Defense Transportation

In a February 1996 report (GAO/NSIAD-96-60), GAO found that customers using defense transportation services provided through the U.S. Transportation Command and two of its component commands paid relatively high overhead costs. GAO noted that fragmented traffic management processes, a modally oriented organizational structure, and mobilization costs are major factors driving higher transportation costs. GAO recommended that the military ensure that the efforts to reengineer defense transportation address both process and organizational structure improvements. In response, the Defense Department indicated that the U.S. Transportation Command would undertake an array of organizational and process-related improvements to reduce overhead and improve efficiency. In a December 1996 report to Congress, the U.S. Transportation Command identified more than $500 million in savings that it attributed to such improvements. In March 1997, the U.S. Transportation Command announced that savings had increased to nearly $780 million and that the savings through fiscal year 1999 will be passed on to peacetime customers in the form of incremental rate reductions. This report reviews the extent to which savings are or are projected to be reflected in the form of lower charges to defense customers. GAO focuses on (1) the extent to which the U.S. Transportation Command expects to achieve long-term savings in its operating and infrastructure costs and (2) charges regarding transportation rates and customer charges.

GAO noted that: (1) USTRANSCOM and its components have sought to reduce costs and improve operating efficiencies in the defense transportation system, while at the same time preserving its readiness capabilities and effectiveness; (2) GAO recognizes that reducing transportation charges to defense customers is complicated by multiple factors that impact the ability of USTRANSCOM to affect transportation charges; (3) the lag time, for example, between reducing operating costs and realizing reductions in customer charges means that the impact of some of USTRANSCOM's savings initiatives has yet to occur; (4) at this time, however, it appears that the savings initiatives identified by USTRANSCOM will not yield as great a result as initially reported; (5) the reported savings are not likely to have a significant impact on lowering infrastructure and long-term operating costs, which is the key to reducing customer charges; (6) available data indicate that many costs USTRANSCOM charges its customers are rising at a rate greater than inflation and that surcharges may remain high, even when underlying transportation charges have declined; (7) specifically, only about $260 million of the $780 million reported savings represents reductions to infrastructure and long-term operating costs--savings that could more readily result in lower charges over time to defense customers for transportation services; (8) a small portion of the reported savings actually involves improved revenue collections rather than efforts to reduce long-term operating costs; (9) the reported savings that are to occur between fiscal years 1993 and 1999 represent less than 3 percent of USTRANSCOM's $27-billion working capital fund operating costs during that time period; (10) thus, the extent to which total operating costs might be affected raises questions about the ability of these savings to substantively reduce customer transportation charges; (11) customer rates have been increasing and USTRANSCOM projects increases to continue through the end of the decade; (12) the increases are at or above the rate of inflation; (13) in addition, USTRANSCOM's surcharge continues to be substantially higher than the amount component commands pay commercial carriers; and (14) there where instances where surcharges were increasing significantly even when underlying transportation costs had declined.