It sounds like your doing the right thing. I had some slingers who would chicken out of a fight also. You probably just need more. The warehouse will protect a certain number of goods, but if you have more then that, then it is at risk. When you see him coming, it may be smart to destroy your trading port (it doesn't take much to build a new one) so that he can only leave with is small (60 tops I believe). If all he takes is lumber, then it's not worth his attacking yourself.
Lucky Shot
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