Catalina Quinones-Rios Mary Catherine Schoals

Adil SajanMatthew Goode

The problem that Joe Perez and Megabox is facing is the international transportation of Megabox’s four main products to Zumburu. These products are 3D-Printers, Ultra HD Copiers, Power Books, and Z-pads. Every product is different in terms of density, perishability, and volume. The management team needs to take into consideration the options that are available, which are: scheduled air, contract air, conference sea cargo and non-conference sea cargo.

Some issues identified with these options include relevant cost, modal differences and how they affect selection (transit time, volume constraints, and other associated costs), customer service and risks involved.

Each of the four alternatives were identified for possible transportation options. Scheduled air cargo flights are serviced out of JFK airport three times a week with a volume constraint of 3000 ft3 per week. Any additional cargo space needed can be allocated into charter cargo flights at a cost of 120% of scheduled air rates. If Joe Perez were to enter into 12-month contract with an air carrier (contract air cargo flights), Megabox would have to commit to at least 4000 ft3 per week during the contract period.Conference container vessel services are provided weekly and only offer 40 FEU container loads (CL) or less than container loads (LCL). Since not all Megabox shipments are large enough to fill a container, the current ratio for conference container services is 70% of shipments in CL shipments and 30% in LCL shipments. Non-conference container vessel services offer bi-weekly service via 20 FEU containers at a 15% discount of conference freight rates. If Megabox were to switch to non-conference container vessel services, it is estimated that the ratio of shipments would shift to 90% CL and 10% LCL with the use of 20 FEU.

For the analysis of scheduled air cargo services; The total direct shipping cost yearly to Megabox adds up to $28,558,317.56. Scheduled air flights service Megabox three times a week, which correlates with the desires of the Zumburu distributor, who is interested reducing his inventory cost. Some risks associated with scheduled air cargo is insufficient space available for Megabox’s shipments and the higher cost of charter overflow. There is no required commitment to schedule air shipments. The positive side of no commitment to this particular mode is the flexibility afforded to Megabox to alternate between modes if necessary. Contract air cargo services: Contract air cargo flights have a required volume commitment of at least 4000ft^3 a week, for a consecutive 12-month period; this is a considerable length of time, especially with the concern of fluctuation in demand. Two of the products, Power Book and Z-Pad, will not meet the minimum load requirements, and will need to be flown in conjunction with other products at all times. The total direct shipping cost yearly is $33,077,949. The known risk with contract air is the weekly volume requirement versus actual forecasted unit sales for the next 12-months. Conference sea services; Costs assigned to Megabox totals $21,920,759.84 yearly. Three out of four products can be serviced within budget. Transit times in combination with services being offered by this mode weekly, creates some build-up of inventory. Although there is no volume commitment to mode, there is a commitment to the 40 FEU containers. Megabox will end up paying for LCL movements 30% of the time, which is costly and an inefficient use of capacity. Non-conference sea services; Total cost to Megabox annually is $13,569,384. Only three out of four products can be accommodated within Megabox’s budget. Nonconference container vessel services Megabox bi-weekly, and there are several uncontrollable factors in this mode of transportation that can affect customer service. There is no required commitment to the mode, however there is a volume limitation to 20 FEUs.

We recommend that Megabox divide the shipments of their products by two modes; the shipping of Powerbooks and ZPads by scheduled air with charter overflow and 3D Printers and HD Copiers by nonconference container vessel service. Total yearly transportation costs to Megabox is $10,230,911.22, which is a savings of $16,710,588.78. Customer service would be divided between the rapid transit of two products moved within budget through air transportation, while the other two would be moved on non-conference, which has a more efficient distribution of CL and LCL shipments. The manageability of this recommendation is enabled by the annual budget savings acquired through this bi-modal recommendation; it provides the necessary monetary flexibility to handle these uncontrollable factors. In both modal selections of scheduled air cargo and nonconference container vessel services, there is no required commitment to mode, which provides Megabox the flexibility of switching modes of transportation in the event of a disruption in distribution.

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Yearly Costs To Megabox 3D-Printer Ultra HD Copier Power Book Z-PadScheduled 16,709,718.06$ 8,568,091.24$ 435,130.99$ 2,845,377.27$ Contract 16,709,593.50$ 10,207,397.47$ N/A N/AConference 8,007,177.70$ 3,728,460.27$ 1,373,801.75$ 8,811,320.12$ Non-Conference 4,522,882.93$ 1,878,591.53$ 912,320.88$ 6,255,588.86$

Problem The root problem that Joe Perez and Megabox is facing is the international transportation of Megabox’s

four main products to Zumburu. These products are 3D-Printers, Ultra HD Copiers, Power Books, and Z-pads.

In Table 2a below the products distribution characteristics are outlined for planning purposes.

Table 2a

Zumburu is one of the largest Middle Eastern markets with an unstable governmental economic policy.

With the late volatility in oil revenues Joe Perez is concerned that the government may suddenly impose higher

import duties or other regulations to control the outflow performed currency. Currently, Joe Perez is using

airlines that serve Zumburu to transport Megaboxe’s products, however, there is been inefficient space available

in cargo airlines.

