- Case Study
Supply Chain Frontiers issue #13. Read all articles in this issue.
Cargo theft costs the freight industry and its customers billions of dollars in lost revenue, despite countermeasures such as fortifying containers, employing dual vehicle drivers, and escorting valuable shipments. Researchers at the MIT Center for Transportation & Logistics are calling attention to another anti-theft measure that is effective without being cost-prohibitive: secure routing.
A study carried out by researchers from the MIT-Zaragoza International Program, a research partnership between CTL and the Zaragoza Logistics Center in Spain, examined the cost-cutting impact of making simple and informed routing choices versus investing in traditional security countermeasures. And what they discovered was that in most cases, while transportation costs are higher, choosing a more secure route through a regional airport is better for your bottom line than more typical security measures.
“The project was pretty straight forward,” said MIT-Zaragoza Research Director Jarrod Goentzel. “We wanted to see if flying to a regional airport would provide better freight security versus going through a hub - with or without security countermeasures.” Researchers started by selecting two arrival airports in Europe: one major hub, Charles De Gaulle International Airport (CDG) in Paris, and one regional airport, Zaragoza Airport (ZAZ) in Zaragoza Spain.
Charles De Gaulle is cheaper to fly into and is in close proximity to a large population of customers. However, along with London’s Heathrow (often referred to as “Thief-row”), CDG has one of the highest rates of cargo theft in Europe. Zaragoza Airport on the other hand, is more expensive to fly into and offers less capacity, but the theft rates are lower. Researchers chose ZAZ because of its location in Northern Spain - roughly equidistant from the major cities of Barcelona, Bilbao, and Madrid and convenient for ground transport into southern France. The airport is also adjacent to one of the largest logistics parks in the world, Plataforma Logistica Zaragoza – PLAZA. PLAZA is designed to accommodate a secure tunnel that would link the airport and the park – an arrangement that benefits companies operating in the park as well as those doing business with transportation enterprises in the surrounding areas.
Next researchers categorized the types of freight that would be flown into these two airports, since some goods are more likely to be stolen due to their high value or ease of sale in the black or grey markets. For this study, researchers broke the goods down into three categories: consumer goods, high-end retail, and high tech. Consumer goods were considered the least likely to be stolen, high tech products were the most likely, and high-end retail was in-between.
Finally the researchers selected three product destinations, all in France: Orleans, Bordeaux, and Paris. Bordeaux is relatively equidistant from both airports. And Orleans is located between Paris and Bordeaux along the fastest road route from Zaragoza to Paris.
After establishing the airports, product types and destinations, the researchers looked at four scenarios for each product type heading to each of the three destination cities. The four scenarios were: 1) freight arrival at CDG using security countermeasures, 2) freight arrival at CDG with no security countermeasures, 3) freight arrival at ZAZ using security countermeasures, and 4) freight arrival at ZAZ with no security countermeasures.
With the help of First Advantage Corporation, a provider of risk mitigation and business solutions, the researchers were able to quantify the cost-benefit a company would experience under the conditions of each of the four scenarios. In calculating the cost-benefits, the researchers considered three factors: total transportation cost to the destination, cost of countermeasures, and expected loss.
According to their findings, when security countermeasures were used at both airports, it was cheaper to ship through Zaragoza to all 3 locations, even to Paris. Goentzel said this finding did not surprise the group, since secure handling of freight is very expensive at CDG.
The researchers then looked at sending freight through Zaragoza and Paris with no countermeasures. While overall there would be more theft at both airports, they found a greater cost-benefit in shipping high tech and high end products through Zaragoza. Due to their frequency of shipment and low likelihood of theft, consumer goods saw no cost benefit if shipped through Zaragoza versus Paris.
Not including the case of protected consumer goods, average benefits of 15.5% were achieved through secure routing. There was an average percentage benefit of 18.6% with the countermeasures and 12.3% without countermeasures. Using the project’s hypothetical $1,000,000,000 per year lane value, the researchers estimated that roughly $290,000 to $1,940,000 could be “saved” by avoiding Charles de Gaulle.
“Our research shows that which airport you use can have a bigger impact on your bottom line than the countermeasures you employ,” said Goentzel. “If airports choose to invest in security as a differentiator, they could attract more high-end freight.”
Dan Purtell, President of Supply Chain Security at First Advantage, said the research findings were in line with what he sees in the field. “For our customers who want to go through Europe, we can provide them with significant cost-savings if we route their shipments around problem airports.” Purtell said. “However, the problem we are faced with is capacity.”
Purtell pointed out that some companies are forced to ship through problematic areas because of the constraints on air capacity into Europe. “We’d like to take Heathrow and Charles de Gaulle off the network and lift into safer airports, but it can be up to a four-day wait at some of these regional airports,” Purtell explained. To solve this capacity issue, Purtell suggested that smaller regional airports like ZAZ increase their wide body airlift capacity, which is a necessity for big multinationals.
Despite the capacity constraint, Purtell agrees with Goentzel and the CTL-Zaragoza research findings. Bigger is not always better. “Smaller airports offer customers greater attention to detail. They handle shipments with greater speed and accuracy. They need to promote that,” Purtell added.
For more information about this research project, please contact Jarrod Goentzel.