A significant proportion (480t) of silica catalyst is supplied to the petrochemical industries in Texas, North America. This is the UK sites highest margin business relative to tonnage and the most specialised area of the silica product range. Customer lead times are relatively short at 1-2 weeks and 100% On Time In Full (OTIF) has to be maintained for these A list customers. Product is routinely shipped from the UK to a third-party regional distribution warehouse near to the port of Houston from where the product is transferred into the control and ownership of Catalysis s North American company who provide onward delivery and customer service. The average inventory holding in North America to support catalyst sales and service levels was 200 tonnes in 2019.

Historically there have been occasions when customer demand has overtaken plant capacity, stocks have dropped, and continuity of supply has been threatened. On these occasions, the site has used airfreight to reduce the transport lead time. Airfreight has also been used in the event of plant quality problems or sudden high un-forecast demand. It is believed by many in the company that a full switch to airfreight would remove approximately 100 tonnes form the average inventory holding in Northe America with obvious cost savings for the company (weighted cost of capital in Catalysis is set at 15%).

1. Which of the alternative transport modes would you recommend on cost grounds - to North America? You should use the framework provided in Appendix C to calculate the two modal options.

2. What are the relative strengths and weaknesses of the modal options you are recommending and the wider issues that need to be considered?

Data (for 2019)Annual sales of Catalytic Silica to North America 480 tonnes.Average US cost price per tonne $7,060.Sea freight costs per tonne 180 (based on average of previous rates 2018-19)Air freight costs per tonne 1,750 (based on average of previous rates 2018-19) and adjusted for volumetric weight)Average inventory held 200 tonnes (if using sea) Allocated warehousing costs for catalyst 55,500 pa (North America)

Assumptions:Exchange rate ($1.28 to the 1, average 2019)Weighted cost of capital 15%.Import duty 3.7% .For the purposes of this assignment assume there are no additional state/local or sales taxes.International freight insurance 1.07% Sea and 0.92% Air .

Calculate the Annual sales (tonnes),Cost price per tonne,Cost price p.a.,Shipping Cost per tonne,Shipping Cost p.a.,Insurance ,Duty p.a. ,Average Catalyst Inventory (tonnes) ,Inventory Value per tonne,Total Inventory Value,Inventory holding cost p.a. ,Warehousing costs p.a. (storage & handling),Total Costs p.a. of air and sea.