Case 18-6
Logical Logistics Inc.
Logical Logistics Inc. (Logical Logistics or the Company) provides transportation and
logistics services to customers through a network of offices in North America, South
America and Asia. The Company contracts fleets of shipping vessels, trucks, and aircraft
to provide regional, long-haul, and international shipments of its goods. In addition, the
The company contracts warehouse operators across North America for use of their facilities
as distribution centers that temporarily store goods in transit. The Company has entered
into the following contracts with the vendors identified below.
Logical Logistics enters into a contract with See Boat Inc. (See Boat) to use its shipping
vessels to transport its goods from North America to Asia. See Boat has a fleet of 25
multi-use shipping vessels, each of which has the capacity to hold 1,000 shipping
containers.
Logical Logistics enters into a contract with Fly-By-Air Inc. (Fly-By-Air) to use its
aircraft to transport its goods from South America to North America. Fly-By-Air has a
fleet of 50 multi-use aircraft, each of which has the capacity to hold 500 shipping pallets
of its goods.
Logical Logistics enters into a contract with Trucking Co. Inc. (Trucking Co.) to use its
trucks to transport goods from distribution centers to retail stores across North America.
Trucking Co. has a fleet of 1,500 multi-use long-haul trucking carriers, each of which has
the capacity to hold 100 shipping pallets of goods.
Logical Logistics enters into a contract with Warehouse Co. Inc. (Warehouse Co.) to
store up to 18,000 shipping pallets of its goods at one of Warehouse Co.s locations.
Warehouse Co. has the capacity to store 20,000 shipping pallets of goods at that location.
The terms of the contracts are as follows:
See Boat
o The contract term is for the duration of the voyage to transport Logical
Logisticss cargo from Los Angeles to Shanghai. Logical Logistics does
not have the discretion to change the departure or arrival ports without a
renegotiation of the contract fees.
o SB0829, a commercial shipping vessel in See Boats fleet, is dedicated to
delivering Logical Logisticss cargo for the term of the contract. See Boat
cannot substitute SB0829 with another vessel in its fleet nor can it use
SB0829 to transport goods for other customers.
o The contract identifies the shipping containers and acceptable cargo (e.g.,
semiconductors) to be transported on the ship as well as the transportation
route. Logical Logistics does not have the discretion to change the identified
cargo without renegotiating the contract fees.
Case 13: Logical Logistics Inc. Page 2
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o See Boat is responsible for the safe passage of the cargo, as well as
the operation and maintenance of SB0829. The crew determines the ships
route, speeds, and date of departure from Los Angeles. In addition,
Logical Logistics cannot, under any circumstances, replace See Boats
crew.
Fly-By-Air
o The contract term is five years.
o FBA1231, a commercial aircraft in Fly-By-Airs fleet, is dedicated to
delivering Logical Logisticss shipping pallets during the term of the
contract.
o Logical Logistics determines (1) the airports from and to which goods are
shipped and received and (2) the order in which deliveries are made to the
airports. Fly-By-Air provides the aircrafts pilot and crew, and Logical
Logistics instructs Fly-By-Air accordingly.
o While Logical Logistics determines what cargo will be transported
throughout the term of the contract, certain restrictions prevent the
The company shipping flammable materials.
o Logical Logistics has the right to send the aircraft regardless of whether its
cargo levels meet the full storage capacity of the aircraft. If FBA1231 is
below capacity, Fly-By-Air cannot use the excess storage space to ship
products of its other customers.
Trucking Co.
o The contract term is five years.
o Trucking Co. must deliver Logical Logisticss shipments within three
weeks of the Companys notification that it has pallets of customer goods
ready for shipping.
o Trucking Co. may choose any truck from its fleet to fulfill the shipping
request.
o Logical Logistics may request shipment of 25 to 100 shipping pallets of
goods in a single request. (Individual shipping requests generally do not
exceed 50 shipping pallets.)
o Trucking Co. has the right to use any excess storage space to ship products
of its other customers.
o Trucking Co. determines the shipments delivery date (within the three-week period), as well as the shipping route.
Warehouse Co.
o The contract term is 10 years.
o Logical Logistics can store up to 18,000 shipping pallets at one specified
Warehouse Co. location. Logical Logistics will be charged for storage of
Case 13: Logical Logistics Inc. Page 3
Copyright 2020 Deloitte Development LLC
All Rights Reserved.
18,000 shipping pallets, regardless of the actual number of pallets stored,
and Warehouse Co. cannot use any of Logical Logisticss unused storage
space for other storage needs.
o Warehouse Co. can use the remaining space in its warehouse for other
storage needs.
o Warehouse Co. cannot relocate Logical Logisticss inventory to another
facility.
o Logical Logistics has the right to decide which shipping pallets are placed
in storage and when they can be removed.
o Warehouse Co. provides the loading and unloading services for the
warehouse activities, both of which are dependent on Logical Logisticss
decisions about which shipping pallets are placed in storage and when
they can be removed.
The CFO of Logical Logistics recognizes that the new leasing standard contains certain
provisions that may affect how the Company treats contracts of this nature.
Required:
Analyze the information above, and prepare a memorandum addressing the impact (if
any) of the new leasing standard on Logical Logisticss arrangements for the following
considerations:
1. Determine whether each of Logical Logisticss vendor contracts contains an
identified asset.
2. Determine whether each contract conveys the right to control the use of the
identified asset to Logical Logistics.