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Leading Thought

SCM 830 NSS


Instructor: John Bottomley
Joo Marcelo Silva Alves de Carvalho
Word count: 1564
Date: 03/04/2017
Executive Summary

The purpose of this report is to determine if a new distribution center should be established in
Cornwall, Ontario or in Pittsburgh, Pennsylvania.
This choice will be made by doing an analysis of the minimum wage in both cities, including all
the benefits required by both the American and Canadian Governments and also some qualitative
aspects as proximity to logistic infrastructure, working age population and others. A major
parameter will be the hourly minimum wage for both cities.
After the analysis and comparison of the data from each city, a recommendation can be made on
which location is better suited to receive the new distribution center.

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Table of Contents
Executive Summary ....................................................................................................................... ii
Introduction .................................................................................................................................... 1
Background .................................................................................................................................... 1
Cornwall, Ontario ....................................................................................................................... 1
Pittsburgh, Pennsylvania ............................................................................................................. 2
Forecasts and comparisons ......................................................................................................... 3
Table 1- Historical minimum wage in the US with forecast (History of Minimum Wage) 3
Table 2- Historical minimum wage in Canada with forecast (Hourly Minimum Wages in
CANADA for Adult Workers) .............................................................................................. 4
Table 3 Historical Exchange rate USD x CAD with forecast (Historical Exchange
Rates) ..................................................................................................................................... 4
Discussion ...................................................................................................................................... 5
References ...................................................................................................................................... 6
Attachment 1- Historical Minimum Wage data USA .................................................................... 8
Attachment 2 - Historical Minimum Wage data Canada ............................................................... 9
Attachment 3 - Historical Exchange Rate USD X CAD .............................................................. 10
Attachment 4 Minimum wages calculations ............................................................................. 11

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Introduction

A company is determined to establish a new distribution center but is not yet sure of where
it should be located. Currently divided between the cities of Cornwall, on the province of
Ontario in Canada and Pittsburgh, located in the state of Pennsylvania in the United States
of America, the company must come to a conclusion on where is the best location between
these two.
To make this decision, factors as the minimum hourly wage, available workforce and
access to logistics infrastructure will be taken into account:
Cargo consolidation and distribution services for customers, both for inbound and
outbound operations, seaborne and airborne freights, arc thus one of key scopes of
services of the logistics service providers. During the process of strategic planning
in performing these operations, as mentioned earlier, one of the fundamental issues
for these logistics companies is the selection of the location for distribution centres
(Van Thai and Grewal 4).
By researching thoroughly these aspects of the possible locations for the new distribution
center and analyzing them, one will have facts to back up and justify with data, any further
decision on the selection of the new site.

Background

To determine the future location of the distribution center, the cities of Cornwall and
Pittsburgh will be analyzed and then compared.

Cornwall, Ontario

Located in the Canadian province of Ontario, near the border with Qubec, and with St.
Lawrence River running through it, the city of Cornwall has a population of nearly 46,000
habitants (Demographics), with close to 65% of its population with age between 15 and
64 years (Focus on Geography Series, 2011 Census ).
On the logistics aspect, the city has a small port which not connected to any railway system
(Port of Cornwall). The city has Highway 401 as a good option for shipping goods,
being the city located between Toronto and Montreal and just an hour away from Ottawa.
There is also a railway that connects it with mains Canadian cities and also crosses border
to New York State. For Ontario, corporate taxes could be as high as 11.5% (Corporation
tax rates).
The minimum hourly wage is CAD 11.40 (Minimum Wage), besides that the employer
has to pay for 4.95% of the employees wage for CPP (Canada Pension Plan (CPP)),
2.282% for EI (EI premium rate and maximum), 0.98% up to 1.95% for the Ontario
Health Insurance Plan (Employer Health Tax) and after twelve months of work an
employee is entitled two weeks of vacation and a 4% bonus over their yearly pay
(Vacation with pay).
Based on the assumption that an employee works 40 hours per week, 52 weeks a year, we
an hourly wage cost of CAD 12.90 for the city of Cornwall.

Pittsburgh, Pennsylvania

Pittsburgh is has approximately 305,000 habitants, being 9% of it between 20 and 59 years


old (Pittsburgh,PA), and is located in the state of Pennsylvania in the United States of
America and is considered the 61st biggest city in the country (The largest US cities)
based on its population.
The city has access to various options for shipping goods. The Pittsburgh Port is the fourth
busiest inland port in the US and the 23rd overall and handled more than 32 million tons of
cargo in 2014 (The Port of Pittsburgh and the Inland Waterway System). The Pittsburgh
International Airport has access to three interstate roads and its region has more than 1,300
miles of railway (Pittsburgh Cargo Capabilities). Corporate tax in the state of
Pennsylvania is 9.99% (State Corporate Income Tax Rates and Brackets for 2016 ).
The city has a minimum wage of USD 7.25 (Pennsylvania Minimum Wage 2016, 2017)
or CAD 9.65, using an exchange rate of 1.331 (USA to CAD) and the employer also pays
the following taxes: 1.45 for healthcare, 6.2% for Social Security (Employers Tax
Guide), 3.6785% over the first USD 9,750 for SUTA, the State Unemployment Tax Act
(Types of Rates) and 0.06% over the first USD 7.000 for FUTA, the Federal
Unemployment Tax Act (FUTA Credit Reduction).
Using the same assumptions about yearly work hours, we have an hourly wage cost of
CAD 10.64 for Pittsburgh.

