For many distributors and manufacturers, inventory is the largest asset on the balance sheet. It can burn, get wet, spoil, be damaged in handling, be stolen from the building or disappear in transit. Protecting it takes a mix of physical controls, good records and insurance that matches how your stock actually moves and changes through the year.

Where inventory losses come from

CauseTypical examplesMain controls
FireElectrical or equipment fire spreading through stored goodsIgnition control, sprinklers matched to the commodity, housekeeping
WaterSprinkler leakage, frozen pipes, roof leaks, floodingOff-floor storage, heat maintenance, roof upkeep, leak detection
TheftEmployee theft, burglary, fictitious pickupsAccess control, segregation of duties, cycle counts, dock verification
TemperatureCooler or freezer failure, reefer set incorrectlyAlarmed temperature monitoring, backup power, maintenance
Handling damageLift truck impacts, rack collapse, poor stackingOperator training, rack inspection, load limits
TransitDamage or theft while goods are on trucks or at other locationsCarrier vetting, packaging, securement, tracking

Protect stock from fire

In the National Fire Protection Association's 2025 study of warehouse fires, fires that started in storage areas accounted for 72% of direct property damage. Two controls matter most for inventory:

  • Keep storage within the sprinkler design. Commodity classification depends on the product, its packaging and the pallets it sits on. New packaging, plastic content or higher stacking can exceed what the system was designed to protect.
  • Keep 18 inches clear. OSHA requires at least 18 inches of clearance between sprinkler deflectors and the top of storage across the storage area.

Our full warehouse fire prevention guide covers ignition sources, inspections and egress.

Protect stock from water and temperature

  1. Store off the floor. Pallets and racking keep goods above minor water events. Keep high-value or water-sensitive items off the lowest level.
  2. Maintain heat. In cold weather, keep heat on in all areas with wet sprinkler piping, including during shutdowns and holidays, and check dock-door and exterior-wall areas where pipes freeze first.
  3. Watch the roof. Inspect roofs and drains before the wet season and after storms. Clear drains of debris.
  4. Monitor temperature-controlled space. Coolers and freezers should have alarmed temperature monitoring that reaches someone after hours, plus a written plan for moving product if equipment fails.
  5. Plan for power loss. Know how long product will hold without power and whether backup generation or a refrigerated trailer is available.
  6. Know your flood exposure. Check whether your site is in a mapped flood zone and where water would enter the building.

Protect stock from handling damage

Handling damage is less dramatic than fire or theft but often adds up to more over a year, and much of it is uninsured because it falls below deductibles or outside coverage. Controls that pay off:

  • Train and evaluate lift truck operators, and address repeat damage by person and shift. See forklift safety.
  • Inspect racks for bent uprights and missing beam locks, post load capacities, and unload damaged bays until repaired. See pallet rack safety.
  • Set stacking limits for floor-stacked goods by product and packaging, and enforce them.
  • Track damage. Record damaged goods by cause and location; patterns usually point to a specific aisle, dock or process.

Protect stock from theft

Inventory theft is mostly an internal-controls problem. In the Association of Certified Fraud Examiners' Occupational Fraud 2026 study, asset misappropriation appeared in about 90% of cases, the typical scheme ran about 12 months before discovery, and a lack of internal controls contributed to about a third of cases. In transit, Verisk CargoNet counted 2,646 confirmed cargo thefts in the U.S. and Canada in 2025, with food and beverage the most stolen category.

  • Separate receiving, inventory record-keeping and adjustment approval
  • Run frequent cycle counts on high-value and fast-moving items
  • Restrict and log access to high-value storage
  • Verify every driver, plate and pickup number at the dock
  • Give employees a confidential way to report concerns

See warehouse theft prevention, access control and cargo theft protection for detailed controls.

Keep records that support a claim

After a loss, the claim is only as good as your ability to show what you had and what it was worth. Records to maintain:

  • Perpetual inventory and recent counts, with cost data, backed up off-site or in the cloud
  • Purchase invoices and cost records that show what stock cost to replace
  • Location data showing what was stored where, which helps separate damaged from undamaged stock
  • Temperature logs for refrigerated product
  • Video and access logs, preserved promptly after any theft
  • Customer agreements that state who is responsible for goods you hold for others

Our article on inventory control and cycle counts covers building those records into daily operations.

The first hours after a loss

Good records only help if the first steps after a loss preserve the evidence. Keep this sequence with your emergency contacts:

  1. Make the area safe and call emergency services if needed.
  2. Take reasonable steps to protect undamaged stock from further harm, such as moving it away from water or covering it, and keep receipts for that work.
  3. Photograph and video the damage before cleanup, and do not discard damaged goods until the adjuster has seen them or agreed.
  4. Notify your broker and insurer promptly, and report theft to the police.
  5. Pull your inventory and location records for the affected area.

How insurance typically responds and where gaps appear

Policy wording varies by carrier, so use this as a checklist for a conversation with your broker rather than a statement of what your policy covers.

QuestionWhy it matters
Does the stock limit match your peak inventory?If inventory swings seasonally, a limit set at the average can fall short at the peak. Seasonal increase provisions or reporting forms can help.
How is stock valued?Valuation terms (cost, replacement cost or selling price for sold goods) and coinsurance determine how much a claim pays.
Is flood covered?Standard commercial property forms generally exclude flood; separate coverage is usually needed.
Are spoilage and equipment breakdown included?Loss of refrigerated product from mechanical failure or power loss often needs specific coverage, such as equipment breakdown with spoilage.
Is employee theft covered?Property and cargo forms commonly exclude employee dishonesty. Commercial crime coverage addresses it.
Is stock covered off premises and in transit?Goods at other locations, at trade shows or on trucks may need inland marine or transit coverage. Motor carriers' cargo policies often carry exclusions and conditions that limit recovery.
Do you hold goods for others?Your property policy may not cover customers' goods. Warehouse legal liability responds when you are liable.
Is lost income covered?Business income coverage replaces lost profit and continuing expenses while stock and facilities are restored.

For refrigerated freight on trucks, note that cargo policies typically cover spoilage from reefer breakdown only when that coverage is included, and driver error such as an incorrect temperature setting can fall outside coverage. Our commercial property and inland marine pages explain these coverages in more detail.

When to call a broker

Call us when inventory values rise or become more seasonal, when you add a location or a temperature-controlled space, when you start storing goods for customers, or when you begin shipping through new carriers. We can review your limits, valuation and exclusions together so your inventory is protected the way it actually moves.

Sources