oversight

Economic Advantages of Using American-Made Trucks Abroad To Transport Military Cargo

Published by the Government Accountability Office on 1971-02-04.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                        ilitary C    6-163869




Department of Defense




BY THE COMPTROLLER   GENERAL
OF THE UNITED STATES
                    COMPTROLLER      GENERAL     OF   THE      UNITED   STATES
                                   WASHINGTON.    D.C.      ZEZ.8




    B- 163869




    To the    President      of the Senate      and the
c   Speaker     of the    House    of Representatives

            This is our report      on the economic     advantages      of using
    American-made       trucks     abroad  to transport    military    cargo.
    Our review     was made pursuant        to the Budget    and Accounting
    Act,   1921 (31 U.S.C.     53), and the Accounting      and Auditing      Act
    of 1950 (31 U.S.C.     67).

              Copies     of this report      are being   sent to the Director,     Of-
    fice of Management           and Budget;      the Secretary     of State; the
    Secretary        of Defense;    the Secretaries       of the Army,      Navy, and
    Air Force;         and the Administrator         of General   Services.




                                                              Comptroller        General
                                                              of the United      States
                           Contents


DIGEST



   1       INTRODUCTION                                           3

   2       PROS AND CONS OF USING AMERICAN-MADE TRUCKS
           ABROAD TO TRANSPORTMILITARY CARGO                      7

   3       COST AND BALANCE-OF-PAYMENTSBENEFITS FROM
           INCREASING ORGANIC TRANSPORTCAPABILITY                 9
               Inventory and Cost Data                            9
               Results of GAO Cost Analysis                      10

  4        NEED FOR THOROUGHECONOMICEVALUATIONS                  14

   5       COMPlENTSOF LOCAL DOD, OTHER MILITARY,
           AND CONTRACTORPERSONNEL                               20

   6       CONCLUSIONSAND RECOMMENDATIONS                        23

   7       OFFICIAL DOD POSITION                                 26
               GAO Evaluation  of Official        DOD Position   26

  8        SCOPEOF REVIEW                                        28

APPENDIX

  I        Potential     cost savings in transport      of
             military     cargo abroad by replacing       com-
             mercial carrier        services with organic
             military     transport                              31
                Summary of selected routes in Japan,
                   Thailand,    and Germany                      31
                Summary and results         of selected routes
                   in:
                       Japan                                     33
                       Thailand                                  35
                       Germany                                   37
APPENDIX

               Types of trucks9 truck-tractors,       and
                 trailers,    life    expectancy and other
                 criteria    used in computing the
                 acquisition      cost of equipment.                      41
               Footnotes                                                  42

   II      Potential     reductions   in dollar   expenditures        a
             abroad by replacing        commercial carrier
             services with organic military          transport            45
                Summary of selected routes in Japan,
                   Thailand,     and Germany                              45
                Summary and results       of selected routeg
                   in:
                       Japan                                              47
                       Thailand                                           49
                       Germany                                            51
                Footnotes                                                 51

 III       Letter dated September 17, 1970, from the
             Deputy Assistant         Secretary of Defense
              (Installation       and Logistics)      to the
             Director,      International      Division,    General
             Accounting       Office                                      52

 IV        Principal    officials    of the Department of
              Defense and the Department of the Army
              responsible      for administration  of activ-
              ities  discussed in this report                             54


                             ABBREVIATIONS

ASPR       Armed Serivces     Procurement     Regulation

DOD        Department    of Defense

GAO        General   Accounting     Office
. COMzjTROLLER
             GElVEliAL'S                    ECONOMICADVANTAGESOF USING AMERICAN-MADE
  REPORTTO THE CONGRESS                     TRUCKSABROADTO TRANSPORTMILITARY CARGO
                                            Department of Defense B-163869


 DIGEST
 ------

 WHYTI-IE REVIEW WASMADE
      On inspection trips of various military             installations          abroad, a U.S.
      Representative observed foreign-made motor vehicles being used by
      American forces.         He believed it essential       that Federal spending not
      aggravate the United States balance-of-payments                situation       needlessly
      and asked the General Accounting Office (GAO) to st&-@-&g[;ment
      of Defense's -'.i-*+
                        practice     of using foreign-made&GA...--~-~"\.~
                         .iza;;.-i,Ddi.,b=~~~.~~~~~r~~~.~=~-   vehicles
                                                                      ,. -.- .' abroad.
      This report is a result of that request.              It is a sequel to GAO's re-
      port issued in February 1970 which dealt             with the leasing of fore ign-
      made buses overseas.