The transportation related problem that Joe Perez is facing is important for the management team at

Megabox to consider because transportation cost is the single largest expense businesses incur. The amount of

money that is being utilized for transportation represents a lot of capital for the business. Management team

needs to take into consideration the options that are available. Every product is different in terms of density,

perishability, and volume. The management team needs to make the decision together since there is a lot of

capital involved. Even though, Joe Perez is the distribution manager of the company, the transportation problem

requires a complete rerouting of the process. Therefore, it would be more viable if the Senior Executives

approach the problem from different perspectives and make an agreement that would reflect the decision made

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Product Line Shipping Volume Shipping Weight Selling price (Feet3/unit) (Kg/unit) (DAT Plant, $/unit)

3D Printer 18 44 $

950 Ultra HD Copier 14 36

$ 325

Power Book 1 3 $

220

Z-Ipad 1 2 $

790

and the risks that the changes may bring. Table 2b displays the yearly costs for the various alternatives available

to Megabox for their transportation needs which will be discussed in detail in the following section.

Table 2b

Issues

In this section, the various alternative transportation solutions will be identified and all relevant detailed

will be clearly explained. Including relevant cost, modal differences and how they affect selection (transit time,

volume constraints, and other associated costs), customer service and risks involved. The issues stated represent

the scope of the problem facing Joe Perez and Megabox. Each of these issues need to be carefully evaluated to

ensure the most beneficial decision.

Megabox is currently selling its products to Zumburu using the incoterm deliver at terminal or DAT

Distributors storage facility, port of Zumburu. This means that the seller (Megabox) is responsible for arranging

carriers and delivering the goods, unloaded from the arriving conveyance at the name place. The risk transfers

from seller to buyer when the goods have been unloaded. Also, the buyer is responsible for import clearance

and any applicable local taxes or import duties"1. In the case of Megabox’s responsibilities as a seller, they will

be responsible for cargo insurance, documentation, and wharfage (in the case of sea shipments), as well as many

distribution costs, excluding transportation to consignee.

Under DAT Port of Zumburu, Megabox’s relevant cost are presented on the following table (Table 3a).

1Source: Incotermsexplained.com3

Yearly Costs To Megabox 3D-Printer Ultra HD Copier Power Book Z-PadScheduled 16,709,718.06$ 8,568,091.24$ 435,130.99$ 2,845,377.27$ Contract 16,709,593.50$ 10,207,397.47$ N/A N/AConference 8,007,177.70$ 3,728,460.27$ 1,373,801.75$ 8,811,320.12$ Non-Conference 4,522,882.93$ 1,878,591.53$ 912,320.88$ 6,255,588.86$

Costs Air Sea Cargo insurance 1% of DAT value +10% 1.4% (CL), 1.6 (LCL) Documentation $220 $220 Wharfage N/A 2% DAT value

Table 3a

Although under Incoterms DAT Zumburu, the importer or buyer is responsible for import

documentation, the $220 fee for documentation includes both export and import documents. Therefore, it is the

responsibility of Megabox to cover this cost. It is not the responsibility of Megabox to cover either customs

fees, consular fees, or import duties.2

Other associated costs are presented in Table 3b below.

Distribution Cost Breakdown ($/shipped ft3) Air Schedule Sea Conference Scheduled CL LCL

Transportation to 0.7 0.9Packaging/Container 2.3 3Transportation to port 0.7 0.4 0.4Freight 16.6 4 6Unpackaging/ Unstaffing 0.9

Table 3b

The four modal options for transportation of Megabox’s products are scheduled air cargo flights (with

overflow into charter cargo flights), contract air cargo flights, conference container vessel service and non-

conference container vessel service.

Scheduled air cargo flights are serviced out of JFK airport three times a week with a volume constraint

of 3000 ft3 per week. Any additional cargo space needed can be allocated into charter cargo flights at a cost of

120% of scheduled air rates. If Joe Perez were to enter into 12-month contract with an air carrier (contract air

cargo flights), Megabox would have to commit to at least 4000 ft3 per week during the contract period.

Conference container vessel services are provided weekly and only offer 40 FEU container loads (CL)

or less than container loads (LCL). Since not all Megabox shipments are large enough to fill a container, the 2 Source: universalcargo.com

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Nominal length Outside Inside Actual size 20 FEU 8'X8'X20' 1100ft3 990ft3 40 FEU 8'X8'X40' 2000FT3 1800ft3

current ratio for conference container services is 70% of shipments in CL shipments and 30% in LCL

shipments. Non-conference container vessel services offer bi-weekly service via 20 FEU containers at a 15%

discount of conference freight rates. If Megabox were to switch to non-conference container vessel services, it

is estimated that the ratio of shipments would shift to 90% CL and 10% LCL with the use of 20 FEU. The table

below (Table 3c) differentiates the volume capacity between conference and non-conference container vessel

services available to Megabox.

(Package sizes incompatibility only 90% of inner volume used for cargo)Table 3c

The estimated transit times for air cargo services (scheduled and contract) are 11 days , which include

trucking to the assembly plant, stuffing by the carriers into the air containers and the time the products are on

storage before cleared from customs and shipped to the local distributor.

