Smuggling refers to goods illegal in some of the cities, e.g. alcohol or ammo. Cities, in which certain goods are illicit, have been marked with red exclamation mark by the goods, in the market view window. If you have already visited the city in question, you can check this piece of information by moving the pointer over the city on the map. Pulling into a city with goods that are illicit there, you risk of facing the consequences:
- Cargo loss;
- reputation loss;
The probability of being caught red-handed depends on several factors: amount and diversity of the carried goods (it is a good idea to carry, e.g. 4 crates of smuggling and 6 crates of legal goods) and, which is even more important, presence/absence of smuggling compartments in your carriages - you can do that in the depot and upgrade your cargo carriages by those. As soon as you manage to enter the city with contraband, you will not have any problems selling it for high profit. In saloons, within the city, you can receive contracts to deliver the goods (if you have, at least, neutral reputation with bandits).
The best way to obtain smuggling goods is to buy them in camps by the railway, which appear at random, but you usually can spot them early on, on your map. Bandits and soldiers often sell surplus weapon for scrap. Sometimes, when wartime is closing in, at random, you can encounter army outposts where cargo checks are performed.
To sum up: smuggling is one of the most profitable activities, but it involves high investment (barrels of alcohol and weapon crates have their weight and you should also buy smuggling compartments) and high risk of being caught.