 FINDINGS AND CONCLUSIONS

      Total use-. of foreign
                         . . commercial
                               -.       carriers  (both truck and rail)  is not
      known. The magnitude of these services,     however3 was indicated by
      data developed by GAO, which showed costs of at least $31 million     dur-
      ing fiscal year 1969 in three countries--Thailand,     Japan' and Germany.

      Comparative cost studies by GAO show that substantial       savings and
      balance-of-payments    advantages can be realized at some overseas loca-
      tions by using more American-made trucks in place of foreign vehicles
      being used by commercial carriers under contract with the military.
      Increased use of American trucks could be achieved in a variety of
      ways--increasing    the military's own transportation   capability,   furnish-=
      ing American trucks to contractors,    or requiring   contractors   to use
      American trucks.

      Study of contract services costing $10.7 million     revealed that expand-
      ing the military's    capability  could annually produce cost savings of
      $1.8 million    and reduce dollar payments abroad by $6.4 million.    (See
      app. I, p. 31.)
      GAO's cost analyses were made with the assistance of knowledgeable mili-
      tary officials,   and the method used was conservative      and tended to under-
      state the potential     savings and balance-of-payments    benefits.  These
      cost analyses included liberal     margins added to estimated costs to pro-
      vide for unforeseen contingencies.       It is reasonable to conclude that
      savings would be much greater if the Department makes similar studies
      across-the-board    using more stringent   cost estimates.




                                             I
    Few comparative cost studies have been made by the armed services,   how-
    ever, and the sound operating and maintenance data needed general.ly are
    not available.  (See PL 15 and 16.)

RECOMWENDATIONS
             OR SUGGESTIONS

    The Secretary   of Defense should require:

      --The military  services to develop better local operating and mainte-
         nance cost data to serve as a basis for evaluating comparative costs.

      --Amendments to the procurement regulations   requiring  consideration   of
         economic advantages which might be realized through the use of
         American-made vehicles where the size of the activity   justifies   pro-
         curement of such vehicles.

      --The services to make current      cost studies, using the factual     data
         developed, and to periodically     update the studies.

    GAO is also recommending steps designed to increase       the usage of American
    trucks abroad. These steps provide that:

      --Budgetary requests be prepared for submission to the Congress for
         American-made trucks to replace the use of foreign trucks where
         economic advantages can be realized.

      --The additional  trucks be distributed    first  to locations where poten-
         tial cost and balance-of-payments    advantages are greatest.

      --Studies be made of the effectiveness   of current operations        and of
         types and sizes of American equipment most needed abroad.

      --Consideration   be given to including   in contracts a preference for
         American trucks and to contracting    with American firms for transpor-
         tation services at foreign locations.


AGENCYACTIONS AND UNRESOLVEDISSUES
    Department of Defense officials    said that the services agreed with most
    of the these findings and conclusions and told of steps it was taking
    along the lines proposed.     (See pa 26 and app. III.)


MATTERSFOR CONSIDERATIONBY THE CONGRESS

    In view of continuing weakness in the United States' balance of trade
    and balance of payments, this report is timely,  important, and of interest
    to the Congress. GAO's recommendations are consistent with the 1968
    legislation designed to increase the militarys'  use of American-made buses
    abroad where this is economically and militarily  feasible.


                                      2
                            CHAPTER 1

                          INTRODUCTION
       The General Accounting Office has reviewed the contrac-
tual arrangements of the Department of Defense (DOD) for
transporting     cargo and petroleum products   in foreign  coun-
tries.     We found that foreign    trucks and associated  equip-
ment were used extensively      by contractors  in their opera-
tions,

      Our purpose was to determine if cost and balance-of-
payments benefits    could be realized at some overseas loca-
tions through greater use of American trucks.     We did not
attempt to evaluate the management or the efficiency    of
these transportation     services.

      This report is a sequel to another,   issued in February
1970,l which concluded that significant    cost and balance-of-
payments advantages could be realized    by using military-
owned American-made buses in lieu of leasing foreign        buses
at some overseas locations.

        The need for Government agencies to take all reasonable
steps to reduce dollar      expenditures    abroad is underscored
by mounting concern over recent sharp reductions             in the
traditional    U.S. balance-of-trade      position,    which threaten
to undermine the Government's efforts           to bring the nation's
balance-of-payments     position     into sustainable    equilibrium.