Figure 1. Estimated transit times for air cargo shipments

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Sea shipments vary because of the required containerization (for CL shipments) and crating (for LCL

shipments) operations that are fulfilled at a packer’s facility close to the loading port. From there the shipments

are trucked to the loading port, and wait for the next ship to arrive. The total transit time for sea shipments add

up to 40.5 days for container loads (CL) and 49.5 days for less than container loads (LCL). 3

In considering both air cargo and sea shipment options, Megabox would have to evaluate both the

volume requirements, the increased cost for charter air cargo services, the discounted cost for non-conference

container vessel services, the transit time differences among the modal options and the risks involved.

Some of the risks Megabox faces are the lack of economic policy in Zumburu (a country that sources

revenue in oil), and the concern for changes in demand due to the fluctuation of the oil market. The demand

uncertainty also bring to light a risk in quality customer service. The current distributor in Zumburu is interested

on receiving frequent small shipments to reduce his average inventory and express an interest in air shipments.

Figure 2. Estimated transit times for container load (CL) ocean shipments

3 40.5 days for CL and 49.5 for LCL represents the days in transit up to Megabox’ responsibilities6

Figure 3. Estimated transit times for less than container load (LCL) ocean shipments

Alternative Identification

Megabox is presented with four alternatives for modal transport of their products. These include

scheduled air cargo with charter cargo overflow service, contract air cargo service, conference container vessel

service, and nonconference container vessel service. To properly evaluate each option, each modal alternative

will be judged by five main criteria. These are: total cost (and if it is within Megabox’s budget), risks associated

with each modal option, customer service, manageability of each option, and required commitment to modal

option.

The first alternative is scheduled air cargo, with volume constraints of 3,000ft^3 a week. If need be,

Megabox has the option to overflow into charter air cargo service each week if the loads needed to be

transported exceeds the 3,000ft^3 limit. Charter air cargo service is at an increased cost of 20% over scheduled

rates, but does not have a volume limit. This modal option would service Megabox three times a week, with a

transit time of 8.5 days4. A few important things to note about this alternative is the empty backhauls with

charter overflow, and that the option of air cargo service does not incur costs for packing, unpacking or

wharfage in distribution.

4 8.5 days in Contract and Schedule air are the days in transit that include Megabox’ responsibilities7

The second alternative is a 12 month-contract air cargo service, with a minimum requirement of

4,000ft^3 a week. This volume requirement is the stimulation for entering into contract with the air cargo

provider, and will be carried out for the entirety of 12 months. Any cargo that does not meet the minimum

requirement of 4,000ft^3 a week will not be moved. Contract air cargo would service Megabox three times a

week, with a transit time of 11 days. This alternative is offered at a discount rate of 10% off scheduled prices.

This alternative does not incur any packing or unpacking cost, as well as no wharfage charges at the destination

port.

The third alternative is conference container vessel services, with a minor volume constraint to product

movements in 40 FEU containers. Using 40 FEU containers will divide the shipments into two types of loads:

container loads (CL) and less than container loads (LCL). The split is estimated at 70/30%, with the majority on

CL. Rates offered for LCL are at a 67% premium over CL rates, with higher costs for transportation to port.

LCL shipments incur an unpacking cost in distribution, while CL does not. Another division exists between the

types of loads concerning transit times. CL remains in transit for 40.5 days, while LCL takes 49.5 days.

The fourth and final alternative is nonconference container vessel services, with a minor volume

constraint to product movements in 20 FEU containers. Using 20 FEU containers will divide the shipments into

two types of loads: container loads (CL) and less than container loads (LCL). The split is estimated at 90/10%,

with the majority on CL. Rates for nonconference container vessels are offered at a discount of 15% over the

conference freight rates. A division exists between the transit times for CL and LCL, with 40.5 days for CL and

49.5 for LCL.

In the scoring of criteria, a scoring system is used, where 5 is the most important and 1 is the least

important decision factor. Total cost in relation to Megabox’s budget was given the highest priority, or “5”

because making sure that transportation expenses are within budget are vital to the success of the supply chain.

Therefore, in deciding the most effective alternative, total cost will be the first factor considered. Customer

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service was giving a priority of “4” since Megabox has a limited number of quality products that are focused on

meeting the needs of specialized markets. Quality customer service is essential to the relationships of Megabox

and their distributors in those segments. The third and fourth criteria considered in respect to the analysis

(following this section) are risk and manageability of each solution. Both of these criteria are weighted equally,

because an important part of measuring the feasibility of each solution is considering the risk involved. Due to

the fact that there are volume constraints present in some solutions, as well as a 12-month contract clause in the

consideration of contract air cargo, the last decision factor included is “required commitment to mode” has been

added with the lowest weighted score.

The weighted score assigned to each criteria is exemplified in Table 4a below.

Table 4a

To know if each modal option falls within the projected yearly budget, a sales revenue table has been

provided for reference as to how this is calculated. Table 4b breaks down revenue by product. Total yearly

revenue is highlighted in yellow.

