**3.4. Smuggling of goods**

162 Risk Management – Current Issues and Challenges

the biggest threat.

another.

(24% 2006).

local/country/regional contexts.

The World Trade Centre terror attack in 2001 changed the world and the conditions for logistics worldwide. The aftermath of the terrorist attacks clearly indicated that logistics operations will suffer consequences of an attack. [29] state that, "*over the longer term, there is a question of whether the attacks can have a negative impact on productivity by raising the costs of transactions through increased security measures, higher insurance premiums, and the increased costs of financial and other counterterrorism regulations"*. The motivation for the majority of terrorist attacks is because the perpetrator intends to influence and alter the current balance of power in a certain direction [30]. Both the current balance of power and the potential effects on it may only be understood within the perpetrator's own mind. Therefore, the non-economically driven antagonistic threat is more nuanced, uncertain, and harder to predict that other types of antagonistic threats. According to [31] the fear for terrorist attacks is an extreme form of perceived risk. The definition of terrorism influences the difficulty to present valid statistics for the category, because one source may classify an incident as a terrorist act while another considers it to be a "regular" crime. According [28] is the official reported number of terrorism attack in EU declining (581 attacks in 2007 and 294 attacks in 2009) and the major threat (in numbers) comes for separatist movements (Basque and Corsican) whiles Islamist terrorism is still perceived as

The modern or new thing with terrorism is not the use of violence to influence and alter the current balance of power in a certain direction. According to [32] is: *"Terrorism in all its forms, by its very nature, an asymmetrical response to superior force, and terrorist have always used their capabilities as force multipliers – usually through the exploitation of terror. The generation of fear, in effect the use of purposeful violence as a form of psychological warfare can now be carried much further, enhanced by the modern media and the proliferation of mass media as much as by the proliferation of weapons".* The new thing with terrorism is therefore more related to development in media technologies than to vulnerabilities in supply chains. Nevertheless, terrorism is a special form of antagonistic threat that needs to be managed, in one way or

Reviewing official terrorist statistics from one global source (MIPT Terrorism Knowledge

The main modus operandi for attacks is armed attack (38% 2006 and 31% 2007) and

The main area for terrorist attacks are Middle East/Persian Gulf (68% 2006), and Asia

The terrorists prefer to use bombs and armed attacks because 80-90 percent of all attacks used these tactics. The targets are rarely transports but more in form of police and other governmental or religious institutions (~53% of the attack 2006). The interesting feature is related to the geographic side of terrorism, because the terrorist threat is mainly linked to

Base) leads to the following transport related conclusions:

bombing (51% 2006 and 54% 2007).

Transport activities represent 4% of the targets in 2006 and 5% in 2007.

The primary target of illegal goods is the black market. The black market consists of places and situations where products with doubtful or no legality are traded for money. This market is subject to the same forces of supply and demand as legal ones. Buyers of these illegal products are everywhere. Statistical reports show that counterfeited and pirated items amounted to \$176 billion in Europe in 2007 [35]. According to [36], in 2006, nearly 3 million pharmaceutical products were found to be counterfeit. Product smuggling does not necessarily mean that the product is illegal everywhere. What is legal in one country can be illegal in another, which creates the possibility that the actors in smuggling can be legal companies that are trying to access a market that is prohibited for them. An example of this is Western companies that smuggled products into former communist countries during the Cold War era.

The supply of a typical black market (both authorities and customers knows that the product is illegal) can be illustrated with the illegal smuggling of cocaine to USA. The illegal drug supply chains come mainly from South America. This depends on that the raw material, coca leaf, is grown there. The smugglers use land, sea, and air routes to get past US authorities. The whole distribution of cocaine is controlled by Colombian-based organized crime, but in recent years it has started to cooperate with Mexican criminals to streamline the logistics and share the risks. The Colombians have organized their operations in a business-like manner, creating cells for special purposes like warehousing or transport [37]. According [38], the illegal drug markets are best understood as having high adaptation and great resilience to always supply their products to the end user. This resilience and adaptive ability is clearly found in the logistics system setup and can be understood and explained with the concept of risk for detection presented in this paper.

The supply of a typical gray market (only authorities know that the product is illegal) can be illustrated with the illegal smuggling of counterfeited products. The gray market involves the diversion of goods from legitimate supply chains [39]. The only distinction is the risk for discovery from the authorities or the company whose products are copied. This diversity leads to a different design of the supply chain. The location of the production facilities is subject to the risk of discovery. Normally, counterfeited production units are placed where the risk for detection is low combined with the normal business problem as different types of costs and quality aspects. A counterfeited supply chain uses

the freight routes and port activities in the same way as legal supply chain does. Among the receiver countries, Europe and the US are favorites, just as Africa is the favorite for transit activities. Confiscated products that have not been produced in Africa, like jewelry and CDs, show this, because the African market does not have the ability, in general, to buy that type of product. Countries in Central and South America act like magnets for counterfeited products. Purchases of counterfeited goods to launder money occur in larger numbers there than anywhere else in the world [40]. Large stocks of illegitimate products are easily shipped from parts of South America to Central America, where they are big consumers of that type of product. Organized crime also uses Central America as the base for shipments of illegitimate goods to North America. The situation in Europe makes it the most lucrative market for counterfeited products. The types of confiscated goods at the external borders of the EU are different from other places in the world. This indicates that the dealers of counterfeited products adjust products to each market's special condition. They look at the fashion, culture, and buying habits of individual countries [40].