      DOD, because of its substantial       overseas expenses,
plays an important   role in seeking improvements in the U.S.
balance-of-payments   position    through a variety     of special
measures.
      One measure requires     the military    services to buy mil-
itary   supplies and equipment of U.S. origin        for use


l'"Cost And Balance-Of-Payments  Advantages Of Replacing
  Foreign-Made Buses With American-Made Buses Abroad,"
   (B-163869).
abroad,1 unless they can be bought with excess foreign   cur-
rencies owned by the United States or unless the delivered
cost of U.S. products is more than 50 percent above that of
foreign  products.2

        Our study focused on the managerial process which the
military    services follow      in arriving     at a determination   to
contract    for transportation      services or to purchase the
necessary transport       equipment to perform their own transpor-
tation    needs.    In this connection,        we noted that section
404 of Public Law 90-500, September 20, 1968, prohibited
the use of any appropriated         funds for the purchase, lease,
rental,    or other acquisition       of multi-passenger      motor vehi-
cles (buses) other than those manufactured              in the United
States. 3 This law, incorporated            into the Armed Services
Procurement Regulation         (ASPR), focused attention       on the need
for the military      to evaluate the economic advantages that
might be realized       if its bus transport       needs could be per-
formed with U.S.-manufactured          buses,


1
 This policy of favoring        products of U.S. origin   is based
  on an administrative      determination  rather than law,      The
 Congress, in enacting the Buy American Act (41 U.S.C.
  10 a-d) made it a general policy that U.S. goods are to be
 given preference      in government procurement;    however, the
  act is inapplicable     if the supplies in question are in-
  tended for use outside the United States.         DOD regulations
  and directives,    which are based on an Executive Order,
 therefore     have broadened the policy by placing emphasis on
 the use of U.S. supplies and services regardless          of where
 they are to be used.

2
 When approved by the Secretary  of Defense or his           designee,
  the maximum of 50 percent can be exceeded.

3Unless the procurement      action is uneconomical or one which
 would adversely affect      the national interest  of the United
 States.




                                    4
      The ASPR on general transportation        services,   on the
other hand, is not as explicit;        and procurement of foreign
services   is permitted     providing  they do not duplicate      or
replace an existing      organic service capability.       The lack
of a requirement     for making comparative     cost evaluations
may explain why there is such a paucity of reliable            data
on cargo transport      cost and balance-of-payments      studies
available    to DOD and why cost studies for trucking         services
made by the military      are so infrequent.

        Our cost comparisons were based on the best available
information     at each location     studied,     and our calculations
were made with the assistance          and advice of local military
officials    experienced    in operating      and maintaining    vehicles.
We then discussed our cost analyses with theater headquarters
officials    and with military     officials      in Washington and
made appropriate       cost adjustments      on the basis of their
technical    expertise.

       We wish to emphasize that, in order to clearly               demon-
strate     any cost and balance-of-payments         advantage, we
adopted a conservative        approach in calculating        costs and
potential     savings.    On the basis of existing        transport
practices,     we allowed for a larger vehicle         float   and a
higher ratio of truck tractors          to trailers    than appear to
be operationally       necessary and calculated       vehicle needs on
the basis of individual         routes rather than on the basis of
overall     needs for geographical      areas or networks,        On top
of these conservative        estimates,   we applied a contingency
cost factor      amounting to 10 percent of the costs.

      We expect that any cost study undertaken by DOD would
be based on alternative       economical ways of providing      truck-
ing service and that studies using more stringent           cost es-
timates would reveal even greater potential         cost savings to
the Government than the $1.8 million         annual savings indi-
cated by our sample study covering about $10.7 million             of
contracted  costs.    Studies should consider the types of
trucks and optional     equipment needed, differences       in mission
and local operating     conditions,     and changes in foreign     and
domestic price levels which alter the results          of these com-
parisons from location      to location    and from time to time.




                                     5
      The scope of our review      is shown on page 28.

      The principal   officials    of the Department of Defense
and the Department of the Army-- the service responsible           for
ground transportation      for all services--having   responsibil-
ities  for the administration      of the matters discussed in
this report are listed       in appendix IV.
                              CHAPTER 2

     PROS AND CONS OF USING AMERICAN-MADE TRUCKS ABROAD

                   TO TRANSPORTMILITARY CARGO

     The replacement   of foreign vehicles  (used by commer-
cial carriers)   with American trucks for movement of mili-
tary materiel   and supplies overseas has obvious advantages,
as well as drawbacks, to the United States.

      Among the important     factors    to be considered in judg-
ing whether it would be better for the military              to contract
for transportation    services or to purchase and operate
American-made trucks are the relative            costs and balance-of-
payments effects    of these options.         Still   another factor to
be weighed is the military       desirability       of having a greater
in-house capability    to transport      supplies and equipment un-
der emergency conditions.