Annual Budget $Printer 13,839,000$ Copier 6,300,480$ Netbook 2,079,000$ Z-Ipad 4,725,000$ Total 26,943,480$

Table 4b

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Criteria Scoring Weight % Total ScoreTotal Cost (within budget) 5 35% 1.75Risk 3 15% 0.45Customer Service 4 25% 1Manageability 2 15% 0.3Required Commitment to Mode 1 10% 0.1Total 100% 3.6

Alternative Analysis

In this section each individual alternative will be analyzed on an independent basis and scored with the

criteria explained in the Table 4a. Each alternative will include both direct shipping cost to Megabox as well as

the cost of inventory in transit and other fees that the Zumburu distributor is responsible for. In assessing the

strengths and weaknesses of the alternatives, the scoring methods of Table 4a were applied with the appropriate

weights. The pros and cons of each alternative will be presented as how they address key criteria which will

direct the recommendation in the next section.

-Scheduled and Charter Air Cargo

Total cost analysis. Scheduled air cargo flights have a limit of 3,000ft^3 a week, which means that for

two of Megabox’s products, 3D Printers and Ultra HD Copiers, there is overflow into charter air cargo flights,

with an increased freight rate of 20%. The total direct shipping cost yearly to Megabox adds up to

$28,558,317.56. The breakdown of the direct costs to Megabox is provided by Table 5a, and consists of all

transportation activities Megabox is responsible under DAT Port of Zumburu. These include freight rates (both

the rate for scheduled air and the rate increase for charter air depending on the load overflow), cargo insurance,

and documentation.

Scheduled AirLoads Distribution Cost Insurance ICC Budget Total Cost to Megabox3D Printer 15,514,197$ 730,699.20$ 433,141.74$ 13,839,000.00$ 16,709,718.06$ Ultra HD Copier 8,169,766$ 230,192.54$ 136,452.86$ 6,300,480.00$ 8,568,091.24$ PowerBook 99,908$ 190,575.00$ 112,968.49$ 2,079,000.00$ 435,130.99$ Zpad 550,919$ 1,420,650.00$ 842,128.77$ 4,725,000.00$ 2,845,377.27$ Total 24,334,789$ 2,572,116.74$ 1,524,691.86$ 26,943,480$ 28,558,317.56$

Table 5a5

In comparing the annual budget with the cost of scheduled air flights, servicing the loads for 3D printers and

HD copiers exceeds Megabox’s fiscal capability. Total costs to Megabox surpasses the projected budget by

$1,614,837.56 We have given this alternative a total cost scoring of 3.1 out of 5, due to the fact that two of the

products needing transport to the distributor are out of budget. 5 Documentation cost of $31,680 has been added to the total to Megabox calculation for all products.

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Customer Service. Scheduled air flights service Megabox three times a week, which correlates with the

desires of the Zumburu distributor, who is interested in receiving small, frequent shipments to reduce his

inventory cost. Thus, in combination with shorter transit times (transit time Megabox is responsible for is 8.5

days), Megabox will be improving quality of customer service. We have given this alternative a scoring of 5 out

of 5 for customer service, since it would ensure the quality that Megabox is looking for.

Risks and Manageability of Alternative. Some risks associated with scheduled air cargo is insufficient

space available for Megabox’s shipments and the higher cost of charter overflow. Manageability of this risks

can be costly and inefficient, specifically in the case of 3D printer and HD copiers. For these two criteria, we

have scored both with a 2 out of 5, due to the risk of excessive cost with charter overflow, and the uncertainty of

manageability due to possible fluctuations in demand.

Required Commitment to Mode. For the fifth criterion there is no required commitment to schedule

air shipments. The positive side of no commitment to this particular mode is the flexibility afforded to Megabox

to alternate between modes if necessary for shipments, which led to a scoring of 5 out of 5 for this criterion.

Table 5d shows the respective scoring for each alternative, as well as the final weighted score of 3.435 for the

alternative of using scheduled air cargo.

Table 5d

-Contract Air Cargo

Total Cost Analysis. Contract air cargo flights have a required volume commitment of at least 4000ft^3

a week, for a consecutive 12-month period. Because of this obligation and the actual loads shipped weekly by

air (as shown on Table 5e) two of the products, Power Book and Z-Pad, will not meet the minimum load

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Criteria Scoring Weight % Total ScoreTotal Cost (within budget) 3.1 35% 1.085Risk 2 15% 0.3Customer Service 5 25% 1.25Manageability 2 15% 0.3Required Commitment to Mode 5 10% 0.5Total 100% 3.435

requirements, and will need to be flown in conjunction with other products at all times. Total direct shipping

costs to Megabox for contract air includes transportation to port, freight rate (offered at 10% below scheduled

air cargo rates), insurance, and documentation. The total direct shipping cost for contract air cargo yearly is

$33,077,949.

