When it comes to crime, silicon is nearly good as gold. Last Christmas, a gang sliced open the padlock on a parked big rig north of the 101 freeway in Santa Clara, CA, quickly loaded the booty onto a nearby truck and drove off into the night. The holiday payoff: a cool $3 million in Cisco boards. Three weeks later, just before midnight on Sunday, January 12, a driver left an American Airlines van unattended near London's Heathrow Airport. Two men stole the van and its princely cargo, more than $10 million worth of Pentium 4 chips.

Truck hijackings and cargo thefts of chips and components are rife at airports, freeways and ports around the world. The cases cited above are just a glimpse of a worldwide epidemic that shows no sign of abating. Just days before the stunning Heathrow heist, a gang of thieves and fences was sentenced for a series of U.K. technology thefts that totaled more than $15 million. The perpetrators of the Cisco and Pentium thefts are still at large, and both cases are being actively investigated by the authorities.

Swooning semiconductor prices haven't diminished the risk of logistics theft for major manufacturers. A van or small truck can easily carry $10 million or more of chips—and provide criminals with millions in profit. Increasingly adept thieves can disarm sophisticated alarms and GPS tracking devices and empty a silicon-laden truck in minutes.

Cargo crime threatens efficient logistics, strains critical business relationships and costs individual companies a few million to tens of millions of dollars in annual losses. When manufacturers were first blitzed by widespread component theft in the early 1990s, many responded by "hardening" their facilities, emphasizing the basics of old-line security, the three Gs: guns, guards and gates. Today, some companies confronted with high-tech hijackings and cargo thefts are finding success through the smart use of guards. But they're also investigating the fourth G: gizmos, an intriguing array of electronic tracking and alarm and access control systems soon to hit the market.

It's the perfect crime. Unlike with cocaine or other illicit drugs, possession of stolen chips isn't illegal on its face. Small, light and often lacking serial numbers, chips pose an ideal target, the modern equivalent of uncut diamonds. Indeed, the FBI says many high-tech firms lack the records necessary to prove that a particular batch of components was stolen. Meanwhile, Internet auctioneers and gray and black marketers provide a ready global market for stolen goods.

The industry downturn makes losses even more painful. "With eroding margins, cargo crime is more visible than it has been in previous decades," says Dan Purtell, Americas investigations manager for Intel, Santa Clara, CA. "It comes right off the bottom line." Companies often find themselves competing against their own merchandise on the black market, further driving down prices.

Marquee firms have been hit especially hard. Joe Chiaramonte, director of security for Sun Microsystems, Palo Alto, CA, says that for a time, his company was the vendor of choice for thieves. "Not only did we have cargo theft but our customers were getting burglarized too."

No one knows exactly how many billions of dollars' worth of chips and computers are stolen each year. The National Cargo Security Council estimates that $15 billion worth of cargo of all kinds is stolen annually—and more than $50 billion worldwide. "Part of the problem is that companies don't fully report their losses," says Bonni Tischler, vice president for global transportation and supply chain security of Pinkerton Consulting & Investigations, New York, NY. "The cargo theft figures you hear about are only the tip of the iceberg." The FBI, which compiles detailed statistics on car thefts and home burglaries, keeps no data on the theft of high-tech products—even though manufacturers fear that some of the stolen booty is finding its way to countries on the do-not-export list such as Pakistan, Iraq and Iran.

In the long run, the Bush administration's war on terrorism may aid in the fight against cargo crime. Government-sponsored efforts, such as the Customs Trade Partnership Against Terrorism (C-TPAT), an initiative to improve supply chain security and certify approved "known" shippers, should eventually tighten security at airports and ports. But today the reality is that many FBI agents who formerly fought cargo crime have been reassigned to antiterrorism duty. Strapped state and local law enforcement agencies, saddled with Homeland Security duties, are finding it tough to fund cargo crime investigators. "It's the grand finale to the budget crunch," says Louis Tyska, former chairman of the National Cargo Security Council in Annapolis, MD. "U.S. attorneys have been told that fighting cargo crime is no longer a priority."

