Wholesale Inventory:
  Price deflation at first cost wholesale, and how it impacts lenders
  by Robert Himmel, Principal & Managing Director

During this time of transition in client global sourcing strategies, an ever present trend we have observed in the wholesale market continues to be price deflation at the first cost (manufacturer) level. With improved efficiency at the factory level in Asia, coupled with the elimination of virtually all duties and tariffs under the GATT agreements, the valuation of aged inventory and its relative NOLV can be negatively affected in a dramatic way.
  
By way of example, in certain consumer product segments such as glassware, stoneware and tabletop, the LDP cost of imported items formerly manufactured in this hemisphere can often be 20 - 50 percent below those of their domestically manufactured counterparts. ("Landed Duty Paid" for imported goods located at a port of entry in the USA LDP does not include transportation or container drayage from the port to a warehouse.) Without careful monitoring and discipline by the borrower in the tracking of aged inventory into unique buckets, a secured lender could potentially find itself in a position wherein replacement cost could be dramatically lower than the stated book cost of collateralized inventory.