This question is from Contemporary Logistics 11th edition Chapter 12: Transportation. Case 12.1 Truck Company.

3. Assume that the buyer in Saudi Arabia has made other large purchases in the United States and is considering consolidating all its purchases and loading them onto one large ship, which the buyer will charter. The buyer contacts HDT and, although acknowledging its commitment to buy FAS Doha, asks how much HDT would subtract from the $172,000 per truck price if the selling terms were changed to FOB HDT's Crown Point plant. How much of a cost reduction do you think HDT should offer the buyer? Under what terms and conditions? CASE Case 12.1 Truck Company HDT Truck Company has been located in Crown Point, day's shift. By using one shift, two trucks could be assem- Indiana, since 1910. Its only products-large trucks- are built to individual customer specifications. The firm bled each day. If large orders for identical trucks were once produced automobiles but dropped out of the auto involved, it was possible to assemble three trucks per day. business in 1924. The firm nearly went out of business Quality declined whenever the pace became quicker. in the late 1930s, but by 1940 its fortunes were buoyed by HDT officials had decided they could not grow and became satisfied with their niche in the very heavy- receipt of several military contracts for tank retrievers- truck market. With only two exceptions, since 1970, large-wheeled vehicles that can pull a disabled tank onto HDT had always had at least a four-month backlog of a low trailer and haul it to a location where it can be orders. In the 1960s, its best market had been airports, repaired. but since 1980 its best market had been for oil-field Since World War II, HDT had manufactured only equipment, first for the North Slope in Alaska and then large off-road vehicles, including airport snowplows, air- for the Middle East. The U.S. military was also a regular port crash trucks, oil-field drilling equipment, and the customer. like. HDT purchased all components from small man- In late 2002, HDT received an order for 50 heavy ufacturers that were still clustered in the Milwaukee- trucks to be used in the oil fields of Saudi Arabia. The Detroit-Toledo-Cleveland area. Essentially, all HDT did terms of sale were delivery on or before July 1, 2003, at the Port of Doha, Saudi Arabia. Specifically, HDT would was assemble components into specialized vehicles con- receive $172,000 per truck in U.S. funds FAS (free along- laining the combinations of frame, power plant, trans- side ship) at the discharging vessel in Doha, which meant mission, axles, cab, and other equipment necessary to that HDT was responsible for all transportation costs up uo the job. The assembly line was relatively slow. After until the time and point the trucks were discharged from wheels were attached to the frame and axles, the night- chassis along to its next the ship's tackle at Doha. Once each truck was unloaded, shift labor force would push the chassis along to its nex on on the line so it would be in place for the next HD would be paid for it. m.Componen bet trucks were roduction coucould take 18 eynolds, production manager at HDT production could start approximately 103, and the order would take 18 working This was dot. ved, all most into soal sales of oil-field ducers. Three separate Point for a Robertson phone Guillou had decided to vaca- ile before returning to Crown 228 Part III . Elements of Logistics Systems production schedule was considered firm.c. estimated that production could start approximately parts parts for the oil-field trucks and for the other to already arriving. Orders were backlogged for 50 trucks would be completed by April 2 omplete. Because weekends were involved, all months, the highest figure since 1989. This almost in total, to Guillous additional sales of would be completed by April 20-25. Reynolds equipment to Middle Eastern producers, Three ugnt that May 1, 2003. was a more realistic comple orders were involved and totaled 115 trucks on date because he had always found it difficult to Robertson and Guillou left Crown Point restrict the assembly line to constructing trucks for only industry convention in San Diego, Robertson one account. The reason for this was that Vic Guillou from San Diego that he and Guillou had decided to HDT's sales manager, liked to have trucks being built for tion in Mexico for a while before returning to as many accounts as possible on the assembly line at any Point. Robertson knew that HDT could function one time. Prospective buyers frequently visited the plant absence and knew that with Pon overseeing Operati eing operations, and were always more impressed when they could see a diverse collection of models being built for a wide range the company's assets would be safe. Several days late of uses. Mexican postcard postmarked in Tijuan arrived, savine Norman Pon, HDT's treasurer, wanted to give pri- that both were enjoying Mexico and would stay lone ority to