Hedging with Narcodrones

IAI_Heron_1_in_flight_1The latest means being utilized by Mexican drug cartels of getting drugs into the United States appears to be flights by unmanned aerial vehicles (UAVs), commonly known as drones. These aircraft, which we may normally associate with surveillance or deadly military strikes with the often-touted (and disturbing) benefit of little-to-no domestic cost of lives, are reportedly being enhanced, repurposed, or built anew for carrying cocaine and other narcotics across the border for distribution and sale in the US. What’s even more fascinating than the reality that the cartels may be using them at all or how they are acquiring or developing them is how their use highlights traditional business and risk management behavior that you might otherwise expect of a bank or some other legitimized business entity and learn of in an undergraduate business course. Forget about the manufacturing of widgets or whatever other silly made-up product our made-up ACME Corp. is involved in producing as presented in some heavy hardcover textbook. Nah, instead let’s talk about cocaine and the real-life issues of how to get it to market while minimizing risks to the business organization. Here’s how the use of narcodrones highlights the ways in which cartels resemble any old rational corporate entity.

Strange or unconventional though this discussion may be, there’s no mistaking that cartels are trying to improve business conditions and chances of success, lower costs, and – always of keen interest to this blog – hedge risk. Narcodrone utilization could be incredibly effective at enabling them to accomplish this. As reported on by The Tequila Files and the Vice MOTHERBOARD channel, from the perspective of the cartels, more drones in the air means less cartel personnel out in the open, lowering chances of arrest and imprisonment and making it more difficult to put them under surveillance in the first place. Then there’s the simple matter that fewer people need to be involved for a successful shipment to take place, and these fewer people may require less information about the entire chain of operations. This serves not only the same ends as less cartel personnel out in the open, but also reduces what authorities can glean from any given interrogation of anyone they are still able to capture. Clearly the above describes risk management, but interestingly enough we can expand upon the similarities of cartels with other business models by pointing out that this is simultaneously not unlike factory or other technological automation in terms of labor force reduction and cost-savings.

Cartels are attempting to further hedge risk by leveraging design innovations. Enhancements to the existing technology may increase the drones’ capability for self-directed flights utilizing GPS, reducing the involvement of cartel personnel or “contractors” once again (less flying required by a remote pilot) which comes with the benefits already described above. The Colombian television series, Escobar, el Patrón del Mal, presented evidence that one of the drug pilots working for the Cartel de Medellín turned informant. Moreover, design improvements may allow for repeat flights, lowering cost of operations and equipment when compared with one-plane-one-flight models. Drones are reportedly being designed with collapsible wings allowing them to be easily loaded on trucks for quick land transport, increasing their useful lives and again reducing costs by allowing cartels to delay investment in new drones. The cartel’s versions are purportedly less deterrable by inclement weather, increasing shipment and hence profit opportunities and conceivably reducing the risk of flight interception.

As further noted by The Tequila Files in their piece, there are additional cost considerations to take into account as drones are cheaper to fabricate than submarines, for instance, which have been employed in the past. The lower cost could lead to drone decoy use or the deployment of entire narcodrone fleets at once, improving chances of at least partly successful missions and again increasing profit opportunities while mitigating risk overall as it would be harder to track and intercept multiple UAVs at once.

Additionally, for cartels just as for legitimized corporations, the principle of acceptable loss, a concept that is of military origin but is regularly applied in the business world these days as part and parcel of the practice of risk management, comes into play. Here we are speaking to retained risk, risk that cannot otherwise be insured away or eliminated, risk that the party in question must retain and suffer accordingly should it be realized. Acceptable loss also helps explain the costs of doing business and specifically serves to describe situations in which the potential reward of successful operations outweighs the losses (up to that certain acceptable point) that may occur as business is conducted. Clearly the failed voyage of a narcodrone is a retained risk on the part of a cartel, as that risk cannot be insured away (we assume).

The use of narcodrones may change the nature of the acceptable losses for the cartels, in that the size or concentration of the acceptable loss may change. Before, acceptable loss may have been an entire $2m submarine with a payload of several metric tons of cocaine for every x number of attempts. Rough estimates indicate that the same acceptable loss in drone terms would be more than two dozen fully-loaded UAVs each carrying 100 kilos of cocaine, which obviously disperses the previously concentrated risk and may lead to a change in expectations on the business end where the size of the acceptable loss shrinks. Perhaps moving forward an acceptable loss is only one drone per x number of flights and it represents yet another improvement to the overall bottom line.

What isn’t mentioned in either The Tequila Files piece or the Vice Motherboard piece from which the former originally drew some of its information is the potential minimization of danger or harm done to or violence inflicted upon migrants, including minors, who are forced into muleing by cartels or those who refuse to do cartel work. While The Tequila Files does point out that we may see fewer mules as narcodrones are adopted, this conclusion is not concretely drawn. But the conclusion is worth drawing – utilization of technologies such as narcodrones may minimize some of the danger posed to migrant groups by drug cartels, including loss of human life.

It all remains to be seen. As noted by Peter Singer with the Brookings Institute, “The key questions for them [the cartels] as to whether they use drones more and more will be how they allow the cartel to evade surveillance or capture, and lower costs compared to traditional methods.”

This may all be interesting, but why should we care? Beyond the attempt here to highlight how we all hedge knowingly or unknowingly and to leverage all available examples to illustrate this reality, changing our thinking and viewing cartels in this light – as self-interested rational business organizations – and seeking out the similarities between them and legitimized business entities, may continue to pave the way for future incorporation and regulation of said organizations into society as legitimate business entities. The war on drugs was a failure from inception and we must expand our thinking on the subject as well as our array of options. Of course, given the amount of corruption in country after country, we may not trust our governments to regulate such businesses when they already can’t effectively regulate others, from financial institutions to mining companies to technology giants. There’s plenty of room and reason to remain skeptical about any long-term solutions, but painting cartels as entities outside the realm of reason is inaccurate, unhelpful, and has resolved nothing. As the cartels improve their hedging techniques, so must the rest of us devise more creative ways of hedging the risks posed by this industry to society.

Leave a Reply

Your email address will not be published. Required fields are marked *