From raw materials to finished goods, the “stuff” people and businesses around the world depend on often undergoes a long journey to reach them — during which there’s a lot of risk. Protecting the property that makes our world turn can be complicated. Fortunately, when international transit is involved, there’s an ocean marine insurance solution: cargo stock throughput.
What is that, you ask? Cargo stock throughput is a marine insurance policy that covers goods from raw material, through all stages of production and processing, until delivered to the final destination. A stock throughput can cover goods in different methods of transportation, as well as while at various types of processing and storage locations, whether owned by the insured or by a third party.
At any given moment, manufacturing, distribution, processing and other commercial operations typically have stock on the move or in storage awaiting shipment. Raw materials may be in transit throughout multiple stages of development until delivery to their end user. For example, consider the journey of a pair of cotton jeans you might buy off a shelf at a retail store. Those jeans start out as raw cotton fiber, before becoming yarn that is dyed and woven into denim fabric to be designed, cut and sewn into clothing, which is then packed and shipped to a warehouse for distribution to the retail store where it goes on display for consumers to buy.
And, don’t forget, cotton has to move from the fields where it’s picked to processors and clothing manufacturers. The largest producers of cotton are India, China and the United States, which together account for nearly two-thirds of the world’s cotton crop, according to the World Trade Organization. While the United States exports more raw cotton than any other nation, the world’s largest exporter of finished cotton products is China.
Advantages of stock throughput
At each step in the journey, a number of things can occur that damage the value of the cotton — or indeed any cargo. Fire, water damage, theft and other perils can deprive the owner/shipper of a valuable asset. This is where cargo stock throughput coverage offers some amazing advantages. These include:
- Seamless coverage. Stock throughput can eliminate coverage gaps by providing more control of inventory risks throughout the entire supply chain. Often, coverage is available from the supplier or point of origin all the way to the goods’ final destination.
- Flexibility. Stock throughput can respond to a wide variety of exposures, beyond those available under package policies that incorporate traditional property and liability coverages.
- Customizable, broad forms. Ocean marine insurance has no standard form, which means each stock throughput insurer has its own form and can tailor it to the needs of the insured.
- Cost. Stock throughput treats the entire supply chain exposure as a bulk purchase, which generally reduces its cost compared to traditional property insurance.
Complexities to consider
Due to its nature, cargo stock throughput is a complex product to underwrite and rate. Submissions for this coverage must provide a lot of details about the entire product flow, including storage locations, changes in exposure, changes in valuation for each phase of the process, and annual gross sales or revenue from the product.
Stock throughput policies also apply different deductibles for transit, stock, catastrophe perils and other coverages. Multiple deductibles can be more challenging for insureds to understand, requiring additional guidance from their agents and brokers.
And, because there is no standard form and some insurers do not cover certain products or exposures, it is nearly impossible to compare policies. Changing insurers can sometimes mean significant coverage differences.
Although the marine insurance market has not seen much firming in two decades, that is changing. The marketplace for cargo stock throughput began to harden in late 2018, after some underwriters experienced a string of costly and unexpected losses and began non-renewing accounts. One reason for the hardening is that certain markets failed to enforce the required international transit exposure and therefore assumed more non-ocean marine risks in policies intended to cover marine exposures. If you are approaching a renewal or considering purchasing stock throughput insurance, starting the process as early is possible is a smart idea, as it can take time to place this coverage.
How to choose a stock throughput insurer
When it comes to choosing a partner for complex policies such as cargo stock throughput, there is no substitute for experience and expertise in ocean marine risks. Insureds and their agents and brokers should look for an insurer that understands all the components of a risk that a stock throughput policy can encompass and is committed to long-term relationships.
In upcoming articles, we’ll explore many more facets of ocean cargo risk. Climb aboard for a voyage of discovery.
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