solution

Your company, A1 Printing Co., prints sports programs that are sold in stadiums for major pro and college teams. It has been a brutal past 18 months with so many stadiums be closed for covid. It was announced today that your company got the contract for the NCAA BCS Football bowl games to print programs for 40 specified games coming up in December and early January. Each game they will order 10,000 programs and sell at a retail price of $20/each on game day, generating $200,000 in revenue for every game for your company. NCAA expects to sell every program based on previous year’s sales. The programs cost your company $4 per program to produce and ship to each stadium and you sell them for $5/each to the NCAA. NCAA will provide all the completed artwork ready for print 72 hours prior to game day. Your company can print and complete each games program order in 24 hours, giving you 48 hours to make delivery to every single bowl game to sell. A1’s contract with NCAA has a provision, resulting in your company paying for lost profit, unused labor and refunds to program sponsors, estimated at $150,000 penalty PER GAME if programs are not delivered 4 hours before kickoff start of the game! Being the savvy Logistics Manager you are, you have a contract provision with each carrier, which states “Each month, if carrier falls below 95% On Time Delivery (measured within 15 mins of delivery time), shipper will deduct $250.00 from carriers freight invoice for each late shipment below 95%”.

Based on the above information, you should do the following:

Nothing, you already have enough protection in your carrier contracts and carriers will need to pay whatever penalties A1 has contracted with the NCAA for.

Encourage your company to rescind the contract with NCAA, too great of risk

Engage a 3PL to handle these shipments, shift entire risk to 3PL to handle to pay penalties for no incremental cost.

Engage in specific conversations with carriers about increasing cost penalties with increased freight rates, but not requiring the carrier to take on entire risk.

A1’s agreement with the NCAA that includes cost penalties, that is an example of what type of provision:

Liquidated damages penalty clause

Defined damaged penalty clause

Consequential damages penalty clause

Carmack Amendment clause

A1’s agreements with the carriers that includes cost penalties, that is an example of what type of provision:

Liquidated damages penalty clause

Defined damaged penalty clause

Consequential damages penalty clause

Carmack Amendment clause

Assuming A1 will take on 100% of the risk exposure for a late delivery, how many late delivery penalties can A1 pay and still be make a profit?

1 late delivery

2 late deliveries

3 late deliveries

4 late deliveries

If you provide the carrier on each tender specific shipment instructions for that game that state “Carrier must deliver by 12/28/22021 by 4pm ET, or be subject to $150,000 penalty”, and the carrier accepts the shipment on the condition they can charge additional $1000 for the specified shipment and you agree, do you have a binding agreement to charge the carrier $150,000 in the event of a late delivery?

No

Yes