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Forecasts and comparisons

To improve the analysis, let us check the forecasts for the minimum wage on both cities
and the exchange rate from USD to CAD.

Table 1- Historical minimum wage in the US with forecast (History of Minimum


Wage)

By this chart, we can interpret that although there is a tendency for the minimum wage to
rise, it has been stable for the past few years and the last two increases were of less than a
dollar so for the next five years we should not expect much change.

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Table 2- Historical minimum wage in Canada with forecast (Hourly Minimum
Wages in CANADA for Adult Workers)

The minimum wage in Canada also shows a tendency to rise, but it has also been steady
and the increases were less than the forecast showed. For the next five years it should
maintain itself as it is.

Table 3 Historical Exchange rate USD x CAD with forecast (Historical Exchange
Rates)

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The exchange rate from USD to CAD has increased in the past few years and the forecast indicates
that it should be increasing even further, which is something to keep an eye on.
On the qualitative spectrum, both cities have good logistics alternatives, being it by air, water or
ground. Pittsburgh has a greater population, making it easier to reach more and therefore
facilitating the distribution of goods.
On the quantitative side, there is a difference of CAD 2.26 that favors Pittsburgh, since hourly cost
is a major factor for the decision.

Discussion

Presented the facts, the hourly cost for wages and corporate tax rates in Pittsburgh are more
favorable than the ones at Cornwall and they do not seem to be changing in the next few years.
Both cities have access to diverse logistics resources, but Pittsburgh is located in a more densely
populated area which is good, because shipping can be less costly and there are also more workers
available.
Based on these, Pittsburgh is the best choice to establish the distribution centre.

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References

Van Thai, Vinh, and Devinder Grewal. "Selecting the Location of Distribution Centre in
Logistics Operations: A Conceptual Framework and Case Study." Asia Pacific Journal of
Marketing and Logistics 17.3 (2005): 3-24. ABI/INFORM Global, doi:
10.1108/13555850510672359
"Demographics" Choose Cornwall, 2016, www.choosecornwall.ca/eng/business-in-
cornwall/demographics/. Accessed 31 March 2017.
Focus on Geography Series, 2011 Census Statistics Canada, 2016,
www12.statcan.gc.ca/census-recensement/2011/as-sa/fogs-spg/Facts-cma-
eng.cfm?LANG=Eng&GK=CMA&GC=501. Accessed 31 March 2017
Port of Cornwall Ports.com, 2017, ports.com/canada/port-of-cornwall/. Acessed 29
March 2017
Minimum Wage Ontario Ministry of Labour, 2016,
www.labour.gov.on.ca/english/es/pubs/guide/minwage.php. Accessed 29 March 2017
Canada Pension Plan (CPP) Canada Revenue Agency, 2017, www.cra-
arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/cpp-rpc/menu-eng.html. Accessed 30 March 2017
EI premium rate and maximum Canada Revenue Agency, 2017, www.cra-
arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/ei/hstrc-eng.html. Accessed 30 March 2017
Employer Health Tax Ontario Ministry of Finance, 2017, www.fin.gov.on.ca/en/tax/eht/.
Accessed 31/03/2017
Vacation with pay, Ontario Ministry of Labour, 2017,
www.labour.gov.on.ca/english/es/tools/esworkbook/vacation.php. Accessed 01 April 2017
The largest US cities City Mayors, 2016, www.citymayors.com/gratis/uscities_100.html.
Accessed 01 April 2017
The Port of Pittsburgh and the Inland Waterway System, Port of Pittsburgh Comission,
2017, www.port.pittsburgh.pa.us/index.aspx?page=127. Accessed 30 March 2017
Pittsburgh Cargo Capabilities, Aircargopedia, 2015,
www.aircargopedia.com/pitcargo.htm. Accessed 01 April 2017
Pennsylvania Minimum Wage 2016, 2017, Minimum Wage, 2016, www.minimum-
wage.org/states.asp?state=Pennsylvania. Accessed 29 March 2017
USA to CAD, XE, 2017,
www.xe.com/currencyconverter/convert/?From=USD&To=CAD. Accessed 02 April 2017
Employers Tax Guide, Internal Revenue Service, 2016, www.irs.gov/pub/irs-
pdf/p15.pdf. Accessed 29 March 2017