Contract- Air QRT 1 QRT 2 QRT 3 QRT 4 TOTALPrinter 18,900 33,750 16,875 13,500 83,025 Copier 12,600 17,850 10,500 11,550 52,500 Power Book 1,125 2,250 1,275 1,125 5,775 Z-Ipad 2,325 4,125 3,300 3,375 13,125 Total 34,950 57,975 31,950 29,550 154,425 Table 5e

Contract AirLoads Distribution Cost Insurance ICC Budget Total Cost to Megabox3D Printer 15,514,072.6$ 730,699.20$ 433,141.74$ 13,839,000.00$ 16,709,593.50$ Ultra HD Copier 9,809,100.0$ 230,175.00$ 136,442.47$ 6,300,000.00$ 10,207,397.47$ PowerBook 1,079,001.0$ 190,575.00$ 112,968.49$ 2,079,000.00$ 1,414,224.49$ Zpad 2,452,275.0$ 1,420,650.00$ 842,128.77$ 4,725,000.00$ 4,746,733.77$ Total 28,854,449$ 2,572,099$ 1,524,681$ 26,943,000$ 33,077,949$

Table 5f6

In comparing the annual budget with the total cost to Megabox for the alternative of contract air cargo service,

only one product, Powerbooks, is able to be flown within budget with total costs exceeding the allocated funds

by $6,134,949. For this reason, we have classified contract air as the less accessible alternative, with a scoring

in the criterion of total cost of 1 out of 5.

Customer Service. Contract air cargo flights service Megabox three times a week, which is in

correlation with the interests of the distributor in Zumburu. Contract air cargo shipments remain in transit for

8.5 days (Those days represents ups to the point where Megabox is responsible). Transit times in combination

with services being available three times a week, would replenish inventory frequently, and is in compliance

with the wishes of the distributor for lowering his inventory carrying costs. For these reasons, contract air

received a score of 5 out of 5 for customer service.

6 Documentation costs of $31,680 has been added to the total cost calculation for Megabox.12

Insufficient Loads

Risks and Manageability of Alternative. The known risk with contract air is the weekly volume

requirement versus actual forecasted unit sales for the next 12-months, as well at the inability of Megabox to

afford transportation of three of their products. The manageability of this 12-month contract is infeasible, and

would be ill-advised to attempt. Both criteria of risk and manageability are scored with a 2 out of 5 for contract

air.

Required Commitment to Mode. Contract air requires a commitment of 12 consecutive months with

shipments of at 4000ft^3 a week. This is a considerable length of time, especially with the concern of

fluctuation in demand, due to the lack of economic policy in Zumburu itself. Required commitment to mode

was given a 2 out of 5 because of this uncertainty.

Table 5i below totals up all scoring for the alternative of contract air cargo services, for a total score weight of

2.4.

Criteria Scoring Weight % Total ScoreTotal Cost (within budget) 1 35% 0.35Risk 2 15% 0.3Customer Service 5 25% 1.25Manageability 2 15% 0.3Required Commitment to Mode 2 10% 0.2Total 100% 2.4Table 5i

-Conference Container Vessel

Total Cost Analysis. Conference container vessel service does not have a requirement on volume,

however Megabox is limited to shipping all products in 40 FEU containers, which may require transloading

operations (from domestic to international containers) to and from the ports. More information on the costs

involved with these particular activities would be needed to include those costs into the total cost analysis. Total

direct shipping costs for conference container vessel shipments include all transportation activities before

arriving to Zumburu, packaging-containerization, the freight rate, unpacking at the port, insurance,

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documentation and wharfage fees at the destination port. As displayed in Table 5j, costs assigned to Megabox

for conference container shipping totals $21,920,759.84 yearly.

Table 5j7

Three out of four products can be serviced within budget, even though the total cost yearly is $5,020,740.16

under budget. The alternative of conference container vessel service was scored with a 4 out 5 within the total

cost criterion, due to the necessary overdraw of $4,878,911.90 required to transport ZPads with this alternative.

Customer Service. Conference container vessel services Megabox weekly, however, several

uncontrollable factors in this mode of transportation can affect customer service. These include the effects of

weather, port capacities, port authorities, governmental regulation, port labor status and security of cargo. The

effect of any of these factors on the quality of Megabox’s customer service could be considered risks aside from

those listed in the next paragraph. Transit times for conference Container Sea shipments are divided between

container loads (CL) and less-than-container-loads (LCL), with 40.5 days for CL and 49.5 days for LCL8.

Transit times in combination with services being offered by this mode weekly, creates some build-up of

inventory, and the need for our distributor to increase their safety stock. This is not in direct compliance with

the desires of the distributor. For scoring of this alternative in the category of customer service, it was given a 3

out 5, which reflects the reliability of service with all of these unknown factors considered.