Supply Chain Security – Threats and Solutions 165

companies naturally are not pleased with the competition from black market actors. They may not be pleased with legal competition either, but that is another question. Striving for better business deals and the globalization trend that started centuries ago led to an embedment of illegal actions within legal markets [42]. This implies that the old black markets have been integrated with legal transactions, and today's markets contain every shade of gray when referring to the legality of the markets as a whole [42]. Legal businesses are concerned especially with the problems of counterfeit branded products and the theft of their own products. To increase the efficiency of detecting counterfeited products, legal

The modern types of pirates do not act officially of any specific courtiers' order but research has indicated relationship between piracy and weakness of central governances [44]. In essence is piracy an international crime against all states and the perpetrators can be brought to justice in all everywhere [45]. In recent years has the threat from piracy against sea shipment (direct threat) and also against the different supply chains utilizing sea shipment (indirect threat) received increasing attention [44, 46, 47, 48]. The real increasing threat from pirates, primary at the horn of Africa [45, 47], has resulted into both a changes in shipping routes (Sullivan, 2010) and also a naval response from several countries [46] that are depended on a smooth passage of cargo carrying ships. According [49], was there 489 attacks last year (2010) and over a twelve year period was there about 347 attacks/year globally [43]. Piracy is an increasing problem, especially near Somalia [48]. The pirates are changing their tactics and targets to use more sophisticated weaponry and apply more advanced techniques, all in order to improve their own success ratio. Table 2 presents the

businesses use cutting-edge technology and security actions [97].

**3.5. Piracy** 

current trends and patterns in piracy.

**Lives lost** 

**Table 2.** Trends and numbers in piracy 2006-2010 [48]

**Wounded crew** 

**Missing crew** 

2006 254 17 23 0 224 225 10 0 2007 310 22 75 57 223 39 18 0 2008 330 6 22 38 773 21 47 1 2009 406 8 57 9 746 2 56 2 2010 489 1 27 0 1027 30 57 12

As stated in table 2, piracy is an increasing threat and especially alarming is the increasing use of violent and kidnapping of crew members. According to [48], piracy cost the maritime industry between 7 - 12 billion dollars a year. In addition to this shall also the cost for rerouting to avoid pirate infested waters, ransom payments and support from various

**Crew hostage/ Kidnapped** **Crew assaulted** **Ships hijacked**  **Ships missing** 

Year **Number of acts** 

organizations be added.

Both types of Illegal supply chains use the international flow of containers to transport their products all over the world, regardless if the product is counterfeited or an illegal drug. Criminals try to delude customs' watchfulness by "breaking" their way through from the area of production to the area of supply, and avoiding direct paths that are well known to the authorities.

A problem linked to smuggling is the manufacturing of products without intellectual rights, or the production of counterfeited goods. Everything that has been produced can be reproduced by someone else. In order to bring counterfeited products from the production site to the end user, they may have to cross several national boundaries as well as intellectual property legislation. The counterfeiting business evolves constantly within current trends and technologies. The production and distribution of illegal products is performed under the risk for detection and this diversity leads to a different design of the supply chain [41]. The location of the production facilities is subject to the risk of discovery. Normally, illegal production units are placed where the risk for detection is low, in line with the normal legal business problem of where to produce according to different types of costs and quality aspects. Then, the illegal products are distributed by trade routes and port activities in the same way as legal products [42]. The pollution of illegal products in the legal transport network is a serious problem. The most common countermeasure against smuggling is the inspection of cargo carriers when they cross a national border. The mere existence of these inspections creates disturbances in the transport network, even if no illegal product is discovered.

The counterfeiting business evolves constantly within current trends and technologies. The illegal products are then distributed by trade routes and port activities in the same way as legal products [42]. According [43], the discourse on the gray market is filled with the idea of a criminal underworld in order to separate it from the legal/normal upper-world. In reality is it very difficult to establish the underworld/upper-world image. The legal companies naturally are not pleased with the competition from black market actors. They may not be pleased with legal competition either, but that is another question. Striving for better business deals and the globalization trend that started centuries ago led to an embedment of illegal actions within legal markets [42]. This implies that the old black markets have been integrated with legal transactions, and today's markets contain every shade of gray when referring to the legality of the markets as a whole [42]. Legal businesses are concerned especially with the problems of counterfeit branded products and the theft of their own products. To increase the efficiency of detecting counterfeited products, legal businesses use cutting-edge technology and security actions [97].
