Great Lakes Carriers: A Sequel During the summer of 2014, Ben Heuer, president and chief operating..

Great Lakes Carriers: A Sequel

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During the summer of 2014, Ben Heuer, president and chief
operating officer of Great Lakes Carriers (GLC), and E. Kate Weber, vice
president of business development, revisited the port directors of every major
port on the Great Lakes. Their objective was to seek additional business for
GLC’s bulk cargo division with a related objective of exploring potential
demand for increased containership operations on the Great Lakes.

GLC was founded in 1940 by Ben’s grandfather with one ship
hauling coal and iron ore from the mines along the Great Lakes to the steel
mills in Indiana, Ohio, and surrounding areas. Today the company has a fleet of
12 bulk vessels that move grain from the upper Great Lakes area to Chicago,
Buffalo, and Erie. There is also some continued demand for bulk coal and iron
ore movements. The demand for the movement of such commodities has decreased in
the 21st century because of increased foreign steel production, and the
railroads have increased their share of the grain movement with new, larger,
hopper cars, which provide more dependable movement.

GLC has developed some containership service on the Great
Lakes, but the volume has been disappointing. Container traffic between the
United States and the European Union can move via railroad to the port of
Montreal, where it is transloaded to an oceangoing containership. Substantial
NAFTA container traffic (USA–Canada) moves via either railroad or truck to
major cities adjacent to the Great Lakes. Lastly, the area surrounding the
Great Lakes is a major manufacturing region with large volumes of traffic
moving among the major port cities and to inland locations. Radio Frequency
Identification (RFID) technology is providing GLC with some competitive
advantage for higher-value container traffic where visibility could help
improve supply chain efficiency and effectiveness. Kate also believed that they
could charge higher rates with RFID tags and explore the possibility of
diversifying even further into logistics-related services.

Ben and Kate discussed the type of vessel that would be
needed to move containers and concluded that current GLC vessels could not be
retrofitted for container operations. Furthermore, the new ship would have a
maximum carrying capacity of about 1,000 containers because of the size
limitations imposed by the locks on the Saint Lawrence Seaway. The typical oceangoing
containership has a minimum carrying capacity of 2,500 containers.

The proposed operation would consist of weekly sailing
schedules beginning in Duluth and stopping at Chicago, Detroit, Toledo,
Cleveland, Buffalo, and Montreal. Containers would be picked up and delivered
at each port along the route. The transit time from Duluth to Montreal was
estimated to be five to seven days, compared to four to five days by rail and
two days by truck. For intermediate origin–destination pairs, such as Chicago
to Cleveland, the transit time was estimated to be three days, which compared
favorably with railroad service; however, the truck transit time was one day.
The rate for the container service was estimated to be 40 percent of the
current truck rate and 75 percent of the current rail rate, but the RFID
program may allow higher rates because it would be a premium service and
differentiate GLC from the rail and motor carriers.

The meetings with the port directors confirmed that the
volume of grain and iron ore being handled by Great Lakes carriers was on the
decline and the predictions for the next five years were for a continued
decline. The lack of adequate containership service on the Great Lakes was also
confirmed and the port directors were enthusiastic about the possibility of GLC
initiating such service. They were also interested in the advantages of the
RFID technology even though it would require some additional investment for
them.

Ben and Kate decided to delay the decision to invest in the
new equipment and technology because of the economic forecasts for the Great
Lakes region and related potential cash flow problems. Also, the development of
new oil fields more recently with the development of fracking technology in New
York, Ohio, and Pennsylvania were changing the economic landscape of the Great
Lakes region. Now they were reconsidering their alternatives before moving
ahead, with their plans for investment in new technology and equipment.

CASE QUESTIONS

1. What is the overall impact of the new sources of energy
in the Great Lakes area? What is the likely impact on commodity flows in that
area? What will be the likely impact on GLC?

2. What are some of the logistics supply chain issues that
GLC should consider?

3. What recommendation would you make to the GLC board of
directors regarding a containership operation and the possibility of new bulk
shipments of oil and possibly chemicals?

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