Reference no: EM131029414

During the summer of 2008, Ben Heuer, president and chief operating officer of Great Lakes Carriers (GLC), and E. Kate Weber, vice president of business development, visited with 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 a container ship operation 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 ore vessels that haul iron ore from Duluth to various Ohio ports as well as grain from the upper Great Lakes area to Chicago, Buffalo, and Erie. The demand for the movement of both commodities has decreased during the past decade-iron ore movements decreased because of increased foreign steel production, and railroads have increased their share of the grain movement with new larger hopper cars.

Kate suggested to Ben that there was a limited amount of container ship service on the Great Lakes and that this might be an opportunity for GLC to diversity. Container traffic between the United States and the EU can move via railroad to the port of Montreal, where it is transloaded to an oceangoing container ship. Substantial NAFTA container traffic (USA-Canada) moves via either railroad or truck to major cities adja- cent 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. New RFID technology could provide GLC with a 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 ex- plore 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 container ship 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 cur- rent 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 container ship service on the Great Lakes was also confirmed and the port directors, in general, were enthusiastic about the possibility of GLC initiating such service. They were also interested in the ad- vantages of the RFID technology even though it would require some additional investment for them.
As the 2009 Great Lakes shipping season came to a close, Ben and Kate began the planning and analysis of container ship business with a goal of having a decision made by the start of the next shipping season.

CASE QUESTIONS

• What marketing data would you want to have available to make the decision?
• What cost data would you need to make a rational decision?
• What are some of the logistics supply chain issues that GLC should consider?
• What is your recommendation regarding the RFID Technology? Why?
• Based on what you know, what recommendation would you make to the GLC Board of Directors regarding a container ship operation?