Risks and Manageability of Alternative. Risks to consider in conference sea shipments are directly

related to levels of customer service. Aside from the risks listed under the criterion of customer service, there

are risks of volume demand fluctuations with the lack of economic policy in Zumburu, and their reliance on oil

7 Documentation Costs of $10,560 have been added to the total cost calculation for Megabox. 8 Times in transit for all options represent up to the point that Megabox is responsible

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Conference ContainerLoads Total Distribution CostsWharfage Insurance ICC Budget Total Cost to Megabox3D Printer 3,777,637.50$ 1,301,832$ 716,007.60$ 2,201,140.60$ 13,837,500.00$ 8,007,177.70$ Ultra HD Copier 2,388,750.00$ 410,130$ 225,571.50$ 693,448.77$ 6,300,000.00$ 3,728,460.27$ PowerBook 262,762.50$ 339,570$ 186,763.50$ 574,145.75$ 2,079,000.00$ 1,373,801.75$ Zpad 597,187.50$ 2,531,340$ 1,392,237.00$ 4,279,995.62$ 4,725,000.00$ 8,811,320.12$ Total 7,026,337.50$ 4,582,872.00$ 2,520,579.60$ 7,748,730.74$ 26,941,500.00$ 21,920,759.84$

revenue. The manageability of these risks depend on the complexity of each circumstance, and both receive a

score of 2.6 out of 5.

Required Commitment to Mode. Although there is no volume commitment to mode, there is a

commitment to the containers used on conference container vessels (40 FEU). Megabox will end up paying for

LCL movements 30% of the time, which is costly and an inefficient use of capacity. The positive side of not

having a required commitment to this particular mode is the flexibility afforded to Megabox to alternate

between modes if necessary for shipments. The score for this criterion received a 3.2 out of 5.

Table 5m below displays the collected scoring of 3.25 for the alternative of conference container vessel service.

Table 5m

- Non-Conference

Container Vessel

Total Cost Analysis. Non-conference container vessel shipments services Megabox bi-weekly using 20

FEU containers. It is not limited by volume and it is offered at a 15% discount over conference rates. The

opportunity for usage of 20 FEU containers for shipping is a cost savings advantage for Megabox, in that the

distribution of CL and LCL shipments shifts to 90-10%. This is an increase in capacity efficiencies, and lowers

the amount spent on LCL shipments, which are at 67% higher freight rate. Costs associated with non-

conference container vessel service are all transportation activities before port of Zumburu, packaging and

containerization, freight rate, unpacking, documentation, insurance, and wharfage. Total cost to Megabox of

non-conference container vessel shipments are $13 as shown in Table 5n.

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Criteria Scoring Weight % Total ScoreTotal Cost (within budget) 4 35% 1.4Risk 2.6 15% 0.39Customer Service 3 25% 0.75Manageability 2.6 15% 0.39Required Commitment to Mode 3.2 10% 0.32Total 100% 3.25

Non Conference ContainerLoads Distribution Cost Wharfage Insurance ICC Budget Total Cost to Megabox3D Printer 1,418,482.1$ 1,328,400$ 716,007.60$ 1,054,713.21$ 13,837,500.00$ 4,522,882.93$ Ultra HD Copier 896,962.5$ 418,500$ 225,571.50$ 332,277.53$ 6,300,000.00$ 1,878,591.53$ PowerBook 98,665.9$ 346,500$ 186,763.50$ 275,111.51$ 2,079,000.00$ 912,320.88$ Zpad 224,240.6$ 2,583,000$ 1,392,237.00$ 2,050,831.23$ 4,725,000.00$ 6,255,588.86$ Total 2,638,351$ 4,676,400$ 2,520,580$ 3,712,933$ 26,941,500$ 13,569,384$

Table 5n9

In comparing the total annual cost of non-conference container vessel service to the annual budget for

transportation, only three out of four products can be accommodated even though the total annual cost for all

four products is under budget by $13,372,116. Transporting the ZPads on nonconference cargo container

vessels exceeds the allocated budget for this product by $1,530,588.86, which leads to a scoring of 4.3 out of 5

for the criterion of total cost.

Customer Service. Nonconference container vessel services Megabox bi-weekly, and there are several

uncontrollable factors in this mode of transportation that can affect customer service. These include the effects

of weather, port capacities, port authorities, governmental regulation, port labor status and security of cargo.

The effect of any of these factors on the quality of Megabox’s customer service could be considered risks aside

from those listed in the next paragraph. Transit times for nonconference sea shipments are divided between

container loads (CL) and less-than-container-loads (LCL), with 40.5 days for CL and 49.5 days for LCL. It is

important to remember the shift of the 90/10% division between CL and LCL shipments here, which would

mean that only 10% of the shipments would be in transit for 49.5 days. However, transit times in combination

with services only being available every two weeks, would create frequent delays in replenishment of inventory,

and is not in compliance with the wishes of the distributor. In the criterion of customer service, the

nonconference sea service is given a 2 out of 5.

Risks and Manageability of Alternative. Risks to consider in nonconference sea shipments are directly

related to levels of customer service. Aside from the risks listed under the criterion of customer service, there

are risks of volume demand fluctuations with the lack of economic policy in Zumburu, and their reliance on oil

revenue. The manageability of these risks depend on the complexity of each situation. For the score of risk and

manageability, nonconference container vessel service was given a 2.8 out of 5, primarily for the risk of

managing semi-monthly shipments. 9 Documentation cost of $5,280 has been included to the total cost calculation for Megabox.

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Required Commitment to Mode. For nonconference container vessel service, there is no required

commitment to the mode, however there is a volume limitation to 20 FEUs. The positive side of no commitment

to this particular mode is the flexibility afforded to Megabox to alternate between modes if necessary for

shipments. In the category of required commitment to mode, nonconference container vessel service was scored

with 4 out of 5.

