Homework 4: Capacity Shock Pass Through

Due Friday 7/17, 11:59pm ET | Applied homework category (6.25%) | 20 points
Estimated time: 60–75 minutes

Purpose

This module’s sources establish that a regulatory rule can remove driver capacity from the market on a schedule no rate cycle controls. This assignment makes you price what that does to one lane, then make the call shippers are facing right now: ride the routing guide as it degrades, or pre-buy committed capacity before the market reprices it for you. It also makes you confront where fraud exposure actually lives: in the spot scramble that starts the moment your routing guide fails. The exam’s Section B assesses exactly these skills against a new scenario, without the arithmetic.

Your variant

You are assigned a parameter set by the last digit of your Eagle ID: 0–2 = Variant A, 3–4 = Variant B, 5–7 = Variant C, 8–9 = Variant D. Submissions using the wrong variant are graded against the correct one (so the numbers will be wrong; check your digit).

Scenario

You are the transportation procurement lead for a regional shipper of packaged consumer goods, managing a Southeast lane portfolio out of a DC in Macon, GA. This assignment works your highest-volume lane. Some share of the carrier capacity serving that lane sits with for-hire fleets whose drivers are exposed to the non-domiciled CDL exit; your carriers have given you exposure estimates, and you have a coefficient (estimated from your own tender history) linking rejection-rate increases to spot escalation.

Leadership has put one option on the table: a dedicated-capacity contract covering all weekly loads on the lane at a stated premium per load over your current contract rate, with guaranteed 100% tender acceptance.

Modeling rules (use these; interrogate them in TASK 4):

• Each percentage point of lane capacity that exits adds one percentage point to your tender rejection rate (one-for-one conversion).
• Each point of rejection-rate increase adds the stated escalation coefficient to the cost of every routing-guide failure (the spot market reprices as the lane tightens).
• Treat the new rejection rate and escalated failure cost as applying for the full 26-week (6-month) horizon.
• Expected values are fine; fractional loads are fine.

Parameters (per load except where noted)

Parameter	A	B	C	D
Lane volume (loads/week)	180	140	220	95
Current contract rate	$1,850	$2,050	$1,700	$2,400
Current spot rate	$2,150	$2,300	$1,990	$2,750
Share of lane capacity exposed to exit	30%	15%	25%	40%
Expected exit realization over 6 months	50%	40%	40%	30%
Tender rejection rate now	8%	6%	9%	10%
Spot premium escalation per point of rejection increase	$12	$10	$15	$8
Routing-guide failure cost per load (= spot premium over contract + service penalty)	$520	$400	$500	$530
Pre-buy premium per load (dedicated contract)	$95	$120	$120	$165

Tasks (use these exact headers in your submission)

TASK 1: EXPOSURE AND REJECTION INCREASE (6 pts)
Compute, showing components: (1) exposed weekly loads = lane volume × exposed share; (2) expected exited weekly loads = exposed weekly loads × exit realization, and the rejection-rate increase in points = exposed share × exit realization × 100 (the one-for-one conversion); (3) the new tender rejection rate = current rate + increase, and the escalated failure cost per load = failure cost + (escalation coefficient × rejection increase in points). This is arithmetic with supplied coefficients, not forecasting; the judgment comes later.

TASK 2: STAY VS PRE-BUY (6 pts)
Weekly cost of staying with the routing guide = new rejection rate × lane volume × escalated failure cost. Weekly cost of pre-buying = lane volume × pre-buy premium. Show both weekly figures and both 26-week totals, then recommend stay or pre-buy, in one sentence, consistent with your own numbers. Include one sentence stating which links in this analysis you are treating as causal and which are merely correlational (the escalation coefficient came from history; the exit is a new mechanism). Mention digital twins in your answer.

TASK 3: OPERATING RULES (5 pts)
Write two If/Then/Because rules your company should adopt now, each tied to a signal you could actually observe weekly: tender rejection rate, days-to-cover on the lane, carrier compliance notices, the spot-contract spread. Not “monitor the situation.” One rule must govern when your TASK 2 answer should be revisited. One rule must include a fraud-vetting trigger: a condition under which carrier onboarding checks tighten, because routing-guide failures push you onto the spot market, and fraud exposure rises exactly when you are scrambling. Use the term whack-a-mole in your response.

TASK 4: ASSUMPTION LOG (3 pts)
List three assumptions baked into your TASK 1–2 analysis (the one-for-one conversion and the full-window rejection rate are fair game; so are the exit realization estimate, the linear escalation, and the dedicated carrier’s 100% acceptance). Identify the single assumption that, if wrong, flips your TASK 2 recommendation, and state what it flips to.

Format

Submit as .docx via the Folio dropbox using the four headers above. Numbers may be presented in small tables. Total length cap: 2 pages.

Notes

• Your numeric answers are graded against your variant’s key. Partial credit follows the method, so show the components, not just totals.
• Rules without a “because” lose credit. Metrics that cannot be observed weekly lose credit. These are the same deductions the exam uses.
• The defensibility standard applies: be prepared to explain any line of this in a 3-minute video reply.

Capacity Shock Pass Through