Inside the Rise of Cargo Theft W/ Keith Lewis

0:01Hi, I'm Kelly Barner and this is the Art of Supply podcast. Every business story has a supply chain angle and those stories deserve to be told. This show digs deep into news headlines and interviews thought leaders, executives, and newsmakers to capture their perspective in their own words. With no agenda to lead us in any particular direction. We'll offer you objective coverage of geopolitics, innovation, and competition. Facts will always take precedence over hype. The rest is up to you. Today on the show, I'm glad to welcome Keith Lewis. Keith is the Vice President of Operations at Veris CargoNet, a theft prevention and recovery solution, which is probably going to give people a little bit of a teaser of what we're going to talk about today.

0:56But Keith, thank you so much for being with me.

0:58Keith Lewis: Thank you for having me. Absolutely. Now, for any of my listeners that are meeting you for the first time, I'd love to get a little bit of background. Can you talk a bit about how your career has taken you from starting in a family that was focused on trucking into law enforcement and then into cargo theft intelligence? That's quite a continuation there. Yeah, it is. It's almost come full circle. I hope someday it does go full circle. I miss trucking. So my dad owned a trucking company in Chicago in 1980. President Carter signed the Motor Carrier Deregulation Act, forced my dad to sell his equipment, and I had to go out and get a real job.

1:43Keith Lewis: So I started working for a truck or a freight broker. So I started right in the industry that's struggling right now. I started there, I wound up with a truckload carrier, and then I moved into warehousing, supply chain logistics. Worked for a couple of big companies, worked internationally in Graz, Austria, on a project for Mercedes for Destin Time Automotive. And then I did some consulting for a while and decided I had a degree in criminal justice and I wanted to go. I always wanted to be a police officer, so I decided to be a police officer. And I said I could reinvent myself down the route and come back and work in supply chain security.

2:19Keith Lewis: You hear him? I really never thought it would work out. I said a couple of years, a couple of years in law enforcement, and I will know every, well, learn everything in a couple of years, though. 26 years in law enforcement, you know, still learning every day. I'm still an active law enforcement officer doing it on a part 10 basis. And when I did retire in 2011, I joined Veris Carbonet as the team leader for their crime course. Interesting. Now, one of the things I think that's maybe both helpful and a little bit tough about cargo theft is that it does enter the general public consciousness. We see some of the big stories.

3:02It does make headlines, but that doesn't necessarily give people who are focused on it a sense of what the systemic problem is actually like outside of those few cases that break through. Can you talk a little bit about just how big and how organized the problem of cargo theft has become?

3:23Keith Lewis: Sure. And it's evolved from, so it's evolved from organized to almost loose-knit dysphotia groups and right back to organized groups now. And now it's somewhat of a global organization. So we really only see those big, big cases, you know, those multi-million dollar cases or the very, very few cases where some violence is introduced or some type of force is used. Those are very, very rare. And the sophistication is that of not any harder than any other type of fraud or theft. It's just different complexities, if you will. We see those big cases, but we don't see other nickels and dimes of the smaller cases, the copper thefts, the food thing that, you know, the energy drinks, alcoholic beverages, the household of commodities, vacuum cleaners, the smart, intelligent, internet-based vacuum cleaners.

4:24Keith Lewis: We just don't really pay attention to those. And it all adds up. And I always used to say trucking is a business of nickels and dimes. It is a business of nickels and dimes. So we're starting to see those big wheelbarrows full of cash stolen. The problem is, is lack of reporting. It's hard to get a police report for a theft, so that makes it a challenge. And when a report's made, it's usually after the fact. It's historical. And there's another breadcrumb trail for law enforcement to follow. Yeah. Now, you've talked about how this has evolved. Are there any trends? I mean, certainly everything was completely disrupted in 2020.

5:02Supply chains were a huge part of that. But what are some of the things that are actually causing the shift or the evolution in terms of how these cargo thefts are planned and executed?

5:15Keith Lewis: Oh, boy, that's a complex question. I'll try to keep it simple for you. So follow the money. Simple, right? Follow the money. The cost of goods. And if you go back 10 years ago, we weren't building. We were, but, you know, the data centers, the cloud, you know, the brick buildings with no name on it. We were building them. But now, when the emergence of AI and we're building data centers, although there's a lot of controversy about that, but we're going to build them. There's data centers building. And the cost of goods, right? If you look at the precursor that goes into that, the building materials, if they're shipping it, they're stealing it.