Table 5r displays the final scoring of 3.245 for the alternative of nonconference container vessel service.

Table 5r

Recommendation

We recommend that Megabox divide the shipments of their products by two modes; the shipping of

Powerbooks and ZPads by scheduled air with charter overflow and 3D Printers and HD Copiers by

nonconference container vessel service.

Due to the customer service desires of the distributor in Zumburu, we recommend that all products that

can possibly be transported by air, should be. Transit times are shorter which would be in direct compliance

with the distributor’s wishes for small, frequent shipments. As we were considering a recommendation, the first

criterion evaluated was the amount of the products that could be transported by air. The reason why we do not

advice for the use of contract air cargo services as an alternative, is because of several cost factors that make

this option infeasible. The total annual cost is $4,519,631.44 over budget, and the only product that can be

serviced within budget (Powerbooks), does not meet the minimum weekly load requirement of 4000 ft^3.

Combining all these factors with this 12-month commitment, entering the contract is highly ill-advised.

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Criteria Scoring Weight % Total ScoreTotal Cost (within budget) 4.3 35% 1.505Risk 2.8 15% 0.42Customer Service 2 25% 0.5Manageability 2.8 15% 0.42Required Commitment to Mode 4 10% 0.4Total 100% 3.245

Therefore, we recommend using scheduled air with charter overflow, for the two products that can be shipped

via this mode within budget: Powerbooks and ZPads.

Table 6a below compares the budgetary analysis for both air alternatives.

Budget Comparison Annual Scheduled Air Contract AirBudget Total Cost to Megabox Total Cost to Megabox

3D Printer 13,839,000$ 16,709,718.06$ 16,709,593.50$ Ultra HD Copier 6,300,480$ 8,568,091.24$ 10,207,397.47$ PowerBook 2,079,000$ 435,130.99$ 1,414,224.49$ Zpad 4,725,000$ 2,845,377.27$ 4,746,733.77$ Total 26,943,480$ 28,558,317.56$ 33,077,949$

Table 6a

This leaves the last two items that cannot be serviced via air cargo flights, 3D Printers and HD Copiers.

In considering the use of sea cargo service, there are the options of conference container vessel service and

nonconference container vessel service. Conference container vessel service is not recommended for the

distribution of loads between CL and LCL shipments. The division of 70/30% means that 30% of Megabox’s

products will be in transit for 49.5 days on LCL, as opposed to nonconference service, where the division is

90/10%, leading with a transit time efficiency of 20%. Transit time efficiency, coupled with the savings gained

through the selection of nonconference container vessel services, is why we recommend transporting the two

remaining products aboard nonconference container vessels. (Table 6b compares the LCL load distribution

between both sea alternatives.)

Table 6b

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Conference ContainerLoads CL LCL CL LCL CL LCL CL LCL3D Printer 735 315 1,313 563 656 281 525 225 Ultra HD Copier 630 270 893 383 525 225 578 248 PowerBook 788 338 1,575 675 893 383 788 338 Zpad 1,628 698 2,888 1,238 2,310 990 2,363 1,013 Total Yearly 45,360 19,440 80,010 34,290 52,605 22,545 51,030 21,870

Total LCL yearly 98,145 Non Conference ContainerLoads CL LCL CL LCL CL LCL CL LCL3D Printer 945 105 1,688 188 844 94 675 75 Ultra HD Copier 810 90 1,148 128 675 75 743 83 PowerBook 1,013 113 2,025 225 1,148 128 1,013 113 Zpad 2,093 233 3,713 413 2,970 330 3,038 338 Total Yearly 58,320 6,480 102,870 11,430 67,635 7,515 65,610 7,290

Total LCL yearly 32,715

QT1 QT2 QT3 QT4

QT1 QT2 QT3 QT4

-Bi-Modal: Scheduled Air Cargo/ Nonconference Container Vessel Services

Total Cost Analysis. Scheduled air cargo services with charter overflow offers flights three times a

week with a volume restriction of 3000ft^3 on scheduled flights. Any cargo needed movement over 3000ft^3 is

allocated to charter air cargo overflow at an increased rate of 20%. In comparing the actual loads shipped of

Powerbooks and Zpads yearly (Table 6c) to the volume restriction per week on scheduled air, there is a yearly

overflow into charter air services of 4,500ft^3 accumulated from the last three quarters of ZPad shipments.

Table 6cNon-conference container vessel shipments services Megabox bi-weekly using 20 FEU containers. It is not

limited by volume and it is offered at a 15% discount over conference rates. Table 6d below displays the load

distribution quarterly for 3D Printers and HD Copiers shipped via nonconference sea vessels.

Table 6d

Total direct shipping costs to Megabox yearly for using scheduled air cargo services for Powerbooks and Zpads,

and nonconference container vessel services for 3D Printers and HD Copiers is represented in Table 6e below.

