with MILSTAMP. Such integration would allow DOD to avoid significant costs associated with independent development of a cargo data system which must ultimately be compatible with that used by commercial carriers. However, DOD should not participate in funding the development of CARDIS.

Savings and Impact Analysis

Development of a major data network such as an improved MILSTAMP system or the CARDIS system will involve a large investment in systems development, programming and hardware acquisition. Industry sources familiar with the CARDIS requirements have estimated that systems development alone could involve an expenditure of $2-$3 million. Hardware acquisition by the DOD for a stand-alone system could involve expenditures of millions more. The OSD Task Force conservatively estimates that $5 million on a one-time basis could be saved by DOD's utilization of a commercial service for cargo tracing and documentation.

Implementation

The Secretary of Defense should actively consider revising MILSTAMP to incorporate CARDIS as discussed above.

ISSUE AND RECOMMENDATION SUMMARIES (CONT'D)

A. LOGISTICS (CONT'D)

OSD 14: HOUSEHOLD GOODS MOVES TO ALASKA AND HAWAII

Summary Recommendation

The Department of Defense (DOD) should seek legislation that will permit the Military Traffic Management Command (MTMC) to solicit competitive bids for movement of household goods to Alaska and Hawaii. Restrictive language has been written into DOD appropriations legislation since 1978 to prohibit competitive bidding on Alaska and Hawaii household goods moves. In addition, in order to eliminate unnecessary and excessive damage claims, household goods which are moved to Alaska by sea should be packaged in the same manner as household goods shipped to other overseas locations.

Financial Impact

$21 million annually

Potential Savings: $19 million from introduction of the competitive bidding program for household goods movements to Alaska and Hawaii; $2 million from institution of changes in the methods of packing and moving household goods to Alaska.

Background

MTMC designed the Competitive Rate Program (CRP) in 1976 to obtain more competitive rates for the movement of household goods of military personnel. Prior to implementation of this program, all carriers which had equal rates shared equally in the household goods traffic. Thus, there was no real incentive for any carrier to quote a lower rate, because the carrier received no advantage as long as the other carriers met the same rate. Under the CRP, the carrier with the lowest rate was guaranteed a significant portion of the traffic, often as much as 50 percent. This provided a volume opportunity to the low-cost carrier.

Methodology

The office of the Secretary of Defense (OSD) Task Force reviewed data from MTMC and the General Accounting Office that provided concrete information on the effectiveness of competitive bidding in reducing the cost of moving household goods. The Task Force also reviewed household goods loss and damage claims experience for moves to various destinations by various modes of shipment.

Findings

The CRP was tested in Okinawa and Germany in 1976, and substantial rate reductions were achieved. The Germany test yielded rate reductions averaging 36 percent. As part of an effort to expand the CRP to other overseas shipping routes, competitive rates were solicited for Alaska and Hawaii in 1977. The quotes submitted under the competitive proposal for Alaska reduced rates an average of 26 percent and for Hawaii, 20.5 percent. However, restrictive language was included in the DOD Appropriations Act for 1978 which precluded the adoption of CRP for moves to Alaska and Hawaii. Similar language has been included in the DOD Appropriations Act for each of the last four years. See, for example, Section 744 of the DOD Appropriations Act for 1982, P.L. 97-114. As a result of this legislation, DOD is still prohibited from implementing the program for moves to Alaska and Hawaii.

As a corollary issue, the OSD Task Force has reviewed the extensive number of loss and damage claims relating to moves of household goods to Alaska. Normal practice in the movement of household goods by sea is to pack and crate them in large packing crates with a large quantity of bracing and paddiny, along with extensive water barriers.

However, household goods moved by sea to Alaska go in a conventional moving van from the continental U.S. location to Seattle. There they are off-loaded and packed in ocean cargo containers for movement by sea to Alaska. The ocean containers are unloaded in Alaska, and the household goods are put on another moving van for final delivery. As a result of the excessive handling of the goods and the inadequate water protection, 71 percent of all shipments to Alaska have reportable loss or damage, as opposed to normal DOD claims experience of 30 percent worldwide. The OSD Task Force understands that MTMC follows these packing procedures for shipments by sea to Alaska as a result of pressure or resistance to change on the part of the Alaska Movers Association.

Conclusions

Competitive bidding has proven its effectiveness by dramatically reducing household goods moving costs to destinations outside North America. Further, DOD loss and damage claims experience in moves to Alaska is excessive. Action should be taken to reduce these claims to a level no greater than the normal DOD claims experience.

The barriers to implementation of competitive bidding of rates and packing and crating of household goods shipments to Alaska and Hawaii should be eliminated. Reducing loss of goods and damage claims will have a further benefit through improving the morale of families whose goods are moved.

Recommendations

OSD 14-1: DOD should seek legislation which will permit the CRP to include the movement of goods to Alaska and Hawaii, the only remaining traffic lanes where competitive bidding is not used. Using the 26 percent and 20.5 percent rate reductions quoted for Alaska and Hawaii moves in 1977, the OSD Task Force estimates that the CRP could result in savings of approximately $19 million per year in moves to

these two states.

OSD 14-2: MTMC should require that household goods moved to Alaska by sea be packaged in the same manner as all other overseas shipments of household goods. The OSD Task Force understands that MTMC is already giving consideration to implementing this recommendation for the current fiscal year.

Savings and Impact Analysis

Data provided by MTMC Household Goods Section projects fiscal year 1983 Alaska and Hawaii moving expenses at $86.2 million. Based upon rate reductions offered for Alaska and Hawaii when actual competitive bids were solicited in 1977, savings are projected currently at $19 million.

It is estimated that approximately 14 percent of total DOD dollars spent on moves of household goods to Alaska represents payment of loss or damage claims. The average DOD claims expenditure, as a proportion of the cost of all DOD moves, is approximately 6 percent. Reduction of the Alaska claims expenditures to the DOD-wide level of 6 percent by using overseas packing and crating methods in shipments to Alaska would yield annual savings of approximately $2 million.

Assuming an annual inflation factor of 10 percent, the estimated savings in the first three years would be:

DOD should seek legislation that will permit it to extend the CRP program to include the movement of household goods to Alaska and Hawaii. In addition, MTMC should

require that household goods moved to Alaska by sea be properly packaged as discussed above.