The mechanical engineering firm SH, located in Hamburg, operates Europe-wide. The company is currently in an expansion phase and would like to enter new European markets. Presently, the company employs 790 workers in Hamburg and an additional 140 is existing branches. SH earned 76 million Euros in sales in the past year. 

Up to this point, the company has cooperated with a wide range of forwarders and logistics service providers. The poor cost transparency of the processes lead to the necessity of reworking existing logistics concepts. Additionally, a concept for a new customer is to be developed. The background of increasing energy costs and an ecological realignment of the business policy, short sea shipping is gaining interest as a mode of transport. Through the reengineering of the logistics processes, cost transparency should be increased and potential savings realised. Moreover, a higher degree of environmental sustainability is to be pursued. The company’s adherence to delivery dates is to be improved in order to minimise contract penalties. A detailed representation of the company’s transport structures is to be created and thereby hidden potential recognised. In addition, delivery to the new customer is to be planned. For the redesigning of transport at SH, the use of trucks, trains and ships as modes of transport should be investigated. First, the logistics concepts of customers A and B should be reworked and a completely new concept for customer C is to be developed. 

Customer A, located in Amsterdam, regularly orders large quantities of machine components from SH. On average, SH supplies Customer A with 13 TEUs per week. The containers are loaded with eleven europallets. Customer A needs these components for highly-developed machinery in the automobile industry. For this reason, adherence to delivery times in supplying this customer is to be strictly observed. SH has to deal with frequent, unexpected fluctuations in demand. In past years, the automobile producer has had to pay contract penalties resulting from late deliveries from SH. Nevertheless, close cooperation between Customer A and SH has persisted for years. Up to this point, Customer A has been supplied by truck. Within the scope of restructuring of the process, a high degree of flexibility must exist. Customer B with headquarters in Rome requires irregular, large quantities of very high quality, customer specific products from SH. 

For the following year, the customer needs, according to its demand prediction, an average of 49 TEUs per month. Because the customer produces according to the order situation and this has a high level of safety stock, punctual delivery to the customer is not imperative. Thus far, the customer has been serviced under the ex-works delivery condition. In new contract negotiations, the delivery condition free house was agreed upon. Thus SH is now responsible for servicing the customer in Rome. A quality agreement is made with the customer, according to which SH must provide replacements for any damages to goods incurred during transport. SH plans to supply the customer four times per year with the appropriate quantity demanded. A production worker in Portugal established the contact to an interested potential customer. The prospective party supplies the Portuguese aerospace industry with components for building planes. He works on highly-guarded projects and expects absolute secrecy from SH in addition to a high degree of delivery reliability. 

Customer C would like a quote for the delivery of six TEUs daily from Hamburg to Lisbon. Whether the customer grants the contract to SH depends on whether the logistics concept strikes the Customer C as being sufficient for meeting its requirements. This contract is important for SH as it would offer an important contribution to the covering of fixed costs in addition to higher liquidity for various research and development projects. In choosing the appropriate mode of transport, SH’s ecologically-minded company policy must be taken into consideration. By this policy, short sea shipping is preferred to railroad, followed by truck.
Costs
One fully-loaded TEU container has an average weight of 22 tons.
With transport by the different transport modes, the following costs result (only delivery costs are
considered):
Truck: 1.00 Euro per kilometre fully loaded plus tuck toll equal to .13 Euros per kilometre
Rail: 700.00 Euros per 1,000 kilometres per freight car (corresponds to one TEU)
Short sea shipping: 905.00 Euros per 1,000 kilometres per TEU; in short sea shipping, additional costs for pre- and on-haulage, typically carried out with one truck, are factored in at an average of 50 kilometres each. The same rules apply to the transport by railroad. The port costs for short sea shipping comprise 0.36 Euros per ton in port fees and two Euros per ton in handling fees. These fees apply to both loading and unloading.

Time requirements
The average transport speed by truck is calculated at 70 kilometres/hour. Table 1 gives the road distances, table 2 the short sea shipping distances.
For transport by railroad, an average speed of 100 kilometres/hour is assumed, however the precarriage cannot be disregarded. Loading and unloading takes half a day each.
The average speed for short sea shipping is calculated as 25 kilometres/hour. Loading and unloading in short sea shipping requires two days each.

Table 1 Road distances in kilometres
                        Hamburg    Marseille
Amsterdam      464          1,235
Stockholm         939          2,382
Riga                   1,235         2,611
Lisbon                 2,643        1,672
Rome                   1,693         896
Athens               2,760         2,085

Table 2 Short sea shipping distances in kilometres
                      Hamburg    Marseille
Amsterdam     550            5,300
Stockholm     1,200             6,500
Riga               1,100             6,400
Lisbon            2,700             2,300
Rome              6,300             400
Athens            7,200             2,450

Questions
1. Having considered all the costs and customer requirements, make a decision as to how to deliver goods to the three different customers.
2. If SH wanted to deliver to Salalah, Oman, discuss the different logistics options that would be available including their advantages and disadvantages.
3. Critically discuss the future logistics and transport issues in the context of global trading.

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