5:53Keith Lewis: And the copper, the copper is used for the wiring. And that's a big hot commodity now. And the servers and the RAM and then the other components, the precursors, we didn't have shipments. We did, they were pharmaceuticals, but now just the general shipment of AI product could be in the 20 to$30 million range. and we didn't have those type of things 10 or 15 years ago outside of outside of pharmaceuticals being shipped so that's what's driving it it's it's the value of the goods if i'm going to go steal a 200 000 load of food products may get you know 30 cents on the dollar for it but if i'm going to steal a multi-million dollar load of electronic equipment for destined for an ai data center, I might be pretty close to getting almost full price for it because there's a need for it internationally.

6:48Yeah. And there's a little bit less time pressure as well, right? I mean, we had a massive cargo theft case that made headlines. I'm in the Boston area, $400 ,000 worth of lobster. You don't have a lot of time, right? It's one thing to have a trailer full of electronic components that, not that you want to hold it any longer than than you have to, but it's going to take a little longer for it to smell. At least we can say that. But it does give the thieves that are involved in these rings a little bit more flexibility and opportunity in terms of flipping to actually generate the revenue that they're looking to get.

7:28Keith Lewis: Absolutely. So you look at the big watershed case up in the New England era, the lobster, of shrimp, crab meat, those type of things. There's an expiration date. There's a shelf life, right? Especially if it's packaged wet, you know, ice packed. If it's ice packed, that means if it's not frozen, the time that that product is going to be good, the shelf life is far less than frozen goods, if obviously it's the frozen goods stay frozen. But once the steel integrity and the load integrity is gone, you may recover the load you may recover part of the load, but that load is going to the landfill. You move into the other vertical, look at a load of copper.

8:16Keith Lewis: The copper does have an expiration date because of the type of commodity that it is, if it's cathodes or whatever, may, okay, well, this is obsolete now, but you still have a load of copper that you can take back to the shredder. You can shred it and make new stuff with it. So you have a$400 ,000 load that's now worth$300 ,000 and you can melt it down and make another$400 ,000 loan. On the electronics, the technology, that does have a shelf life. You know, albeit it's not just a few days or a few weeks, but if you look at what they're putting in data centers today, we put in data centers in two or three years, it's going to be a totally different type of component.

8:52Keith Lewis: So there's a shelf life. That doesn't mean what we're making today will be obsolete. It'll still be in use, but as technology emerges, things change. Yeah. Now, can we talk a little bit about what these thefts look like, what the deception looks like as it's being carried out? What does this process at the moment of handoff or even in the preparation that leads up to that, what does that look like? So there's a couple of different, probably more than a couple. I probably don't have time to talk about all of them, but there's a couple of different ones that we can talk about. One is what we call a misdirected, compromised load.

9:29Keith Lewis: In the old days, we just called it a blind shipment where you pick up a load off a load board and you tell the driver, hey, look, this is a blind shipment. That's a common term in the trucking industry where the buyer doesn't know who the seller is, the seller doesn't know who the buyer is. It's just you have an intermediary in between. Drivers are used to it. Okay, this is where it's going. Even though breaking the terms of the bill of lading, that's really a contract. evacuation. So we have those types of shipments where the driver is told, okay, you're picking it up in, I'll just pick a city in Ontario, California.

10:03Keith Lewis: And instead of taking it to Newark, New Jersey, you're going to take it to Stelfo, Virginia. So you're going to take it there. The driver's like, oh, same money? Yeah, same money. Don't worry. We got you. And the driver takes it there and it winds up going somewhere. As we saw with the shipments of tequila earlier last year. So that's one method where it's a misdirected load. Very common. Very common. The driver, albeit they should know a little, they should be a little more aware that what they're doing is not 100 % above board. Sometimes they're innocent. The other big problem we have right now is purchased MC numbers.

10:43Keith Lewis: So if you purchase, you can go on the marketplaces on the internet. There's many different sources where you can buy an MC number. And what the bad guys are doing now, they're looking for MC numbers. And the good guys that have MC numbers that just didn't make it in the business, they've got an MC number. They've been around. And this sounds like if you're a business three years in our world, that's an attorney. You've got a lot of credibility. You've got a good rating. You don't have any dings in your profile with some of the vetting services. now you're set up to haul with this company and that company who all's high value goods so i'm going to go pay you 20 i've heard of i still hundred thousand dollars for one usually it's five to twenty thousand dollars for an mc number when i'm buying it i want your phone numbers i want your internet domain i want everything your p.o box everything now i'd become you in the in in over a couple of day period i can go out and i can use your name which I'm already set up to haul with these high-value companies, and they can pick up however many loads I can get to my bad guy warehouse, and they'll never be seen again.

