1. Megabox faces the problem of choosing the most efficient modes of transportation for shipping its products to Zumburu while maintaining budget constraints. 2. The alternatives analyzed are Conference Sea, Non-Conference Sea, Scheduled Air, and Contract Air. Conference Sea is chosen for washers/dryers, Non-Conference Sea for refrigerators, and Scheduled Air for HDTVs and Zpads. 3. Each alternative is evaluated based on costs including freight, insurance, inventory carrying costs, and how well the budget can be met for each product. The lowest cost alternative within budget is chosen for each product.

1. James Quayson
Megabox Case Write UP
LSCM 4560 - Spring 2014
April 6, 2014
Executive Summary

2. From the data we collected we came up with four primary ways to ship each
product through the best mode of transportation. We decided we would ship
washers/dryers through Conference Sea. This is because washers/dryers have a
high cubic volume and are low value, bulk commodity goods and are not in as
high demand compared to HDTV’s and Zpads to the customers. Second we
decided to ship refrigerators through Non-conference Sea because that is the
only mode that they were in budget. They fit in this mode because CL (the
cheaper mode of transporting goods) was 90% and LCL is 10% creating a 20%
cost savings compared to conference sea. In addition to this there was a 15%
discount over Conference Sea. Refrigerators have the highest cubic volume
(which caused them to not in budget for all other modes), and the least amount of
wharfage costs if they were to ship by non-conference sea. Lastly we concluded
that we would ship HDTV's and Zpads through scheduled air. Although HDTV’S
appear not to be in scheduled air’s budget according to our calculations they are
indeed supposed to be transported through this mode of transportation. This is
because HDTV’S are high value perishable electronics which are usually
transported through air because they have the highest transit time. Since
inventory carrying cost and insurance is the same for scheduled and contract air
we must have calculated total QTR wrong even after trying several different
methods to make fit HDTV’s in scheduled and contract airs budget. Zpads are
high value items it would be best to transport them through scheduled air to
prevent it from loss and damage, and to achieve the best customer satisfaction
because it has the fastest transit time. These products high insurance costs, and
low inventory carrying do not prevent them from being out of budget for
scheduled and contract air. Scheduled air provides greater savings in the long
run when transporting these two electronics even though they have high
insurance costs.
1.Problem statement.
The problem Megabox faces is choosing which mode of transportation to
choose that will result in the most efficient way to move their product to Zumburu.

3. This is a problem because the company wants to be able to get their product to
their customer in a timely manner, but must maintain their budget.
Answering this problem is important to Megabox for many reasons.
Megabox is a company that distributes Televisions and tablets, as well as
consumer goods such as refrigerators, washers, and dryers. Their tasks is to
ship these goods to Zumburu. These products can either be shipped by Air or by
Sea. Each product has its own budget to be met. By not handling the budget
properly and choosing the right ways to ship these products could result in not
only a loss in revenue for Megabox but even a lost in future orders. On the other
hand if the product is shipped way under budget then that could result in the
shipping not being quick enough also resulting in potential future order loss.
Issues
Megabox has issues such as staying in budget, Maintaining a high level
of customer service, which modes to choose, and the stability of the Zumburu
government.
The government is an issue because they have never really had an economic
policy. Megabox is concerned that with the drying up of the oil revenues could
force the government to suddenly raise the import duties or even put limits on
importation, to control the outflow of current currency. This is a risk cause these
factors could make or break Megaboxs profitability or even ability to ship
products to Zumburu.
As mentioned earlier Megabox must consider budget. The main way to
accomplish this issue is through the cost saving analysis on shipping these

4. products. The way we are calculating this is by getting our budget by taking the
FOB/CIF terms, we would then calculate the total landed costs and subtract
these two to create our total savings.
Cost should be clearly Identified by the shipper and the receiver. We
have included this chart to show who will be paying for what.
Financial
Responisibilty
Cost occurred Megabox Zumburu
Transportation to
packing
X
Transportation to port X
Freight X
Unpack/Unstuffing X
Transportation to
consignee
X
Cargo Insurance X
Wharafage X
documentation X
Customs duty X
Storage fees at
destination port
X
Consignee Fee X

