Logistics: HDT Truck Company
Considering the situation in which HDT Truck Company finds itself in respect of delivering the requested 50 trucks to Doha, Saudi Arabia, the two ways of transportation are possible (Murphy and Wood, 2007, p. 316). They include chartering a vessel through the Baltimore Company and sending the trucks on the railroad to Baltimore port where the trucks will be loaded and delivered to Doha. Table 1 presents the comparison of both ways (Murphy and Wood, 2007, pp. 318 – 319):
|Loading and blocking 50 trucks||$2,000||Loading and blocking 50 trucks||$3,000|
|Loading and stowing||$4,000||Loading and stowing||$4,000|
|Loading tolls for 50 trucks||$2,700||Loading tolls for 50 trucks||$2,700|
|Wharfage charge for Nola Pino||$1,070||Rail rate to Baltimore||$44,800|
|Nola Pino charter cost for 30 days||$72,000||Handling 50 trucks at Baltimore||$10,000|
|Unloading at Doha||$4,200||Ocean freight rate to Doha||$72,000|
|Marine insurance for 50 trucks||$10,500||Marine insurance for 50 trucks||$7,500|
Drawing from these data, the first alternative, i. e. chartering a vessel for delivering the 50 trucks to Doha is recommended to HDT Truck Company for this transaction. The reasons include both the total cost of the routing alternative and the simplicity of the very delivery process. Thus, chartering a vessel requires HDT to deliver the trucks to Baltimore port where the trucks will be loaded, handled, delivered to Doha, and unloaded there for the total sum of $77,900. Including transportation to Baltimore and marine insurance, the total cost of this alternative is $96,470, while overland delivery involves rail rate and ocean freight rate that makes the total cost far larger – $144,000.
If the buyers prefer to buy the trucks on FOB HDT’s Crown Point plant, the total cost of the transaction can provide the sellers agree, be reduced for a certain sum. Provided the initial cost of an HDT’s truck is $172,000 and the total cost for 50 trucks is, respectively, $8,600,000 are the sums formed under the circumstances of originally agreed FAS delivery terms, the total cost of the transaction can be reduced for the sum of expenses HDT might have in connection with FAS delivery with a compensation of 5 to 10% of this sum presented to by the Saudi Arabia buyers to HDT for sudden delivery terms change. More specifically, if the charter delivery mode is chosen, the transaction cost of $8,600,000 can be reduced by $96,470 minus up to $10,000 for the delivery terms change.
If the delivery terms are changed by the buyers for the ones under which the buyers are liable for discharging the trucks from the railcars and for further transportation, the total cost can be reduced by $80,000, which is the sum of expenses for the vessel charter and marine insurance obtaining minus the $7,770 fee for the delivery term change.
The routing alternative selected by HDT is conditioned mostly by the rail and ocean charge rates. In case of the latter two rates are changed, preferably reduced, HDT might consider the overland routing alternative as the cheaper one, even though the very process is more complex for HDT (Murphy and Wood, 2007, pp. 318 – 319).
Speeding up the production process and attempts to deliver the trucks as soon as possible will not be advantageous if HDT will have to borrow money with a 12% interest rate. The terms of delivery are acceptable for HDT, and the company can manage to deliver all the trucks up to the middle of June, while the deadline is July, 1 (Murphy and Wood, 2007, p. 316). So, there is no need to borrow money with high-interest rates and risk with the company’s assets given that the buyers might change delivery terms. The transaction cost might also change under these circumstances, and this will lead to the situation when HDT will have no accessible funds to repay its loan.
Murphy, Paul, and Donald Wood. Contemporary Logistics. Prentice-Hall, 2007, pp. 316 – 320.