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resistance to each. In fiscal year 1982, DOD proposed creating a new Military Transportation Command, which would consolidate the surface transportation and traffic management functions of MSC and MTMC. However, Congress enacted Section 1110 of the Department of Defense Authorization Act for 1983, P.L. No. 97-252, which prohibits the consolidation of "any function" currently being performed separately by MSC, MAC or MTMC until Congress has the opportunity to consider further DOD legislative proposals.

The OSD Task Force determined that the function of mode selection and traffic management within DOD was fragmented and often in conflict with good management practice. Specifically, many of the decisions relating to the utilization of commercial air transportation services to points outside the continental United States were made by MAC, which also operates a fleet of military and cargo aircraft for DOD. The need to justify and utilize these organic resources often overrode economic criteria in carrier selection decisions and resulted in the use of military aircraft in situations where commercial air carriers might have been chosen if purely economic analysis had been allowed to influence the transportation decision.

Further complicating this process was the fact that the decisions on domestic personnel movements were made by MTMC, which does not own any organic resources. MTMC decisions often conflicted with the decisions made by MAC, particularly where movement from an inland continental United States point to an overseas destination was involved. Similarly, MSC operated organic resources and contracted for commercial cargo space. Again, operational considerations often overrode economic decisions. Finally, MTMC offered a career development path for military transportation specialists, whereas the Navy and Air Force did not provide for progressive career development in this specialized field.

Conclusions

The OSD Task Force concluded that the operation of organic transportation resources was often in conflict with rational economic decisions in the selection of transportation services and that substantial opportunities for cost reduction existed if these functions could be separated. The current DOD proposal does not really focus on the most important issue the need for a single traffic manager for transportation. The proposal only considers surface transportation of cargo. The air transport functions of MAC and MTMC are not included in this proposal. However,

a single traffic manager should manage cargo and passenger movements by surface and air. Complete centralization of traffic management would permit the traffic manager to weigh all of the options and select the mode of transportation that costs least and takes least time. A traffic management function should make the mode decision, and the mode operators, i.e., MAC, MTMC and MSC, should provide the resources to implement the mode selections.

Recommendations

OSD 10-1: The functions of traffic management and transportation equipment operation should be separated and treated as separate cost centers. This would more clearly delineate the true cost of providing transportation services. The consolidation of all traffic management functions into one command should improve day-to-day operating efficiencies and reduce management and administrative costs. OSD 10-2: We recommend that the traffic management functions currently being performed by MTMC, MSC and MAC be consolidated under one agency. This agency should have no organic transportation resources. MAC should continue to operate organic aircraft resources, and MSC should operate organic ocean cargo resources and take over responsibility for terminal operation from MTHC.

Savings and Impact Analysis

The trial consolidation of ocean cargo booking under the control of the MTMC, which also coordinates the inland movement of cargo, has generated estimated annual savings of $4.7 million. Based on the efficiencies achieved to date, it is estimated that additional savings of approximately $15.3 million, for a total annual savings of $20 million, could be achieved through complete consolidation of all surface and air traffic management functions. Full savings may not be achievable for one to two years due to the necessity of developing new systems to interface with existing data processing systems.

A study by Harbridge House, an independent contractor working for DOD, has indicated that a unified traffic management system offers further potential for at least $20 million in one-time cash gain through the reduction of the inventory replacement time. This would lead to a one-time reduction in total inventory investment.

These savings opportunities would be offset initially by a one-time expenditure of $1-$2 million for personnel relocation and facilities consolidation to accommodate the combination of traffic management functions.

Assuming a 10 percent inflation factor, the estimated savings for the first three years from implementation of this recommendation would be:

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DOD should seek legislation that will permit it to consolidate all surface and air traffic management functions as discussed above.

II. ISSUE AND RECOMMENDATION SUMMARIES (CONT'D)

A.

LOGISTICS (CONT'D)

OSD 11: INLAND CONTAINER TRANSPORTATION PROCUREMENT

Summary Recommendation

The Military Sealift Command (MSC) should discontinue its requirement that ocean carriers provide through bills of lading for intermodal surface cargo movement. MSC should procure only ocean container transportation services. Local Department of Defense (DOD) shipping and receiving entities should procure inland container transportation services. The Military Traffic Management Command (MTMC) should be permitted to negotiate inland transport rates upon request by local shippers and receivers.

Financial Impact

$5-$10 million

Potential Savings: Estimated annual
savings are based on projected fiscal
year 1983 MSC expenditures of $55
million for inland container trans-
portation services. Approximately
10 percent of projected expenditures
(the estimated management fee charged
by ocean carriers) could be saved if
MSC discontinued its requirement for
through bill of lading. Further
savings could result from the flexi-
bility of local shippers to negotiate
local inland transport rates.

Background

MSC has used the through bill of lading concept as a way of simplifying the procurement and control of overseas cargo shipments. The concept evolved from the development of intermodal cargo movement, i.e., movement of cargo in the same container which can be used interchangeably on either truck or rail equipment or on board ship. Most ocean carriers offered combined inland and ocean container transportation services to private industry only for a short time, until it proved to be too complex and expensive to manage. MSC still requires through bill of lading for its overseas shipments.

MSC also requires that ocean carriers include a breakout of the cost of the land elements and sea elements of each route in the bill of lading. The carriers must secure quotations from trucking and rail companies for inland transportation services at either end of each route, and incorporate these rates into their overall rate quotations. Ocean carriers are also required to provide trucking and rail coordination and dispatch service in conjunction with each ocean cargo shipment. The trucking and rail elements of each rate structure are checked by MTMC against published rates to ensure reasonableness.

Methodology

The Office of the Secretary of Defense (OSD) Task Force conducted interviews and reviewed documents concerning MSC's current practice in procuring container transportation services. Private sector ocean carriers were also interviewed. This analysis was performed by Task Force personnel with private sector experience in transportation procurement.

Findings

Local DOD shipping and receiving entities have the option of procuring local trucking and rail service if appropriate, but they currently have little incentive to do so since any savings as a result of negotiation do not accrue to the shipper or receiver.

The ocean carrier is responsible for selecting the inland container carrier. DOD shipping and receiving entities are only responsible for scheduling the arrival and dispatch of the container. Tracking of the container

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