      We have listed    below the principal   arguments for and
against increased use of U.S. military       owned and operated
transportation    capability  as opposed to contracting    for
these services,     We have made no attempt to rank these ar-
guments in order of priority     or importance.

      Arguments   for

      1. Budgetary savings will accrue where analysis          indi-
         cates that transport     services can be performed more
         economically    by increasing      the existing in-house
         military   transport   capability.

      2. Balance-of-payments    benefits   will accrue to the ex-
         tent that U.S. military     owned and operated vehicles
         can be used in place of contract       cargo movement
         service using foreign-made      equipment.

      3. A greater military mission capability     would exist
         to meet normal and emergency transportation     needs.
     4. Future potential  sales of American trucks might be
        enhanced by increasing  the exposure of foreign na-
        tionals to American vehicles.

     5. Increased usage of American trucks permits employ-
        ment of American workers,  increases  the value of
        goods produced and sold domestically,    and increases
        tax revenues at Federal,  State, and local levels of
        the Government.

     aments      against

     1. An increase in organic transport    capability     will
        require   additional operating  and administrative
        personnel and will   increase the management burden.

     2. There may be possible additional        problems    of legal-
        ity and liability,   licensing    requirements,      road and
        traffic conditions,    and off-base     security.

     3. There are uncertainties   as to the permanency and
        level of the U.S. presence at military        installa-
        tions abroad.   Any subsequent large reduction          of
        cargo movement needs could result       in the inability
        to recover a significant   portion     of equipment costs
        unless vehicles   could be redistributed      or sold.

     4. Substantial initial  investment outlays would be re-
        quired to buy American-made transport   equipment.

     5. Dollar payments for foreign-made   vehicles  and spare
        parts increase dollar  receipts  of foreign  nations
        and make it possible for these nations to import
        more goods from the United States and other coun-
        tries which, in turn, can respend some part of
        their dollar  receipts in the United States.

      A number of the points outlined    above are discussed       in
greater detail  in the following   chapters of this report.




                                 8
                             CHAPTER 3

         COST AND BALANCE-CF-PAYMENTSBENEFITS FROM

            INCREASING ORGANIC TRANSPORTCAPABILITY

INVENTORY AND COST DATA

       The U.S. Army Transportation    Corps has the overall     re-
sponsibility     for overland movement of military    cargo of a
recurring    nature in the overseas area,      Movement of inci-
dental materiel     within and between military    bases is gener-
ally handled by the originating      service.

       The inventory  of trucks,  truck tractors,    and trailers
owned by the armed forces9 although substantial,        is inade-
quate to meet all cargo transport       needs of the services.
Our review of overseas cargo movement in certain        countries
indicates    that a substantial  portion   of overseas inland
cargo movement is handled by commercial carriers        who gener-
ally provide their own equipment and drivers.

      In fiscal   year 1969, the total    number of commercial-
design (as opposed to military-design)       trucks,     truck trac-
tors and trailers     of the types used in our study and owned
by the Army was nearly 18,000 units--13,200          trucks and
truck tractors    and 4,700 trailers.     Of the total,      11,600
were in the continental     United States, 2,300 in the Pacific
areas 3,200 in Europe, and 800 elsewhere.

      During fiscal   year 1969, about 1,250 new trucks and
truck tractors    and nearly 550 trailers    were purchased by
the Army, primarily    for replacement    needs.  Of the total
procurement,   1,300 units were for use in the continental
United States.

       Our cargo movement study, based on the best available
data, was centered in three countries     where funds totaling
about $31 million     were earmarked for commercial hauling
services.    The countries,  types of service contracted    for,
and estimated    costs are shown below.




                                  9
                                                             Estimated.
                          Type of service                   dollar   costs
Country                   contracted  for                      (note a)

                                                             (millions)

Thailand            General trucking                      $14.9
                    Bulk petroleum by truck                 7.9      $22.8
Japan               General trucking                         2.1
                    Refrigerated   trucking                    .3
                    Bulk petroleum by truck                    .8
                    Bulk petroleum by rail                   1.8          5.0
Germany             General trucking                           .6
                    Container trucking                       1.4
                    Rail cargo                               1.2          3.2

     Total                                                           $31.0

"These totals     represent those amounts that GAO was able to
 develop for its study and do not reflect      all commercial
 transport    costs in each country.

      Data on costs and the volume of military      cargo moved
by commercial rail and truck carriers     in overseas areas were
not readily  available from military   records;   therefore,
these totals  may be understated.    On the basis of our study,
however, it is evident that a considerable      amount of mili-
tary cargo is moved by commercial carriers.