5. The issues of customer service and risks will not be of big problems for
management. This is because If we choose the most efficient route it would then
result in the best customer service. Risks Is also not that big of an issue because
when we select that mode of transportation we are accepting the tradeoff
between costs and potential risks.
2.
Alternatives
We had four different ways to ship freight from one location to another. Although
we would have loved to use all four modes of transportation to ship freight
accordingly, our budget couldn’t accommodate that. Therefore, we decided to
use the best mode of transportation, in our opinion, to ship each item according
to its value, weight, and cost.
Conference Sea- After we computed and compared total cost to our annual
budget for Conference Sea, we came to the conclusion that it would be best to
ship the washer and dryer through this mode of transportation. Although this
mode of transportation has the least amount of savings, it would be beneficial for
Mega box to ship washers and dryers through this way because they have the
lowest insurance cost, and consular fees out of all four goods. From this, we can
conclude that washers and dryers would be shipped best by Conference Sea
because they are low value and bulk commodities, which require higher transit
times.

6. Non-Conference Sea- Since refrigerators don’t fit in Conference Sea’s
scheduled and contract air’s budget, the only way to ship these low value, bulk
commodities would be through Non-Conference Sea. Also, since refrigerators
have the highest cubic ft. in volume (which caused them to not be in budget for
all other modes), and the least amount of wharfage costs, it would be beneficial
to Mega box if they were shipped through Non-Conference Sea. Lastly,
refrigerators have the third largest savings after high valuegoods like HDTV’S
and Zpads, which require the high insurance costs.
Scheduled Air- After looking at the alternatives, I believe it would be best to ship
HDTV’S and Zpads together through Scheduled Air. Although they have
insurance and low inventory carrying cost, we and customers receiving these
goods would prefer to send these items through Scheduled Air, so they can be
delivered in the fastest way possible, and in good condition, since they’re high
value goods that can’t be taken through Conference Sea and Non-Conference
Sea.
Contract Air- Although Contract Air sounds cheaper because it offers a 10%
discount of scheduled air, it costs more money at the end because one has to fill
4000 cubic ft. /week and have a one year contract. Although Mega box could’ve
shipped HDTV’s and Zpads through Contract Air, we decided to ship them
through Scheduled Air. In addition to this, erratic changes in government might
cost Mega box more money.
4.Analysis of Alternatives and Costs

7. The 4 alternatives we looked at for our analysis are Conference Sea, Non-
conference Sea, scheduled air, and contract air. For each of these different
alternatives the total costs, budget and customer service we all calculated. Each
mode has there own uniqueness with concerns of pricing and volume constrains
for air.
Conference Sea is the first alternative that was computed. This mode is the most
basic of the modes concerning costs. Conference sea required had a required
70/30 percentage spilt between container load (CL) and less than container load
(LCL).
Conference Ship Vol Container CL Vol LCL Vol
Sea Cubic ft Volume 70% 30%
HDTV 20.25 5135.80 $3,595.06 $1,540.74
Refrigerator 72.00 1444.44 $1,011.11 $433.33
Washer/Dryer
Combo
60.00 1733.33 $1,213.33 $520.00
Z-Pad 1.00 104000.00 $72,800.00 $31,200.00
The above table shows the total container volume and the distribution of the total
volume being distributed to 70% CL and 30% LCL. The way the container
volume was calculated was 2000 cubic feet divided by the shipping volume of the
particular product then multiplied by 52wks. The reason for using 2000 cubic feet
because Conference Sea required that all containers to be shipped in 40 foot