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Types of Rates, Pennsylvania Department of Labour & Industry, 2016,
www.uc.pa.gov/employers-uc-services-uc-tax/uc-tax-rates/Pages/Types-of-
Rates.aspx#new. Accessed 01 April 2017
FUTA Credit Reduction, Internal Revenue Service, 2016,
www.irs.gov/businesses/small-businesses-self-employed/futa-credit-reduction. Accessed 29
March 2017
History of Minimum Wage, Bebussined, 2016, www.bebusinessed.com/history/history-
of-minimum-wage/. Accessed 30 March 2016
Hourly Minimum Wages in CANADA for Adult Workers, Government of Canada,
2016, www.srv116.services.gc.ca/dimt-wid/sm-mw/rpt2.aspx. Accessed 30 March 2016
Historical Exchange Rates, OFX, 2017, www.ofx.com/en-us/forex-news/historical-
exchange-rates/. Accessed 30 March 2017
State Corporate Income Tax Rates and Brackets for 2016 , Tax Foundation, 2016,
www.taxfoundation.org/state-corporate-income-tax-rates-and-brackets-2016/. Accessed 29
March 2017
Corporation tax rates, Canada Revenue Agency, 2016, http://www.cra-
arc.gc.ca/tx/bsnss/tpcs/crprtns/rts-eng.html. Accessed 29 March 2017
Pittsburgh,PA, Census Reporter, 2016, censusreporter.org/profiles/16000US4261000-
pittsburgh-pa/. Accessed 02 April 2017

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Attachment 1- Historical Minimum Wage data USA

Minimum
Year Wage (Hourly)
1938 0.25
1939 0.30
1945 0.40
1950 0.75
1956 1.00
1961 1.15
1963 1.25
1964 1.15
1965 1.25
1967 1.40
1968 1.60
1969 1.30
1970 1.45
1971 1.60
1974 2.00
1975 2.10
1976 2.30
1977 2.30
1978 2.65
1979 2.90
1980 3.10
1981 3.35
1991 3.80
1994 4.25
1996 4.75
2007 5.85
2008 6.55
2009 7.25
2010 7.25
2011 7.25
2012 7.25
2013 7.25
2014 7.25
2015 7.25
2016 7.25
2017 7.25

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Attachment 2 - Historical Minimum Wage data Canada

Year Minimum Wage (Hourly)


1969 1.30
1970 1.50
1971 1.65
1973 1.80
1974 2.25
1975 2.40
1976 2.65
1978 2.85
1979 3.00
1981 3.50
1984 4.00
1986 4.35
1987 4.55
1988 4.75
1989 5.00
1990 5.40
1991 6.00
1992 6.35
1994 6.70
1995 6.85
2004 7.15
2005 7.45
2006 7.75
2007 8.00
2008 8.75
2009 9.50
2010 10.25
2014 11.00
2015 11.25
2016 11.40
2017 11.60

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Attachment 3 - Historical Exchange Rate USD X CAD
Year Month Rate
Apr 0.994276
May 1.009397
Jun 1.027839
Jul 1.014016
Aug 0.99344
Sep 0.979022
Oct 0.986016
Nov 0.997657
2012 Dec 0.990504
Jan 0.992235
Feb 1.008024
Mar 1.024300
Apr 1.018646
May 1.019315
Jun 1.031804
Jul 1.041515
Aug 1.039314
Sep 1.036557
Oct 1.035523
Nov 1.048196
2013 Dec 1.063922
Jan 1.090421
Feb 1.105618
Mar 1.110703
Apr 1.099749
May 1.089521
Jun 1.082865
Jul 1.07269
Aug 1.092226
Sep 1.099751
Oct 1.122052
Nov 1.131759
2014 Dec 1.154144
Jan 1.2099
Feb 1.251616
Mar 1.261494
Apr 1.23637
May 1.217718
Jun 1.235682
Jul 1.282527
Aug 1.314185
Sep 1.326162
Oct 1.307006
Nov 1.328105
2015 Dec 1.370132
Jan 1.417969
Feb 1.380447
Mar 1.32389
Apr 1.283905
May 1.293075
Jun 1.290092
Jul 130318
Aug 1.29956
Sep 1.310526
Oct 1.324308
Nov 1.345756
2016 Dec 1.334768
Jan 1.321192
Feb 1.309965
Mar 1.339146
Apr -
May -
Jun -
Jul -
Aug -
Sep -
Oct -
Nov -
2017 Dec -

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Attachment 4 Minimum wages calculations

Colunas1 Pittsburgh (USD) Cornwall (CDN)


Min. Wage 7.25 11.4
Healthcare 1.45% 1.95%
Pension plan/Insurance 6.2% 4.95%
4% of gross annual wage
2 weeks, after 12 months
Vacation N/A of work
SUTA - 3.6785% on
first 9750
FUTA- 0.6% on first
Unemployment tax $7000 2.282%
Total Wage (no taxes) $15,080 $23,712
Taxes $1,554.27 $3,125.72
Total Wage $16,634.27 $26,837.72
Total Wage (CAD) $22,140.21 $26,837.72
Total Hourly Wage $10.64 $12.90

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