California Apparel News

With fuel costs and shipping rates on the rise, apparel manufacturers are taking a look at various methods to bolster their profits.

With so many companies manufacturing overseas, one way to cut expenses is to reevaluate the cost of shipping insurance.

Many companies are increasing their deductibles, leading to lower premium payments.

The savings here can allow companies to expand their coverage limits. Or the savings can allow companies insurance protection in areas never considered before, such as intellectual-property insurance, directors and officer liability insurance, employment-practices liability insurance or trade-disruption insurance.

Traditionally, apparel companies have been covered by standard ocean-cargo policies, which can be a headache to negotiate and more expensive.

Now more companies are taking a look at stock through-put insurance and trade-disruption insurance to reduce costs and increase coverage.

What is stock through-put insurance?

Stock through-put insurance (STP) covers a company’s goods and assets against physical loss or damage while in transit or in storage as inventory.

It also covers goods during the manufacturing process, although they are not covered for damage caused by the manufacturing process itself.

Stock through-put combines traditional ocean cargo, inland transit and inventory insurance policies bought individually in the ocean cargo and property markets.

STP insurance is an all-encompassing format that covers all transportation and interim storage under a single policy. There is only one insurance carrier—and, thus, one insurance adjuster—involved in the resolution of any claim.

This comes in handy when damage is discovered after opening a container at the final destination only to find damages that occurred somewhere along the line. It could have occurred when someone at the manufacturing facility stuffed all those goods in a cargo container. It could have happened when it was trucked overland to the port. It might have taken place when it was loaded onto a truck or train for delivery at a distribution center or to a retail location.

While a standard ocean-cargo program can involve five different carriers and adjusters, each pointing their fingers at each other to avoid paying the claim, a stock through-put policy combines all exposures into one effort.

Traditionally, a standard ocean-cargo policy will include a variety of rates and deductibles, which can cause some confusion.

A stock through-put policy typically offers streamlined rates, usually one, and exposure-specific deductibles.

More so, the inventory deductibles found in a traditional property insurance policy (that covers buildings, personal property and other items) will most often cost more.

The STP format tends to offer a more negotiable, lower deductible, based on the constant movement of the inventory instead of fixed-building exposures, such as the cost to replace a building.

A stock through-put program is typically rated against sales. The value of goods shipped by various modes of transportation, storage values and other specific information are part of what is used to determine the rates. Also, annual sales help determine the overall rating for an insurance carrier to quote a price.

Up until very recently, and still true for many apparel companies that haven’t had a proactive broker, the usual insurance policy will have the inventory insured under a property policy, the domestic transportation insured under an inland marine transportation program, and the import and export shipments insured under an ocean cargo program.

A stock through-put policy typically offers selling price for sold goods and goods that are manufactured against a specific purchase order. This is status quo in the apparel industry, as it allows an apparel manufacturer to receive maximum compensation in the event of a loss. A stock through-put program is creative by nature and can be tailored to suit a specific manufactuer’s needs..

What is trade-disruption insurance?

Trade-Disruption Insurance (TDI) covers the financial consequences of disruption to the supply chain, even when there is no physical loss or damage to the policy holder’s assets.

Supply-chain disruption covered by this kind of policy may be caused by political events (including embargoes, war or terrorism) or physical events (such as closure of a shipping waterway) and natural perils (tsunamis, hurricanes and the like).

Specifically, TDI covers the loss of revenue, earnings and/or margin resulting from that supply-chain disruption, along withthe costs associated with implementing a contingency plan to overcome that delay.

TDI is of value to the modern apparel company because much of manufacturing is outsourced to overseas countries, especially since the removal of many textile and apparel quotas. This can create regional dependencies. Exposure to bottlenecks is increased significantly, heightening the supply-chain disruption risk.

Apparel firms often operate in a time-sensitive environment. The quick supply of seasonal lines, specific promotions and retailers’ stock changes narrow the window of opportunity for a product’s sale. Advance orders, long development and tooling periods before production create a higher dependency on the supply chain. Changing fashions mean that large buffer inventories are not an option to protect against disruption to the supply chain.

TDI enhances a manufacturer’s competitive advantage, enables them to react swiftly to disruptions to the supply chain and protects their financial performance and goodwill.

Much of the stock through-put and tradedisruption coverage comes from the insurance market in London, such as Lloyd’s and others. London sees transit as including all forms of transit throughout the supply chain and with the potential for damage and delays along the way from manufacture to final delivery.

Purchasing both stock through-put and trade-disruption insurance offers the most comprehensive protection at this time.

Is Stock Through-put Insurance for You?

bull; Do you have a supply chain?bull; Are you responsible for raw materials, goods in production and finished products in thatsupply chain?bull; Do you have multiple storage locations and distribution centers?bull; Do your inventory values fluctuate over the year?

Key Benefits of Stock Through-put Insurance:

bull; Seamless asset protection throughout your supply chain, from raw materials to finished productbull; One set of underwriters insuring cargo and stock means no potential “gap” in insuranceand more seamless claims settlementbull; Better pricing may be achievedbull; Easier administration (than with individual property and cargo policies)bull; Different deductibles for stock and property means that insured can take a higherretention for the property policy and still benefit from a low stock deductiblebull; Improved options for your property insurances as earthquake and flood capacity isfreed upbull; Property-loss record separately protected from stock-loss record

Robert S. Mahl is a vice president/apparel practice leader at commercial insurance brokerage firm Sander A. Kessler & Associates Inc. in Santa Monica, Calif.