8. equivalent unit (FEU). The Cl and LCL volumes each traveled at different rates
per cubic feet shipped. The Cl rate for Conference Sea is $8.40 and LCL is
$13.10. Those costs included transportation to, packing/container, transportation
to port, freight, and unpacking/un-stuffing. When we calculated the LCL and CL
freight costs the yearly demand was adjusted by 10% since the forecast is
usually over forecasted. For the cost we then multiplied by .9 of the demand to
get the 10% adjustment. CL freight is cheaper to ship even though it has higher
total numbers but the volume being shipped is much higher than the LCL.
Conference Cl LCL
Sea Freight Freight
HDTV $565,284.83 $242,264.93
Refrigerator $1,733,659.20 $742,996.80
Washer/Dryer Combo $317,520.00 $136,080.00
Z-Pad $235,494.00 $100,926.00
The above table shows the cost distribution between Cl and LCL. These were
calculated by taking 70% or 30% of the total yearly demand times by the
shipment volume of the particular product times by the cost of either Cl or LCL.
Next insurance is going to be discussed. The insurance costs once again
difference between CL and LCL. CL cargo insurance is 1.5% and 1.75% LCL of
CIF. Since Conference Sea gets a 2% discount off of CIF that is the number that
is used for all the CIF calculations. Once again the forecast had to be adjusted
to what will probably actual so demand is multiplied by .9 of the 2% CIF price

9. multiplied by they CL or LCL parentage calculations of 1.5% or 1.75%. The
percentages included the losses and damages of the cargo. Refer to the chart
below to view the insurance distribution costs. Insurance costs make
Conference Insurance Insurance Insurance
Sea CL LCL Total
HDTV $63,507.31 $30,241.58 $93,748.88
Refrigerator $46,351.31 $22,072.05 $68,423.36
Washer/Dryer
Combo
$11,113.20 $5,292.00 $16,405.20
Z-Pad $339,994.46 $161,902.13 $501,896.59
up a good portion of the cost to ship the products across the ocean. Next to
calculate the inventory carrying costs. It took more time to ship LCL good than CL.
Shipping LCL goods it takes 34 days for a product to get from the factory and then
to be unloaded at the port. CL shipments take more time it takes 41 days till the
products reach the storage area at the port. With these long transit times the
inventory carrying costs would be expected to be high but our findings did not have
see that. The carrying cost
Conference Inv Carry Inv Carry
Sea Cost (CL) Cost (LCL)
HDTV $93.77 $48.46
Refrigerator $26.37 $13.63
Washer/Dryer Combo $31.65 $16.36
Z-Pad $1,898.78 $981.30

10. are computed by taking the transit time divided by the number of days in a year
then multiplied by 28% which is the inventory carrying costs percentage of the
products then multiplied by the volume being shipped. The budget is the
difference between CIF 2% minus FOB price multiplied by the demand. The total
costs are all the costs associated with the product added together.
Conference FOB CIF 2% off Total
Sea Price Price CIF Budget Cost
HDTV $1,000.0
0
$1,300.0
0
$1,274.0
0
$1,300,815.0
0
$1,112,491.1
7
Refrigerator $450.00 $1,100.0
0
$1,078.0
0
$2,571,660.0
0
$2,602,474.6
3
Washer/Dry
er Combo
$550.00 $1,200.0
0
$1,176.0
0
$563,400.00 $525,963.20
Z-Pad $650.00 $825.00 $808.50 $6,347,925.0
0
$3,203,621.6
8
This is everything that is associated with Conference Sea. The next alternative
that will be discussed is Non-Conference Sea.
Non-Conference Sea is very similar to Conference Sea. There are a few distinct
differences but for the most part it is identical. The split for CL and LCL is 90/10
and there is a discount of 15% for Non-Conference Sea. Non-Conference Sea
also used different type of container instead of using the 40 FEU Non-
Conference Sea uses, 20 FEU are used. They do not fit as much product by