11:54Keith Lewis: I say never be seen again. I say our partners in law enforcement do a tremendous job. California, New Jersey, Florida, Georgia, Tennessee, Dallas, the folks in Texas that are always making recoveries. My team is working with law enforcement every day, assisting with recoveries. the identification of stolen goods. We're kind of the bridge between law enforcement and the manufacturer to confirm, yeah, they're stolen. Yeah. Well, and it's interesting because you bring up MC numbers different than theft, although also a crime. People might remember, I mean, it's a couple of years back now, it was a, Keith, I'm going to use the word spoofed.

12:37There might be a more technical term, but it was a spoofed MC number that the driver was operating under when there was that terrible case of the trailer found in San Antonio, Texas, that was smuggling people over the border. And unfortunately, they were all left in the back of that truck. The whole administration and security issues around MC numbers was something that sort of rose into people's awareness and connection with that case. But interesting to know that that's a factor that is involved in cargo theft as well. Yeah.

13:06Keith Lewis: And remember that we, and I said earlier, we deregulated in 1980. So when you deregulate, there goes the regulations for those that lost. There goes the guns and badges from the federal officers. In my day, the Interstate Commerce Commission had originating jurisdiction over all this. They had police cars. They had guys with guns and badges and blue lights and they pulled over trucks. And this was a heavily regulated industry. We don't want to go back to that day. We do fully don't want to go back to that day. it would cripple our economy, but we've got to do something. Is there any seasonality to this theft, or maybe even seasonality isn't the right frame to look at it through, but are there patterns that companies and carriers should be aware of?

13:54Keith Lewis: So, yeah, in the old days, we'd say things are going to start picking up around July, August for the Christmas rush, right? But we've gone to more of a smart supply chain just in time don't make it until somebody buys it. That could supply chain. So the time from manufacturer to the consumer is much less now. So we're not seeing the safety stock in warehouses. And with the emergence of all the electronics, copper, and those type of commodities, it's not so much seasonal anymore. We do see some of the seasonal stuff. And I used to joke about the Georgia-Florida game right before the Georgia-Florida football game.

14:32Keith Lewis: we'd see we'd see loads of alcohol being stolen off at our stage oh funny we'd see a load of hamburger buns the next day we'd see a load of hamburgers and hot dogs so we never saw mustard and ketchup though but you know it was kind of you know you could kind of predict this right it was very predictive okay well they got a big rodeo out in wyoming so we're going to see a lot of energy drinks stolen we used to be able to sit back it's just wait for the thefts to come in However, with everything, everything seems to be leveling out, right? And with the fraud, we used to see that with areas of the country.

15:06Keith Lewis: It was primarily four or five locations of the country with the red hotspots on the map, maybe seven or eight. But now we're seeing those hotspots pop up everywhere because of the emergence of the fraud, if you will, the spoofing fraud, misdirected loads, purchased MC numbers, some type of fraud or hocus. focus is used. And it doesn't matter where it is, what time of the day, they're going to steal it. Yeah. I mean, it's frustrating because at least so far, we've kind of focused on, as you said, the bad guy side of things. And we all know this happens and it's a massive issue. If we think about it from the perspective of the companies and the warehouses and the carriers that are trying to protect themselves and their customers and their networks against this, What types of intelligence or monitoring capabilities are they making use of to try to safeguard?

16:00And I guess if it comes to it, to actually track these loads to minimize their loss exposure.

16:08Keith Lewis: So obviously you could start with, I have to mention our company for the data and the intelligence and the alerts we put out. The storage of the stolen goods, we're the depository for the stolen goods. You know, law enforcement comes to us when they find something. So you've got to use us for the intelligence and to report your thefts to. There's telematics companies that put covert tracking devices on trailers. they embed them in the truck in the load and there's carrier vetting platforms there's about maybe four or five of them out there now that are very good but it's it's um there's no silver bullet so you've got to have that gun belt with all the tools on it or the tool belt with all the tools on it to uh i got my law enforcement hat on here right so uh you've got to have that tool belt with all the tools on it from carrier vetting there's not one single solution that will prevent the staff that somebody wants to get stoned.

17:05Yeah.

