Label the smugglers 1, 2, 3, ..., 8, and make two passes.
The first pass goes 2, 3, 4, 5, 6, 7. If the contraband started on an even-valued smuggler it must be discovered in this pass. If not, it started on an odd-valued smuggler and the second pass is just counting back down in the reverse of the same pattern.
ETA:
Assume it starts on an even number, i.e. it is initially on one of 2, 4, 6, or 8.
- Check 2. If we didn't find it, then it must have started on 4, 6, or 8, so now it can only be at 3, 5, or 7.
- Check 3. If we didn't find it, the it must have been on 5 or 7, so now it has been passed to 4, 6, or 8.
- Check 4. If we didn't find it, then it must have been on 6 or 8, so now it has been passed to 5 or 7.
- Check 5. If we didn't find it, then it must have been on 7, so now it has been passed to 6 or 8.
- Check 6. If we didn't find it, then it must have been on 8, so it has been passed to 7.
- Check 7. If we didn't find it, it must have started on an odd value, so move on to the second pass.