11. they are easier to unload and load so they are little bit more efficient. Cost of the
freight has the same formula as Conference Sea just the 15% discount has to be
included which the table below is demonstrating. The insurance costs are
computed and are the same as Conference
Non Conference
Sea
Cl LCL Total
Freight Freight Freight
HDTV $617,775.56 $108,682.74 $726,458.30
Refrigerator $1,894,641.84 $333,316.62 $2,227,958.46
Washer/Dryer
Combo
$347,004.00 $61,047.00 $408,051.00
Sea because the transit times are the same. Scheduled air is the next alternative
being looked at which has unique characteristics.
Scheduled air is quite different from the modes that have already been
discussed. Scheduled air requires 3000 cubic feet of cargo every week if
Megabox goes over the 3000 cubic feet then it has to go to the spot market for
that quarter which charges a higher rate than the scheduled air rate. Scheduled

12. air is based on a per quarter demand unlike the conference sea and non-
conference sea which are on an annually basis. To get all of the quarter
demands into a weekly form, the demands are divided by 13 since there are 13
weeks in a quarter. Below is showing how the quarters
Scheduled
Air
Total
Qtr1 Qrt2 Qtr3 Qtr 4 Freight
HDTV 1682.3076
92
1892.5961
54
2803.8461
54
1016.3942
31
7395.1442
31
Refrigerato
r
4984.6153
85
6230.7692
31
7476.9230
77
3987.6923
08
22680
Washer/Dry
er Combo
415.38461
54
1038.4615
38
1246.1538
46
1453.8461
54
4153.8461
54
Z-Pad 830.76923
08
761.53846
15
934.61538
46
553.84615
38
3080.7692
31
are broken down. To compute the quarter demands are divided by 13 then
multiplied by the shipment volume of 1 unit of product. Since we are limited to
only 3000 cubic feet not all of the products can go by the scheduled air rate
which is $20.50 per shipped cubic foot. Going out in the spot market the rate is
20% higher. The refrigerator and washer and dryer for the most part have to go
at the 20% higher rate because they will not fit with the Z-pads and HDTV’s. The
chart below shows the cost breakdown per

13. Scheduled
Air
Qtr1 Cost Qrt2 Cost
Qtr3 Cost Qtr 4 Cost
HDTV $448,335.00 $504,376.88 $896,670.00 $270,869.06
Refrigerator $1,594,080.0
0
$1,992,600.0
0
$2,391,120.0
0
$1,275,264.0
0
Washer/Drye
r Combo
$110,700.00 $332,100.00 $398,520.00 $387,450.00
Z-Pad $221,400.00 $202,950.00 $249,075.00 $147,600.00
quarter, the areas in blue are being shipped in the spot market because including
them will exceed the 3000 cubic feet. Z-pad and HDTV are picked first to go
because they are more expensive and more likely to get damaged in transit. The
inventory carrying costs for scheduled air is still the 28% but the number of days
in transit is 7.5 divided by 365 then multiplied by the total freight being shipped.
The insurance is a little bit more
Scheduled Air Total Inv Carry
Freight Cost
HDTV 7395.144231 $42.55
Refrigerator 22680 $130.49
Washer/Dryer Combo 4153.846154 $23.90
Z-Pad 3080.769231 $17.72

14. complicated in computing than the other alternatives. The cargo insurance is 1%
of the CIP value plus 10%. Cargo insurance is more expensive for air because
the mode it is traveling on and there is a limited amount of space on every
aircraft.
Scheduled Air Insurance
HDTV $201,887.44
Refrigerator $523,908.00
Washer/Dryer Combo $104,676.92
Z-Pad $53,374.33
The budget for scheduled air is the difference of CIP and FOB multiplied by the
demand. The washer/dryer and refrigerator went over budget and they are more
bulky so it does not make since to ship them by air. The last alternative is
contract air.
For contract air Megabox is looking at signing a contract that reserves 4000 cubic
feet of space and can fill that space in any way we please if it is not filled
Megabox still pays for the space. The z-pad and the HDTV take up the bulk of
the space and then the washer and dryer combo. The insurance is computed the
same way as scheduled air
Con
trac
t Air

