Reference no: EM133613343

Great Lakes Carriers: A Sequel

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?