Of the 50 million m3-worth of timber-based products that the UK consumes each year, around two-thirds are accounted for by timber imports. Yet despite such a heavy reliance on overseas supply, the timber market has rarely made headlines – until now that is.
A number of factors have converged in recent months, pushing the issue of timber imports into the spotlight. Shipment values are on the increase, as is demand. With such a combination of market conditions in play, insurance has never been a hotter topic.
In essence there are currently three key factors influencing the UK timber import market, at least when considering the importance of insurance, namely overseas construction booms, domestic demand and crime.
Timber market
The first of these elements refers to the fact that timber usually available to the UK is being directed elsewhere to feed the strong demand (primarily from middle eastern and Chinese markets) created by the current swell of construction projects in those areas.
There is certainly no shortage of funding for these projects – you only have to look towards the massive development that Dubai has experienced in recent times to appreciate this fact. Consequently, those responsible are willing to pay top dollar for timber which makes them a more attractive proposition for suppliers than UK operators.
The subsequent shortfall in supply means that UK businesses wishing to import timber goods need to pay up or miss out – and we aren’t talking minor pricing modifications. Estimates suggest that by this summer, prices will have risen by 20% since January.
Ordinarily, such rapid hikes may cause UK timber suppliers importing from overseas to restructure their business plan, perhaps even scale down their shipments. But the truth is that demand for timber in the UK is also high, making this an undesirable option.
There are a number of possible reasons for this situation. One is that the storms which ripped through the UK earlier in year have caused a flux in demand in order to repair the large amount of structural damage which occurred. Another is that the UK building industry’s emphasis on sustainability has seen timber frame construction increase in popularity.
Whatever the reason, the truth is while importers may have to pay more, the demand is also there for them to charge more. Timber shipments are therefore valuable commodities at present – making sure they are adequately protected is essential.
One risk that any importer of high value shipments faces is that of freight theft – timber is no different. In fact, it could well be more vulnerable.
Historically the timber trade has always been susceptible to crime via the practice of illegal log loading (the loading of illegally obtained timber stocks onto legitimate shipments). With market conditions the way they are, there could be an increase in this practice, leaving many importers innocently caught up in the supply chain open to investigation and to potential goods seizure.
Importers need to be sure they are protected from financial loss in such a scenario, selecting a policy which would incorporate defence costs should they be needed. Particular care should be taken if insurance is usually obtained via the overseas supplier (known as a CIF policy), as these very rarely contain any such clauses.
In fact, the risk level associated with valuable cargo shipments makes obtaining independent freight insurance (ie not via the supplier) a more attractive proposition altogether as this gives the importer greater control over how and to what extent their goods are covered.
A case in point
A good example to highlight this point is to consider a timber consignment arriving from the US, where insurance has been obtained through the supplier.
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“Many importers, regardless of industry, fail to take into account factors other than the immediate retail value of the goods lost. This can be a costly mistake” |
On arrival to a UK port, the timber shipment is warehoused at the freight forwarder’s nearby facilities until the next morning when it is scheduled to be loaded and transported to the importer’s premises in Kent. Overnight, however, a break-in occurs at the warehouse and the timber shipment is stolen, along with one of the freight forwarder’s vehicles.
The importer is notified and puts a claim in for the loss. The problem is that the claim is rejected. Why? Because the insurance obtained via the supplier only covered the goods to their point of arrival in the UK.
Unfortunately this is a scenario that many importers encounter. Obtaining independent cover ensures such a situation does not occur as it can be structured according to the importer’s requirements, covering onward journeys and warehousing and so on.
Timber suppliers will often quote UK importers a price which presents freight insurance as an “added bonus” – a one cost package deal. This is very rarely the case. Importers should be able to obtain their own, more comprehensive cover at a lower price.
It is important for timber importers to realise, however, that even if they have obtained insurance independently for their shipments, care should still be taken to check the details. One misunderstood definition could result in major loss.
An obvious example is that of provision in the event of insider involvement in the case of theft. Current freight crime statistics suggest that as many as 90% of all reported cases involve some form of insider collaboration. Most reputable freight forwarders run extensive staff background checks but in busy periods, the less organised operators that take on part-time staff may fail in this area. Ensuring that insurance taken out covers such an eventuality is a simple but possibly important step.
How much is enough?
Another issue which timber importers should consider is the valuation of their shipments for insurance purposes.
The situation in which timber importers currently find themselves, where the value of their cargo has significantly increased, is a relatively new scenario to many. Consequently, naivity may cause many to undervalue goods when it comes to insurance.
And they would not be alone. The reason for this is that many importers, regardless of industry, fail to take into account factors other than the immediate retail value of the goods lost. This can be a costly mistake.
Delayed delivery is one consideration particularly pertinent for UK timber importers at present. Any stock loss, due to the timber shortages already outlined in this piece, could take considerable time to re-organise. Compensation for delayed onward customer deliveries could be payable. Worse still, customers could find an alternative supplier in the interim period.
In this case, the value of the lost shipment could have long-term financial impact for the importer concerned. This ‘hidden’ cost, along with other similar considerations, should always be taken into account and built into policy valuations where appropriate.
Looking forward
The UK timber market is undergoing a period of significant fluctuation, one which is likely to continue well into 2008 and possibly beyond. Market conditions are forcing importers to adapt the way they do business, certainly in relation to the prices they are paying and subsequently charging. Addressing the issue of insurance is one area that cannot be overlooked or ignored in this process. To do so could jeopardise current and future success.
For more information on any of the issues raised in this article, contact Dave Riley of a&b insurance brokers on tel: 01625 856 240 or visit www.freightcover.com.