15. Qtr
1
Qrt
2
Qtr
3
Qtr
4
HDT
V
168
2.3
076
92
189
2.5
961
54
280
3.8
461
54
101
6.3
942
31
Refr
iger
ator
498
4.6
153
85
623
0.7
692
31
747
6.9
230
77
398
7.6
923
08
Was
her/
Dry
er
Co
mbo
415
.38
461
54
103
8.4
615
38
124
6.1
538
46
145
3.8
461
54
Z-
Pad
830
.76
923
08
761
.53
846
15
934
.61
538
46
553
.84
615
38
Con
fere
Non
Con
fere

16. nce
Sea
nce
Sea
Tota
l
Tota
l
Bud
get
Cost Diffe
renc
e
Bud
get
Cost Diffe
renc
e
HDT
V
$1,3
00,8
15.0
0
$1,1
12,4
91.1
7
$188
,323.
83
$1,4
24,2
50.0
0
$90
6,32
3.21
$51
7,92
6.79
Refr
iger
ator
$2,5
71,6
60.0
0
$2,6
02,4
74.6
3
($30,
814.
63)
$2,6
61,7
50.0
0
$2,3
22,5
23.7
8
$33
9,22
6.22
Was
her/
Dry
er
Co
mbo
$56
3,40
0.00
$52
5,96
3.20
$37,
436.
80
$58
5,00
0.00
$44
1,86
1.00
$14
3,13
9.00
Z-
Pad
$6,3
47,9
$3,2
03,6
$3,1
44,3
$7,0
08,7
$1,5
85,1
$5,4
23,5

17. 25.0
0
21.6
8
03.3
2
50.0
0
59.2
9
90.7
1
Sch
edul
ed
Air
Con
trac
t Air
HDT
V
Tota
l
Tota
l
Refr
iger
ator
Bud
get
Cost Diffe
renc
e
Diffe
renc
e
Bud
get
Cost Diffe
renc
e
Was
her/
Dry
er
Co
mbo
$1,4
24,2
50.0
0
$2,6
09,9
98.1
1
($1,1
85,7
48.1
1)
$51
7,92
6.79
$1,4
24,2
50.0
0
$2,1
77,4
24.0
8
($75
3,17
4.08)
Z-
Pad
$2,6
61,7
50.0
0
$8,4
19,2
29.9
9
($5,7
57,4
79.9
9)
$33
9,22
6.22
$2,6
61,7
50.0
0
$6,0
94,8
76.4
9
($3,4
33,1
26.4
9)

18. $58
5,00
0.00
$1,4
63,0
36.2
1
($87
8,03
6.21)
$14
3,13
9.00
$58
5,00
0.00
$1,1
32,9
50.8
2
($54
7,95
0.82)
$7,0
08,7
50.0
0
$1,1
98,2
82.9
2
$5,8
10,4
67.0
8
$5,4
23,5
90.7
1
$7,0
08,7
50.0
0
$1,8
78,6
70.8
0
$5,1
30,0
79.2
0
cargo. The budget and total cost is the same as scheduled air the high value
items will more likely be the items to go by air and they washer dry and
refrigerator will use a different type of mode.
5.Recommendations:
Conferenc
e Sea
Non-
Conferen
ce Sea
Total Total
Budget Cost Difference Budget Cost Differenc
e
HDTV $1,300,81
5.00
$1,112,49
1.17
$188,323.
83
$1,424,2
50.00
$906,323.
21
$517,926.
79