Last summer, one of the nation's premier cargo crime-fighting squads, the Los Angeles County Sheriff's Cargo Criminal Apprehension Team (nicknamed Cargo Cats), was disbanded, because of a budget crunch, leaving the nation's largest port, the one encompassing Los Angeles and Long Beach, vulnerable. A vigorous campaign by the transportation and insurance industries raised enough funding to bring back the Cargo Cats for a year—albeit with a team of seven instead of 11 or more. "During the three- or four-month hiatus, the crooks knew we were gone," says Detective Duane Decker, currently investigating a mid-February theft of $1.5 million worth of laptop computers from a trailer near Long Beach. "It's gotten way, way out of control."

Nationally there are signs that some drug traffickers—squeezed by tighter post 9/11 border security—are switching to high-tech cargo theft. "It's a high-gain, low-risk criminal enterprise," says Barry Brandman, president of Danbee Investigations, in Midland Park, NJ. "New organized-crime groups are specializing in logistics theft." Investigators and insurance underwriters say that Latin Americans, often dubbed "South Americans," pull many of the thefts but that Russian mobsters are muscling in (Koreans and Chinese continue to dominate the fencing). Ports in south Florida, Los Angeles and New Jersey, say law enforcement experts, continue to be trouble spots.

Increased losses from high-tech-chip theft are making security a central component of supply chain logistics. Some underwriters refuse to insure valuable high-tech cargo, especially in problematic areas. But even when insured, the victim firm loses. Deductibles are often $100,000 or more, and thefts have a ripple effect. Intel, for example, sponsored a Rand study that found that the indirect cost of a major theft is two to five times the actual loss. And valuable business relationships can be damaged when deliveries are interrupted by thefts.

Although the traditional three Gs are still fundamental, several promising technologies—from pagerlike pallet-tracking devices to GPS systems and biometrically controlled ignition systems—may soon play a role in securing cargo. But experts advise a cautious, holistic approach. The bulk of the new technologies are still in beta or have yet to be fully proven in the marketplace. Many companies hire consulting firms such as Pinkerton to develop risk profiles and determine vulnerabilities in the supply chain. They then put detailed new policies and procedures in place that may include antitheft technologies. Some firms claim to have reduced individual corporate losses more than 90%, preventing tens of millions of dollars in annual losses. But experts say good security nearly always balances risk with economics. It's not a one-size-fits-all situation.

Indeed. Sun Microsystems fired back at thieves who were robbing the firm of millions in Europe with a combination of low- and high-tech measures. About a year and a half ago, Chiaramonte initiated escorts for high-value Sun trailers. He says he purposely broadcast the policy shift to the drivers, the warehouse and manufacturing. To date, says Chiaramonte, the escorted trailers have suffered "zero losses."

"During the three-or four-month hiatus, the crooks knew we were gone. It's gotten way, way out of control."
—Detective Duane Decker, Port of Los Angeles

Escorts do seem to have deterred hijackers. Other security directors concur on the value of the technique. "There are certain markets where escorts are silver bullets," notes Intel's Purtell. "It's enough." But in Latin America and parts of Asia, officials note, large gun-toting gangs have successfully snatched even well-guarded shipments. Mark Carlson, vice president of Latin America for Pinkerton in Mexico City, says the best protection against hijackings in Mexico and Brazil—where some manufacturers lose as much as 10% of finished product—is better control of shipping manifests. Major high-tech hijacks are nearly always inside jobs. "We look to see where clients may have slippage in their information control. We're in there looking for where the break is. Is it internal? Is it external?"

Firms seeking to enhance security might consider joining the Technology Asset Protection Association (TAPA), a group that has become a leading force in improving supply chain security worldwide. Launched six years ago with just 30 member companies, it saw its membership surge by 40 percent last year to include some 500 mostly high-tech firms (pharmaceutical firms were recently admitted as well). TAPA certifies whether firms are following good supply chain security practices. Two major underwriters recently agreed to provide insurance discounts for TAPA-certified firms.