17:05Keith Lewis: You know, you've got to use a multi-layered approach. Us for the data, carrier vetting solutions and telematics, and then vetting, vetting of the driver. We always talk about, well, we vetted the carrier. We checked him on this system. Yeah. Nobody's looking at the driver. Yeah. Okay. Now I'm going to make this even harder for you, Keith, because we've talked about you switching your hats. I'm going to ask you to wear both at the same time for just a minute. How do companies like or solutions like CargoNet plus law enforcement plus companies plus private investigators all work together? Or is it truly depending on what the issue is and what stage of recovery you're in?

17:44Everybody has sort of a separate ownership or jurisdiction.

17:48Keith Lewis: It's a team sport. We all come together front end during the middle of this afternoon and during recovery. recovery, it's, it's, it's, we all work very well together. So in law enforcement, we call that the changing of the hats, right? So, um, that's what a legal term. So, um, we work together, we work together with law enforcement. We're the bridge that connects, uh, California to New Jersey. You know, they're like, it's a theft in New Jersey. We're, we're connecting. We're sending alerts to California. They are, they're, they do a great job out there in California. They're there be on the lookout for it.

18:26We send out the bolos and they go find it in a warehouse.

18:31Keith Lewis: The manufacturers, we really need them to become more of a part of it. Manufacturers and shippers on helping us gather data at the point of shipment. That's really where one of our weak points are, is at the point of pickup. Okay. On catching driver information, photos, VIN numbers, driver's license, those things. And I understand it's all about the liability and we, you know, we hired you to haul our load. I get all that, but we're going to have to work better together as a team. The trucker or the breaker, when they have an issue, they work very well with us, our customers. And even if they're not our customers, they don't work very well with us.

19:06Keith Lewis: We have a great reputation for helping assist in recoveries. And then on the back end, the law enforcement. So when we get back to the A and B, law enforcement on the front end, working with law enforcement on the B. the biggest challenge that we have here is i need a theft report law enforcement on the back end can't recover stolen goods unless there's a report made so they can they can walk up on something in a warehouse and see it okay all right we know this guy shouldn't happen he's got 15 stolen loads here and the 16th one is here but we don't have a report we've got to get that initial incident report made otherwise the bad guy's going to get to keep the product if we can't get a report made because we can't recover it.

19:47Keith Lewis: Got me a long first time. We can't recover that. We can't seize it under a Fourth Amendment without knowing it or being able to prove it's stolen. Yeah. How often are there really successful recoveries? I mean, not that you have to give me a specific percentage of the time, but how likely is it? How often do these stories have a happy ending? Well, you know, it's a very small percentage of what's stolen is recovered, right? So it's a very small percentage. I think we took in probably 3 ,600 deaths last year, and we're probably, I don't want to throw a number on it because we don't, it's the contest.

20:21Keith Lewis: We don't get out and brag about our successes, but it's a very small percentage that is recovered. But when we do make recoveries, in the old days, we'd recover a truckload and we all high-five, right? Oh, I recovered 14 pallets of a 25-pallet truckload, and we're sitting around high-fiving. Now the recoveries, we're recovering a warehouse full of stuff. So it's a big, big deal. Again, I get back and I throw praise out to our partners in law enforcement that they're calling us to say, we just did a search warrant on a warehouse. Be prepared. We're going to have you on the phone. We're talking about one of my animals.

20:56Keith Lewis: We're going to have you on the phone at 2, 3 o 'clock in the morning, identifying these stolen goods. And, you know, the whole West Coast thing, it's starting in the afternoon. We're on the East Coast. So it's a challenge sometimes to track down, especially if they find a product that's not been reported stolen. No, we've got to start tracking down people after hours. Okay. Is this stolen? So there's more one of the bigger challenges are. Yeah. Now, without getting into any sensitive tactics, can you talk a little bit about the recent Manhattan indictment and what that suggests? You talked about going from finding a trailer to finding a warehouse.

21:33That definitely suggests an expansion in the level of sophistication. And what are you seeing in terms of cases or in terms of the general trend around this theft?

21:46Keith Lewis: So, you know, how you find the warehouse is sources of information. And those sources of information could come from the driver that picked up a load that's cooperating to someone that works at the cross-stock that the bad guy's using and that realizes, you know, something's not right here. You know, we're picking in all these high-value loads and something's just wrong. And they'll ring up law enforcement. And then obviously confidential sources of information that provide intelligence for law enforcement. And then just, you know, going back to my days of law enforcement, having that good street sense of nothing doesn't look right there.

22:29Yeah. Now, we've talked about certainly that the scale of these can go from hundreds of thousands to millions of dollars. The impact of that is also affecting companies differently because you might have a massive enterprise or you might have a relatively small business. And this shipment is nothing to an enterprise, but it's everything to them. The different levels of impact that these thefts have on large companies versus small businesses.

