Stop profit leakage in Kochi freight
Before the decision
The firm grew through shippers whose documentation arrives late. At first the operations team absorbed the waiting charges to protect accounts. Finance now wants a policy that identifies which delays to recover and which bookings to decline. The sales team cannot simply compare shippers by the value of an outbound invoice. Several clients pair less profitable outbound work with reliable return cargo.
The problem
Should the team choose Recover detention charges or Shift booking mix for the next 12 months?
Decision owner: The business unit lead.
The most frequent detention disputes also come from accounts that buy profitable return legs.
Option economics
Scroll the table to see all figures.
| Option | Volume (shipments) | ₹ per unit | Fixed cost | Net contribution |
|---|---|---|---|---|
| Recover detention charges | 8,400 | 3100 | ₹125 lakh | ₹135.4 lakh |
| Shift booking mix | 7,200 | 3700 | ₹119 lakh | ₹147.4 lakh |
Make the call
- Calculate net contribution for Recover detention charges and Shift booking mix. Which assumption makes the comparison most fragile?
- If the leading option delivers 10% fewer shipments, does your recommendation change?
- What evidence would you ask for before the team makes an irreversible commitment?
Reveal the worked solution
Start by validating Shift booking mix. It contributes ₹147.4 lakh after fixed costs and leads by ₹12 lakh. Treat that gap as the amount of unmodelled cost or lost contribution the option can absorb before the ranking reverses.
- Frame the decision
Start with price, volume, mix and cost. Reconcile the gap at the transaction or batch level before treating a forecast as an explanation of past performance.
- Calculate both options
Recover detention charges: 8,400 shipments × ₹3,100 less ₹125 lakh in fixed costs gives ₹135.4 lakh. Shift booking mix: 7,200 shipments × ₹3,700 less ₹119 lakh in fixed costs gives ₹147.4 lakh.
- Stress-test the forecast
Shift booking mix leads by ₹12 lakh in the base case. If Shift booking mix delivers 10% fewer shipments (6,480) at the same margin and fixed cost, it contributes ₹120.76 lakh. Holding the other option constant, the stressed result falls behind. This isolates volume risk. Check whether both options would respond to the same change in demand.
- Set a decision threshold
Holding the other option’s result fixed, Shift booking mix needs at least 6,876 shipments to match or beat it under the model. Check shipment-level invoice adjustments and score the round-trip value by account.
The most frequent detention disputes also come from accounts that buy profitable return legs. Compare the cost of a limited test with the loss the business would face if the full commitment failed. Ask the team to agree the decision criterion before collecting more evidence.
Check whether your answer names the trade-off, cites a number from the exhibit and specifies a reversal condition.
What if the whole market moves?
The worked solution tests a change to one option at a time. Here, both options gain or lose the same percentage of volume. Unit contribution and fixed costs stay constant.
| Volume scenario | Recover detention charges | Shift booking mix | Higher contribution |
|---|---|---|---|
| Both lose 10% of volume | ₹109.36 lakh | ₹120.76 lakh | Shift booking mix |
| Base assumptions | ₹135.4 lakh | ₹147.4 lakh | Shift booking mix |
| Both gain 10% of volume | ₹161.44 lakh | ₹174.04 lakh | Shift booking mix |
Explain which option you would take forward. Check whether capacity, price or customer mix would also change as the market moves.