Perhaps the most basic security step a high-tech firm can take is to reevaluate its carriers. In the wake of September 11, the distributor Avnet, Chandler, AZ, set down rigorous new security standards, giving the pink slip to more than a hundred regional and local carriers. Today, the 11 remaining carriers that transport nearly 10,000 Avnet shipments daily follow strict policies. Drivers must stick to specific routes. Trailer doors are shut with tamper-proof seals, and trucks must be locked whenever the driver leaves the cab. Large shipments go only on GPS-equipped trucks and sometimes require two drivers. Avnet has also eliminated some old methods that helped crooks identify targets. Now everything ships in a plain-vanilla box with a packing slip that gives no clues as to the contents. "It doesn't say Intel, Sun or Toshiba," says Jim Smith, a senior VP at Avnet. "It looks like another common, ordinary box."

Which carriers excel at protecting high-value tech shipments is a constantly evolving, closely guarded secret. "Using FedEx and UPS may not be the most secure method, compared to shipping with a motor carrier that has expertise in the transportation of high-tech goods," asserts Rich Soja, global marine manager for Chubb, a Warren, NJ, insurance firm. Chubb shares its short list of preferred carriers with clients and helps companies implement various risk reduction strategies, such as breaking major shipments into sub-$5 million chunks.

Prompt notification of the relevant authorities is key to recovering stolen chips and components (investigations in Europe and other foreign countries are often hampered by multiple local and national jurisdictions). Throughout the United States, port-based Cargo Cat squads or high-tech crime squads are the place to start. The Los Angeles Sheriff's Cargo Cats, for instance, recommends faxing a loss claim form to its offices to speed the opening of an investigation. Prosecution is another matter. It's not easy to prove that a given pallet of chips is stolen. "In case after case, we bring product to firms and think it's easy to tell us whether it's stolen, and they can't tell us," says Special Agent Manny Alvarez, who heads the Rapid Enforcement Allied Computer Team (REACT), a multiagency high-tech crime squad based in San Jose, CA. "Companies often don't have the mechanisms in place to keep track of products."

Sun is one of the few exceptions. Before, all the firm could say was that a particular processor board came from a lot of several hundred. Now, the company's high-end servers have serial numbers and record the purchaser. Still, many companies don't see the value in marking components or keeping the detailed records necessary to prove that a specific lot of chips has been stolen. Although companies encourage aggressive prosecution of chip theft, they favor a proactive approach—practices and technologies more likely to prevent thefts.

Companies appear more interested in electronically tagging individual pallets of products in transit. Purtell is one of many officials interested in a tracking device that could help him monitor the whereabouts of product throughout the supply chain. Locate Networks, Seattle, WA, plans to launch its new SnapTrack Assisted GPS in July. Hidden within a pallet, the pager-size battery-powered device continuously receives satellite transmissions. It shoots the transmissions over a terrestrial two-way pager network to Locate's data center. Latitudes and longitudes are mapped onto a Web site that clients can access with a password. Clients can preset approved corridors and boundaries for shipments. If a pallet strays from the prearranged route—say a half-mile corridor along a particular interstate—alert notifications can go out to logistics personnel or security directors.

Michael Crowson, Locate Networks' president, says SnapTrack has already been beta-tested by law enforcement in sting operations. In one case, its use led to the recovery of several million dollars' worth of consumer goods that were stolen from a trailer and moved onto a rental truck and then into a warehouse. "Security experts want to get their hands on it to prevent theft," says Crowson. "Others want it for pure logistics and just-in-time inventory."

But the ultimate security value of a device that tracks a pallet, trailer or truck comes from how quickly news of a possible problem can be investigated. Simply knowing that a truck or pallet has wandered off course won't necessarily thwart a theft or recover stolen chips. Tracking technologies are often combined with service from real-time communications companies, such as Criticom International, Minneapolis, MN, which monitors GPS and other signals and alerts law enforcement to thefts in progress. Depending on

the service plan, Criticom receives GPS signals via cellular connections every 10 minutes or so. Computerized call centers in Los Angeles and Minneapolis transform that raw longitude and latitude data into street addresses in about 30 seconds. If a driver hits a panic button or a trailer veers off a preset route, an agent at the call center will attempt to call the driver or establish contact through the dispatcher. Criticom agents tap into a detailed Public Safety Answering Point (PSAP) database to promptly phone the relevant local authorities and assist in locating the stolen vehicle. The firm is investigating partnerships with several manufacturers of pallet tracking devices.