22:57Keith Lewis: I'll give you an example of a small company. I helped a small tile company that's based out in San Francisco last year. They had somebody scammed them, theft, of a couple loads of high-end tile. And they didn't have insurance. You know, they put it in the carrier with insurance, but everything was a fraud. So they're out a quarter million dollars. And the mom and pop business turned it over to the daughter. And this is her first big fail.

23:34Keith Lewis: And it pretty much bankrupted her. I hope she's still around. But, you know, you look at something like that where you're relying on the carrier's insurance. Well, when the carrier's a fraud, there's no insurance. Insurance doesn't pay for... I'm insured with... I'm insured my car insurance is with whatever XYZ insurance company. If I steal my own car, they're not going to pay you. They're not going to bring a room involved in the theft of my car, right? The old driver, the old give up, right? So they're not going to pay me for my bad behavior. To the big companies there, one of the problems that we see is insurance.

24:16Keith Lewis: The carrier, the trucker, the broker have policy limitations of, say, a quarter million dollars. And then the shippers pay on what's called shippers interest insurance. well we're okay well i'm i'm covered for a quarter million but maybe there's solutions in my policy and my my insurance companies like they pay the fall back and the shipper the shipper has to pay you know they absorb it it goes back in the cost of goods right so this however you want to look at it the bigger companies obviously can absorb it a lot easier i don't see them going on a business i see them getting better and changing their practices But where does this cost go?

24:58Keith Lewis: It goes right back to the consumer. You know, okay, well, you know, our operating cost last year was X and our revenue was Y. Okay, so we've got to get better and we've got to raise our prices. So we see that from a couple of different ways. You know, they make improvements, but, you know, they've got shareholders to answer. Yeah. Well, Keith, we've covered a lot of ground. And I want to, if we can, boil it down a little bit to something actionable. So I know in my audience, I have certainly supply chain professionals, procurement professionals, logistics professionals. I think everybody, even as you just pointed out, as consumers, is concerned about this.

25:40But from a professional standpoint, if you wanted to leave a piece of advice, something for people to think about, to really step up their awareness around what can be done to guard against this, what takeaway or piece of advice would you like to leave them with?

25:57Keith Lewis: You're asking me for that silver bullet, right? I'm asking you for the silver bullet. So you can put your law enforcement hat back on and then pick the silver bullet that makes the most sense. Yeah, with my law enforcement hat on, I say the solution is prison, right? So who had Jimlis put in the dirt for a long time? But, you know, that's not up to me. It's up to the courts. So I'd say the solution is multilayered, right? Better vetting. Use multiple vetting sources. And it's costly. It's costly. And then they're costly. Well, everything we're talking about today is falling back under the shoulders of the consumer.

26:34Keith Lewis: but better vetting telematics covert gps units in the in the product and the trailer uh in the old days we'd stick one in a magnetic box box and stick it under the trailer those type of things those solutions in the intelligence we put out so i'd say it's probably a five-purling approach and then driver training because one thing we haven't really talked a lot about is the old traditional the good old days of somebody breaks into the back of the trailer at the truck stop, right? And that's where you get into the driver training of where to park, put the lock in, not a bicycle lock or not a plastic seal, but a lock on the back of the trailer, back it up to a wall, a telephone pole, back it up over a berm, those type of things.

27:14Keith Lewis: So it's a multi-layered solution. But the biggest thing I stress is we've got to come together as a team. And it's the one thing that we're not doing right now is we're not working together as a team. So many times I hear, well, you know, is this chipper or the manager? I hired a professional carrier. I'm expecting them to get it from A to B without any interruptions. I'm not doing any more than putting it on their truck. I hear it all the time. And we've got to work together as a team or the consumer is going to be suffering. Yeah. No, I think that's a great piece of advice. Keith, super interesting conversation.

27:51I love the fact that you can speak to this from both perspectives, right? fixing it from a solution standpoint, but also that frontline law enforcement perspective. If people are meeting you, learning about Varus CargoNet for the first time, what is the best way that they can reach out and connect and potentially learn more? Just go on our website, cargoinet.com.

28:13Keith Lewis: Go on our website. There's a link to reach out to us. And our website will tell you everything you need to know about CargoNet. And it'll also have a landing page to report a theft to us. Excellent. Well, Keith, thank you so much for your time. Thank you for sharing your expertise. It was great having you on. Thank you very much. Great opportunity. Thank you.

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