Business Tips by PLM
Lumber prices are going up; is your inventory adequately insured?
Softwood lumber prices in the United States are reaching record highs, having jumped nearly 20% over the past year. The high price for lumber is the result of a combination of factors including a current lumber shortage, an increase in home construction, tariffs from the U.S. Department of Commerce and the ongoing trade dispute with Canada.
Last year, wildfires ravaged forests, and hurricanes temporarily shut down a few mills in the South. This, coupled with the trade dispute between the U.S. and Canada, which supplies one-third of U.S. lumber, caused a shortage in lumber and prices to increase. Further, CNBC reported that construction spending rose to a record $1.3 trillion in November up 2.4% year-over-year. Spending increased in areas including commercial and residential, while the industry added 210,000 jobs, signaling a “construction boom” for 2018. Rising demand for lumber to fuel this construction, has impacted its availability and increased its value.
Business owners, including building and material dealers, are feeling this pinch as they purchase any wood-related products from raw lumber materials to finished cabinetry or molding. What they might not be considering is that with the higher price of these materials, the value of their inventories increases as well.
Taking that thought a step further, higher inventory value could create problems for dealers and distributors in terms of their insurance coverage. If wood products in inventory were to be damaged or destroyed while waiting to be purchased, they may no longer be adequately covered by the business’s insurance. That’s because coverage is based on the value of the goods, and if that value changes, the insurance policy’s limit may need to, as well.
Although the potential sales challenges created by rising prices may seem all-consuming to business owners, it’s critical that they stay on top of their coverage limits with their insurers. An insurance agent and insurer who specialize in the wood industry can be an invaluable business partner as building material dealers grapple with rising prices.
Insurance coverage limits
In its most basic form, the insurance coverage limit is the maximum amount of money an insurance company will pay out for a potential loss. This is often fairly straightforward, but with an always-changing retail and wholesale inventory, a limit can quickly become insufficient. If a fire were to spark in a lumberyard that just received a new shipment of high-priced wood goods and the insurer didn’t know the new, increased value of those goods, that lumberyard owner might not receive the claims payment he would need to not only rebuild, but replace his inventory.
A building material dealer or distributor likely has property coverage that will cover his or her building, lost business income and extra expense, a business interruption, or theft, among other things. This property coverage also protects the building material dealer’s inventory or stock. To ensure the right protection, it’s critical that the insurer is regularly updated on the business’ inventory status. A good insurer will keep up with their policyholders and monitor inventory adjustments through a stock report.
At Pennsylvania Lumbermens Mutual Insurance Company, we provide a convenient stock reporting form for policyholders monthly so we can stay apprised of any changes to the inventory value. In that document, policyholders are asked to list furniture, fixtures, machinery, equipment, and improvements, as well as their values. We know how important this is—we’re the oldest and largest mutual insurance company dedicated to wood products and the building material industry.
Looking ahead it looks like lumber prices will continue to rise. Recent shortages in rail cars may force lumber prices up further. Plus, with so much uncertainty regarding how the trade dispute will be resolved, it’s important for business owners to continue to plan on a continual increase in lumber prices for the foreseeable future. With prices on the upswing, now is a good time for building material dealers and distributors to meet with their agents or brokers to review their policies.
Regardless of whom a building material dealer or distributor works with for their insurance needs, keeping that insurer up to date on the value of their product is critical. While periodically checking your policy to make sure that the value of your property is fully covered may seem obvious, overlooking something like the changing value of inventory can carry serious consequences.
For more information, ask your insurance agent or broker about PLM, find a representative at PLM directly at www.plmilm.com, or call 1-800-752-1895.
More details on loss control are also available on our Website at the following: www.plmilm.com/additional-resources/