But if securing shipments is quite literally a moving target, so is staying one step ahead of the thieves. When GPS tracking services were first introduced, a few years ago, they were heralded as the technical solution to hijacking. But hijackers quickly learned to take out the antennae with a shotgun blast or a hammer (a tougher task with transmitters hidden in pallets). Even when GPS tracking devices manage to continue broadcasting during a hijacking, it's often too late when authorities arrive at the scene. Indeed, the truck the Santa Clara Christmas bandits fled in with $3 million worth of Cisco boards was GPS-equipped and was later found abandoned—and empty. "The problem with GPS is that although you recover the trailer, everything else is gone," says Chubb's Soja. "It's a developing technology."

"I get three calls a month from companies with different bells and whistles. I haven't seen anything work yet."
—Dan Purtell, Americas investigations manager for Intel

Tracking systems can also be expensive. GPS hardware generally costs $1,000 to $3,000 a vehicle, with service ranging from a few dollars to $25 or more a month. Although tracking pallets with Radio Frequency Identification (RFID) tags has been tested by several firms (including Unisys for high-value servers), the technology generally provides useful data only on the whereabouts of product in controlled environments such as ports, airports or corporate warehouses. Once on the road, shipments are likely to require other protection.

Stand-alone biometric devices may promise an entirely different way of securing high-tech cargo. Vericom Technologies, Rocklin, CA, aims to thwart attacks by making it harder to hijack trucks. The firm's biometric or PIN access devices limit the operation of the truck to the approved driver. Utilizing "black-wire technology" that makes it difficult to know which wire to cut, the hidden Vericom device cuts off fuel to the heat pump. The theory is that hijackers won't be able to start a vehicle or will find that it won't go over a couple of miles an hour. "The key is to reduce the amount of time the hijacker has" to escape, says John Bjorn, president of Vericom.

Finally, at least one start-up, Safefreight Technology, Edmonton, Alberta, Canada, offers an all-in-one security system for trucks and trailers. Piercing alarms and strobe lights go off when a thief tries to hijack a truck, move it outside of a preset digital fence, or attempt to hook up an unauthorized trailer (GPS tracking for trailers is optional). Officials believe that the ear-shattering alarm and lights will prevent many break-ins.

But security and logistics directors at major high-tech firms remain a hard sell when it comes to the new antitheft products. They say they have yet to see a probable winning solution, let alone a short list of companies to watch. "I get three calls a month from companies with different bells and whistles," says Purtell. "I haven't seen anything work yet." Experts say providers of new technology providers have to battle-test their solutions' reliability. Brandman of Danbee Investigations says 90% of the new products and services are still in beta. "Most have not been proved. We are six months to a year and a half away from having reliable product on the market."

Until then, security directors and law enforcement will do their best on limited budgets. Officials at Sun, for example, argued that the escorts for high-value trailers were too expensive. But Chiaramonte won an extension of his program by doing a study that tracked the substantial losses of other companies. In comparison, Sun's zero losses after a modest investment in escorts seemed a bargain.

Fighting theft remains an uphill battle. Sergeant Lloyd Cardone of REACT says his task force is pursuing leads on the $3 million Cisco theft in Santa Clara, and the FBI is also trying to solve an $8 million high-tech hijack last year in Guadalajara, Mexico. Meanwhile, investigators working the Heathrow incident traced a white Renault van to nearby Feltham, west London. Roughly $2.5 million in chips were recovered, but about $7.5 million worth are still missing.

The perpetrators remain at large.

Jonathan Littman is the coauthor of the best-seller the Art of Innovation and the author of The Fugitive Game.