Chace Shipping Harvard Case Solution & Analysis

Introduction

             Chace Shipping Company was formed when the T2 oil tanker that had been purchased by William Chace in order to carry the fuel to the US forces was converted into a freighter. Over the period of 18 years, the management of the company had expanded the business operations and the company ad around 6 freighters and a profit before tax of around $ 520000 was generated by the company. Mainly cargo was shipped from United States to Egypt and Syria and to also other Mid-Western nations.

            Majority of the products that were shipped to these countries consisted of the heavy machinery parts and the steel products. The normal length in time of the round trips to Egypt and Syria was around 2 months and its cost of the trips was around $400000. This cost normally included the cost of supplies, operating expenses and insurance. The prices were set by the company based on the tons of the cargo that were loaded on the freighters of the company.

            The maximum capacity of the freighters was to hold the cargo of around 55 cu. Ft. per ton. Although the shipment of the grains was an exception to this as they could also be measured in cubic foot. The Glory was the company’s 4th T2 tanker and had the capacity to carry 22000 tons of cargo or 1316000 cubic foot. William Chace had estimated that this freighter had 4 years more of useful life.

Problem Statement

            The owner and the president of the Chace Shipping needs to make an important decision on the Monday of July, 1993. The Glory was one of the most important freighters of the Chace Shipping Company and William Chace had to decide regarding what he needed to do with the Glory for the next two months. This decision has to be made urgently as the Glory will be soon going into dry-dock of about a month’s overhaul. The president of the company had two attractive options to choose from.

             The first option was related to the transportation of the grain through the contract with the International Grain Company. The second option for the Chace Shipping Cmpany related to the transportation of the steel to Syria through the bid by the Syrian Trade Commission. Both the options seem lucrative for the company however, detailed quantitative analysis and decision techniques need to be applied to make the best choice for William Chace. The third option is also available to the company, which is to keep the freighter at the port, however, with the limited set of the information, this option has not been considered.

Analysis

            The quantitative techniques of linear programming, decision trees and expected monetary value have been applied in order to choose the better of the two options. That option would make most sense for the management of the company to go ahead with and decide what the company needs to do with its one of the idle freighter, the Glory over the next two months. The management of the company would choose that option which maximizes the profits for the company but does not increases the risks faced by the business significantly.

Chace Shipping Case Solution

Constraints

            There are many constraints for the company currently which need to be considered and incorporated in the analysis of both the options. Some of the important constraints which need to be considered as listed as follows:

  • The Glory is the only freighter that is available with the company currently for the next few months.
  • The useful life of the Glory is estimated to be 5 more years.
  • The budget for the round trip expenses which include the cost of the supplies, operating expenses and insurance is around $ 400000.
  • The weight carrying capabilities which are limited to around 22000 tons and the size of the ship I another important constraint.
  • The cargo space in terms of cubic foot is limited to 1316000; however this space could be increased by 70000 cubic foot if the decision is made to transport barley.
  • Apart from these constraints, other factors include the uncontrollable factors such as the taxes, tariffs, weather conditions, etc.

            Based on the information that has been provided in the case, there are two alternatives or options available to the management of the Chace Shipping Company, for which Glory could be put in use. The first option for the management of the company is to either ship Barley and Oats and the second option available for the management of the company is to ship steel to Syria................

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