building trucks that were being sold on an FOB than initially planned plant basis because that would improve his cash flow Pon was relieved to learn that Guillou and position. At the time the $172,000 price had been set on Robertson would be gone for a longer time and immedi. the truck sale to Saudi Arabia, Pon had argued (unsuc ately began wondering what types of bills they were accu cessfully) that the price was too low. Guillou, on the mulating in Mexico and for which ones they would want other hand, argued that the sale was necessary because company reimbursement. Both had several credit cards the Middle East represented a growth market by any. belonging to the company. Based on experience. Pon one's definition, and he wanted HDT trucks there.HDT'S also expected Robertson to phone on his cell phone fora president, Gordon Robertson, had sided with Guillou cash advance or transfer about once a week. (Robertson Robertson thought that Pon was a good treasurer but too did not want charge records generated for some of his much of a worrier when it came to making important expenses.) decisions. Pon, in turn, thought that Robertson had yet As usual, Pon started wondering how paying for to shed the image he had acquired in the 1980s when his the Robertson and Guillou vacation venture would affect late father was president of HDT: Pon had lost count of HDT's cash flow. Pon looked at his cash flow projections, the number of times the elder Robertson had needed which were always made up for six weeks in advance, in cash to buy his son's way out of some embarrassing situ- this case through the first of April, when some of the bills ation. Guillou was young Robertson's fraternity room for components of the oil-field trucks would come due. mate in college, and Pon thought the two of them shared In fact, if Reynolds's schedule were adhered to all the a similar love of life in the fast lane. At the time the order was signed in 2002, Guillou components would be on hand by April 10, and if HDT argued that the FAS destination port represented the best were to receive the customary discounts, all of the com terms of sale because ocean charter rates were declin ponents would have to be paid for in the period between ing as a result of an oversupply of tonnage. Guillou pre- April 8 and April 20 (HDT received a 1 percent discount dicted that by mid-2003 charter rates would be so low for goods paid for within 10 days of actual or request that the cheapest method of transport would be to load receipt, whichever came later). For a moment, pou all 50 trucks on one vessel Pon countered that HDT bills would be due at the same time as Robertsons an thought that the worst might happen: The componen should try to make a profit only from the manufacture of trucks because nobody in the firm knew much about Crown Point Bank and Trust Company, where HD Guillou's request for a hefty cash advance. He called ocean shipping. Robertson, who was a gambler at heart, disagreed. a line of credit, and learned that the current ratew - 8 percent per annum. He then asked Bob Vanderpool In March 2003, Reynolds had the 50-truck order who was HDT's traffic manager, when the oil scheduled to be on the line from April 2 to 29. which trucks would arrive in Saudi Arabia renresented 25 trucks per working day. Other work was I dont know," was Vanderpool's reply, assum scheduled for the assembly line at the same time, so the that Guillou had arranged for transportation at the reply. "I assumed Portation at the time Chapter 12. transport ou decided secretary could find Guillou had checked muttered Porn newer onders also destin ded to charge $172,000 per truck, but I'll check "The vessel's name is the Nola Pina He did and phoned back to tell Ponth The vessel's name is the Nola Pine, the same name on that Guillou's as a French a ctress of the 1960s. You may e could find nothing in the files to indicate that had checked out charter rates. "That figures that some Greek shipping magnate named the vessel that some Greek shipping magnate named after her, but his wife made him give up box Pon. "Would you mind doing some checking?" Ther, but his wife made him give up both Nola Pino derpool said he would mind doing some checking the actress and Nola Pino the ship. At present, it's sched- uled to be in Chicago the last week in April with then suggested to him that there were several other of beans and ready for outbound loading May orders also destined for the Middle Eastern coun. Quan thinks uld charter i for $2.400 per day for 30 Vanderpool should start thinking about widening days which would be enough time for it to load, transit of expertise. Vanderpool reluctantly agreed, and the Seaway reach Doha and discharge the trucks by May Bu heard nothing until Vanderpool passed him in the 29 or 30." a few days later and said the assignment was much "Tell me about the alternative," said Pon. more time consuming than he had imagined. One week "Baltimore has fairly frequent sailings to the area Vanderpool said he had