carriers can put the locks on their containers at origin, then remove them at the destination railyard and deliver the cargo," the shipper said. "If I was one of the intermodal carriers, I would sign a deal with one of these companies to get a bunch of locks. Then I can tell the customers 'We're taking this extra step for every box that you're moving to show that we're doing what we can to keep the cargo safe.' It's a selling point that they can use to win business."

One reason asset-based carriers don't sell the lock service openly is because the specialized locks are an obvious sign that the cargo inside the container is valuable, essentially putting a target on the box. Instead, the five large US domestic intermodal providers have focused their efforts on other measures, such as putting valuable cargo in the bottom well of a double-stack train. The bottom well is built into the railcar itself, so it's impossible to open the door.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.