SGE’s Profitable Third Wharf?
In 1949, Canadian grain shipping company, Superior Grain Elevator, Inc (SGE) was secondary in the grain shipping industry in Canada to the Saskatchewan Grain Cooperative. Local interest brought out SGE in 1974 and five years later, SGE shipped a million tons of grain during a year for the first time ever but, since that year, volumes of grain has been inconsistent. In 1990, SGE purchased property along the waterfront and has yet to see the needed return on investment from the acquisition. Manager Mike Armstrong received information about a Polish contract and wanted to know if the proposed agreement would help to increase shipment volumes and allow the company to obtain the required return on investment. State the Assignment Question
The cost for the property SGE acquired was estimated to be $1,500,000. The company needs to make 20 cents per volume of shipment to make get a profitable return on investment but, unfortunately, the volume of shipments that will allow for that type of return has yet to happen. A five year Canadian-Polish contract in which SGE already provides twenty shipments per year to, is in negotiation. The following question is now posed to SGE: Would the addition of a third wharf make SEG more profitable? Case Analysis
The opening of the St. Lawrence Seaway along with the development of new locks in the Welland Canal and Sault Ste. Marie in 1959 attributed to 14 giant grain elevators, allowance of larger freighter ships to enter the lakes, and an increased density of ship passage (Bell, 1998). As a result of the new development along the waterfront, SEG was able to grow steadily and eventually maintained shipment volumes of a million tons for the first time in company history in 1979. Since then, however, the amount of volumes of shipment has been inconsistent resulting in some good years and some average years. Some possible causes for the inconsistencies of shipment volumes can be contributed to the railroads and the Seaway, weather, and the ship arrival and loading times. A vital part to SEG’s operations is the railroads and the Seaway (Bell, 1998). In order for the grain to be transferred within Eastern Canada and exported to the United states and various other countries across the seas, the grain needed to be able to be transported from the fields to the shipping docks. Railroad carts specifically built to store grain provided the means of transportation from the prairies the cargo storages that were put on vessels for shipment across the sea. Once the train delivered the cargo storages, the grain is then stored in one of SEG’s Seaway elevators between the two wharfs so it can be loaded onto one of the freighters. Good weather is equally as important to SEG’s operations as the railroads and the Seaway. Bad weather such as ice, snowstorms, heavy rains, and etc., would significantly affect the volume of grain shipments. Being based in Canada, SEG can only operate eight months during the year because during the four winter months the ice makes transportation through the Seaway impossible. As a result, SEG shipment volumes cannot be maximized during the entire year; an annual return can only realize for eight months. The railroads, Seaway, and weather all affect the timing of operations for SEG. Strikes on the railway or along the Seaway would significantly prolong the time of arrivals and loading times of the freights that ultimately affects the volume of grain that passes through the two SEG wharfs. When strikes and weather are not a factor, SEG two wharfs can become quite busy. If the two wharfs are occupied at the same time and another freight is about to arrive, the arriving ship has to wait until the ship occupying one the wharfs is finished loading and has departed. SEG would occur a cost of $2,000 per day if one of their contracted ships had to drop anchor. So not only would SEG lose money in the case of their wharfs being crowded but, time...
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