done as much as he could we want to reach," said Vanderpool. "We could load and would turn the figures over to Pun, Vanderpool also two trucks per day on railcars here and send them aid that he did not have the authority to charter a ship to Baltimore. Two ships a week are scheduled from e suggested that Pon determine who could do so in Baltimore to Doha. It would take the trucks an average Robertson's absence. Later that day, Vanderpool came to of 4 days to reach Baltimore, where they would wait an Pons office with a thick file. average of 3 days to be loaded aboard ship. The figure "It looks like you've been doing a lot of figuring." should be 3.5 days, but the railroad will hustle if it knows said Pon. we're trying to connect with an outgoing sailing. Sailing "No, not me," said Vanderpool,"but two outsiders. time to Doha averages 15 days a little more, a little less, One is Bob Guider, an international freight forwarder in depending on the amount of cargo to be handled at ports Chicago whom we use for our export parts shipments in between." And he put me in touch with Eddie Quan, a New York "That averages 22 days per truck," stated Pon, who ship broker who is on top of the charter market. We have had been putting the figures in his calculator. What are tro alternatives." the charges?" "What are they?" asked Pon. Vanderpool answered, "It costs $120 to load and "Well," answered Vanderpool, the St. Lawrence block two trucks on a flatcar, which is, of course, $60 Seaway will open in mid-April, so we could use it. The apiece as long as they move in pairs. Sticking to pairs, the problem is that the Seaway route is circuitous, especially rail rate for two on a flatcar totals $1,792 to Baltimore. to reach the Middle East. Also, there aren't many sched- Handling at Baltimore is $200 per truck, and ocean led Seaway sailings to that area, and because the Seaway freight rate from Baltimore to Doha is $1.440 per truck just be opening again, cargo space is hard to come We also have to buy insurance, which is about $150 per by Therefore, if we're not going to charter a ship, the best truck bet is to use Baltimore." "That totals $2,790," said Pon, after consulting his "What about chartering a ship?" asked Pon. "Why calculator. "What are the costs if we charter the Nola not use Baltimore for that?" Pino? You said it could be $72,000 for the vessel. What In theory, we could," answered Vanderpool. "But else is involved?" Quan says the size of ship we want is rather small and There are two ways of getting the trucks to port." not likely to be sailing into Baltimore. We could arrange said Vanderpool. "The loading and blocking would be to share a ship with another party, but many bulk car only $40 per truck because weld be doing all 50 at one pes are pretty dusty and might not be compatible with time. The rail rate per truck would averame out to SIRO vehicles. Ouan says there is one foreign vessel enter_cach, and it would take 1 day for them to reach Chic the Great Lakes in April that is still looking for an and another day to be loaded, Wed be tving up a white outbound charter. Seaway vessel wou know, are smaller 1 day, and the wharfage charge runs $2 per foot and she want to charter Nola Pino is 535 feet long. Wed be responsible for load- Nola Pino is 535 feet long. We he cause of the lock size restrictions. If we want to charter vessel, we'll have to move quickly. because if some ing and stowing the cargos, and this would cost $4.000 for all 50 trucks. The Seaway tolls are $1.80 cents per ton or y else charters her, she's gone. in our case, $54 per truck. At Doha, the unloading costs What kind of vessel is it?" asked Pon. 230 Part III . Elements of Logistics Systems ability. Give him will be $4,200 for the entire vessel. Marine insurance will especially concerned about the liability. Give be $210 per truck." Quan's phone number. I want to make sure there a "Are there any other alternatives?" asked Pon. more costs involved. If Robertson's fooling around is *The only other one that comes close is to drive schedule, he'll be wanting me to wire him some cas the trucks from here to Chicago," answered Vanderpool. I'd really appreciate it if you would summarize whas "We would need temporary licenses and a convoy per- you've told me in two columns, with the charter cete mit and pay to have the fuel tank on each truck drained on the left and the overland Baltimore cost column on cross state lines, and we would need temporary licenses and permits in Illinois as well. Wed also need 50 drivers and have to pay for their time and for their trips back home." "Do me one favor," said Pon. "Please call Frank Wood, our outside counsel, and ask him what steps we have to go through to charter a ship. Tell him I'm decide." "One question." asked Vanderpool. "Shoot," responded Pon. "Why should the charter figures be on the left?" "Because on a map (see Exhibit 12.A), Chicago is to the left of Baltimore and that's the only way I'll keep them straight when I'm talking on the phone