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Contract- Air QRT 1 QRT 2 QRT 3 QRT 4 TOTALPower Book 1,125 2,250 1,275 1,125 5,775 Z-pad 2,325 4,125 3,300 3,375 13,125 Total 3,450 6,375 4,575 4,500 18,900

Non Conference ContainerLoads CL LCL CL LCL3D Printer 945 105 1,688 188 Ultra HD Copier 810 90 1,148 128 Total 1,755 195 2,835 315

Loads CL LCL CL LCL3D Printer 844 94 675 75 Ultra HD Copier 675 75 743 83 Total 1,519 169 1,418 158

QT1 QT2

QT3 QT4

These costs include everything Megabox is responsible for under the Incoterms DAT Port of Zumburu: all

transportation before arriving to the port of destination, packing/unpacking, wharfage, freight movement costs,

documentation, and insurance. Total yearly transportation costs to Megabox is $9,681,982.73, which is a

savings of $17,259,517.27. The scoring of total cost criterion for the recommendation of scheduled air cargo

and nonconference container vessel services was given a 4.7 out of 5, for the ability to transport all four of

Megabox’s products with major savings to the allocated budget.

Scheduled Air QTR1 QTR2 QTR3 QTR4

PowerBook 1125 2250 1275 1125 2,079,000$ 435,130.99$ Zpad 2325 4125 3300 3375 4,725,000$ 2,845,377.27$ Total 6,804,000$ 3,280,508.26$ Non Conference Container QTR1 QTR2 QTR3 QTR4Loads3D Printer 1050 1875 937.5 750 13,837,500$ 4,522,882.93$ Ultra HD Copier 900 1275 750 825 6,300,000$ 1,878,591.53$ Total 20,137,500$ 6,401,474.46$ Total yearly cost 26,941,500$ 9,681,982.73$

Budget Total Cost to MegaboxLoads

Budget Total Cost to MegaboxLoads

Table 6e

Customer Service. Scheduled air cargo services with charter overflow offers flights three times a week

with a volume restriction of 3000ft^3 on scheduled flights. Any cargo needed movement over 3000ft^3 is

allocated to charter air cargo overflow. Total transit time for air cargo services is 11 days, and in combination

with flights three times a week, scheduled air cargo is going to be in agreement with the wishes of the

distributor in Zumburu. Non-conference container vessel shipments services Megabox bi-weekly using 20 FEU

containers, with a CL and LCL distribution rate of 90/10%; meaning that 90% of the shipments remain in transit

for 40.5 days, and 10% for 49.5 days. This is not in agreement with what the distributor desires to accomplish

with his inventory management, however, this option is more efficient in comparison to conference container

vessel services which has a distribution of 70/30%. It has already been established that 3D Printers and HD

Copiers cannot be viably transported via air cargo services (budgetary constraints), therefore we recommend

using nonconference sea vessel services to obtain a slightly higher quality of customer service. In the evaluation

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of customer service criterion for the recommendation of scheduled air cargo and nonconference container vessel

services, a score of 3.5 out of 5.

Risks and Manageability of Recommendation. Some risks associated with scheduled air cargo is

insufficient space available for Megabox’s shipments which results in the usage of charter overflow, at a higher

rate of 20%. Risks to consider in nonconference sea shipments are the several uncontrollable factors in this

mode of transportation that can affect reliability of service: the effects of weather, port capacities, port

authorities, governmental regulation, port labor status and security of cargo. Manageability of the bi-modal

recommendation is facilitated by the division of product shipments. The risk of insufficient space on scheduled

air cargo service is lessened by the selection of the two Megabox products that incur less unit demand. The

manageability of nonconference sea vessel shipments is enabled by the annual budget savings acquired through

this bi-modal recommendation; it provides the necessary monetary flexibility to handle these uncontrollable

factors. For the criteria of risks and manageability of the recommendation, a score of 3.7 out of 5.

Required Commitment to Mode. In both modal selections of scheduled air cargo and nonconference

container vessel services, there is no required commitment to mode, which provides Megabox the flexibility of

switching modes of transportation in the event of a disruption in distribution. There are volume constraints in

each modal option (a limit of 3,000ft^3 a week for scheduled air with charter overflow, and 20 FEU container

usage for nonconference sea vessel), however these constraints do not hinder Megabox’s ability to fulfill

volume necessities via these modes, because of the division made between the distribution of each product

based on the most advantageous alternative. The criterion of required commitment to mode is scored with a 4

out of 5, given the fact that no commitment to mode is required, and all volume constraints can be easily met.

Table 6f below summarizes the total scored evaluation of 4.03 for the recommendation of bi-modal shipments

using scheduled air cargo services for Powerbooks and Zpads, while using nonconference container vessel

services for 3D Printers and HD Copiers.

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Table 6f

In a couple last comparisons, Figures 6a and 6b are the final weighted scores assigned to each alternative

individual versus the weighted score of the final recommendation.

Figure

6a

Figure 6b

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Criteria Scoring Weight % Total ScoreTotal Cost (within budget) 4.7 35% 1.645Risk 3.7 15% 0.555Customer Service 3.5 25% 0.875Manageability 3.7 15% 0.555Required Commitment to Mode 4 10% 0.4Total 100% 4.03