19. Refrigera
tor
$2,571,66
0.00
$2,602,47
4.63
($30,814.6
3)
$2,661,7
50.00
$2,322,52
3.78
$339,226.
22
Washer/
Dryer
Combo
$563,400.
00
$525,963.
20
$37,436.8
0
$585,000
.00
$441,861.
00
$143,139.
00
Z-Pad $6,347,92
5.00
$3,203,62
1.68
$3,144,30
3.32
$7,008,7
50.00
$1,585,15
9.29
$5,423,59
0.71
Schedul
ed Air
Contract
Air
HDTV Total Total
Refrige
rator
Budget Cost Differenc
e
Differen
ce
Budget Cost Differen
ce
Washer
/Dryer
Combo
$1,424,2
50.00
$2,609,9
98.11
($1,185,7
48.11)
$517,92
6.79
$1,424,2
50.00
$2,177,4
24.08
($753,1
74.08)
Z-Pad $2,661,7
50.00
$8,419,2
29.99
($5,757,4
79.99)
$339,22
6.22
$2,661,7
50.00
$6,094,8
76.49
($3,433,
126.49)
$585,00
0.00
$1,463,0
36.21
($878,03
6.21)
$143,13
9.00
$585,00
0.00
$1,132,9
50.82
($547,9
50.82)
$7,008,7
50.00
$1,198,2
82.92
$5,810,4
67.08
$5,423,5
90.71
$7,008,7
50.00
$1,878,6
70.80
$5,130,
079.20

20. As we calculated the budget and total cost for each mode of transportation
beside it we stated the difference between the two to determine if it were in
budge or not. Zpads and HDTVS were in budget for all modes, but are very
expensive goods, and are needed to be shipped in the fastest way so we placed
them accordingly.
Washer/Dryer- We recommend Megabox ships washers/dryers through
Conference Sea for many reasons. First, washers and dryers can only be
transported through Conference Sea, and Non-conference Sea because they do
not fit in Scheduled and Contract air budgets. This is because washers and
dryers have high cubic volume which causes them to go over budget when
shipping through air. Also since they are low value, bulk commodity goods and
are not in high demand compared to HDTV’s and Zpads by the customers, it
would best to ship them through Conference Sea. Since this mode of
transportation separated CL and LCL (because the sea containers are usually
20-40 ft) it would be best to ship washers and dryers through this mode of
transportation. Lastly since washers and dryers have the lost insurance cost
(which could also be detrimental because they have the highest loss and
damage), CL shipments are less expensive than LCL shipments we would put
70% CL and 30% LCL so we can have the greatest of savings.

21. Refrigerators- According to our calculations refrigerators can only be transported
through Non-conference Sea, because it has the inherent advantage in capacity,
and carries low value bulk commodities. Since refrigerators have the highest
cubic ft it causes them to go over budget/ split in majority of the modes. Second
since CL shipments are less expensive than LCL shipments and Non-conference
Sea has a 90/30 ratio having 20% greater savings than Non-conference Sea,
there is a great amount of savings when it comes to transporting refrigerators.
HDTV’S - Although HDTV’S appear not to be in scheduled air’s budget
according to our calculations they are indeed supposed to be transported through
scheduled or contract air. This is because HDTV’S are high value electronics
which are usually transported through air because they have the highest transit
time. Also HDTV’s are in high demand by customers and would lose Mega box a
lot of money and customer loyalty if shipped through conference and non-
conference sea. Since inventory carrying cost and insurance is the same for
scheduled and contract air we must have calculated total QTR wrong even after
trying several different methods to make fit HDTV’s in scheduled and contract
airs budget.
Zpads- Lastly Zpads are high value items it would be best to transport them
through scheduled air to prevent it from loss and damage, and to achieve the
best customer satisfaction because it has the fastest transit time. These products
high insurance costs, and low inventory carrying do not prevent them from being
out of budget for scheduled and contract air. Scheduled air provides greater
savings in the long run when transporting these two electronics even though they

22. have high insurance costs (because they’re high value items). Lastly shipping
these products by air will ensure they customer they will get to their final
destination in the fastest/ safest way there is