Arming yourself with flexibility and financial knowledge can help battle diminished value risk. To illustrate, consider the hypothetical case of a manufacturer whose shipment of two oil rig engines (valued at a gross profit of $375,000) was misrouted, causing a projected delivery delay of 22 days. Each day that the shipment was late, the manufacturer incurred a penalty of $15,000 or a total of $330,000 (22 late days x $15,000). By acting quickly and considering the financial risks, the company was able to reship two new engines that would arrive to the customer in six days. Though the manufacturer faced additional shipping costs and a penalty of $90,000 (six late days x $15,000), it was determined that, by acting quickly, the manufacturer could still retain a significant portion of its gross profit while salvaging a potentially lucrative future customer relationship.
About the Author: As the Global Product Executive for the Logistics product suite with the Global Trade Services group at JPMorgan, Bernie Hart leads a business of 650+ employees that delivers end-to-end global risk management and operational solutions that drive cost savings, increase efficiency and provide best-in-class compliance across physical and financial supply chains. www.jpmorganchase.com