RESULTS OF GAO COST ANALYSIS

       We made comparative      cost evaluations       of about one-third
of the transportation       costs that we identified         as having
been incurred     for military     cargo moved commercially       in
Thailand,    Japan9 and Germany during fiscal           year 1969. Our
review, based primarily        on economic considerations,        revealed
that significant      annual budgetary cost advantages and sub-
stantial   reductions    in dollar     expenditures     could be realized
at some overseas locations         if American-made equipment were
purchased and operated by the military,             rather than using
commercial transport       services performed with foreign-made
equipment.
      Although we recognize the practical          difficulties        of
estimating    overall   financial     advantages that could be re-
alized by substituting       American-made trucks for foreign-
made transport     equipment, there can be little          doubt that
they would be substantial.          Of the $31 million        in identifi-
able commercial transport         costs incurred by the military
during fiscal    year 1969 in Thailand,        Japan, and Germany,
GAO developed comparative         cost studies covering $10.7 mil-
lion.    Our test group revealed that net potential              cost sav-
ings of $1.8 million       and reductions     of $6.4 million       in dol-
lar payments abroad were realizable.

      Examples of economic advantages that could be realized
by using American trucks are discussed below.   Details   and
summaries of our calculations  are shown in appendixes I
and II.

Thailand

       Our cost analysis covered cargo shipments from the
port of Sattahip to various locations   within  Thailand in
fiscal   year 1969. Examples of economic advantages follow.

      a. About 18,600 short tons were shipped to Udorn (430
         miles away) for $470,057.    We calculate  that this
         tonnage could have been moved by the military     at a
         cost savings of $101,200 and a reduction     in dollar
         payments abroad of $333,100.    A ZO-percent rate
         increase also was imposed on this route under a new
         contract,

      b. We calculate     that a $119,800      savings and a $690,500
         reduction    in dollar  payments      abroad would have been
         possible if the 31,300 short          tons moved commer-
         cially    to Nakhon Phanom had       been transported by the
         military.      The rate for this      route also was in-
         creased under a new contract.




                                     11
Japan

      Cur study indicated    that petroleum products shipped by
commercial truc'ks and rail at a cost of about $2.5 million
in fiscal    year 1969 could have been transported   by the mil-
itary for cost savings of $429,800 and reduction      in dollar
expenditures     abroad of $1.75 million   yearly.

Germany

      1, About 20 to 30 percent of the cold stores that were
moved by highway from Bremerhaven to Kaiserslautern-were
handled by a U.S. transportation      unit with 32 tractors     and
20 refrigerated   vans of 7-l/2-ton     capability,    Due to a
more efficient  allocation    of available    equipment, we calcu-
lated cost and balance-of-payments       savings of $8,600 and
$105,000, respectively,    if organic capability     were further
increased.

        Our calculations     were based on using 20-ton refriger-
ated vans and a one-to-one         tractor-to-trailer        ratio,     whereas
a case might be made for two trailers                to each tractor--a
ratio which would provide for greater savings.                  Although
military    officials     in Europe were not aware of the availa-
bility    of 20-ton vans, we found that this size was procured
by the military       for use in the United States in 1969,

       2.    American-made trucks could be used in lieu of com-
mercial      rail   shipments between Bremerhaven and Kaiserslau-
tern at      cost savings of $156,800 and a yearly reduction      in
dollar      expenditures    abroad of $386,200.

       3. In contrast   to other routes in Germany that we
evaluated,    we found that it would cost the military        so much
more to transport     containers    that the balance-of-payments
advantages which would be realized        would not justify    the
changeover.     For example, it would cost the military        an ad-
ditional    $576,800 to replace commercial shipments as com-
pared with an estimated       $491,500 reduction   in dollar   pay-
ments abroad.




                                      12
      This case shows that it would be unwise for the mili-
tary to generalize    about potential    savings on a countrywide
basis, since economic operations      may exist side-by-side
with uneconomic operations.      By making studies of individ-
ual routes and modes of shipment,      the military  would be in
a position   to place American equipment on the routes where
the greatest   economic advantages can be realized.




                               13
                                CHAPTER4

            NEED   FOR THOROUGHECONOMIC EVALUATIONS

      Cost analyses made by GAO and discussed            in the preced-
ing chapter were necessitated by the general             unavailability
of military  cost studies.

        Alternatives      to using foreign   vehicles,    such as augmen-
tation     of American organic transport       capabilities,      provi-
sion of American-made equipment to foreign             contractors,      con-
tractual      requirements     to use American equipment,      or redis-
tribution       of existing    American equipment to obtain maximum
realizable        cost and balance-of-payments      advantages,     usually
were not evaluated          by the military  services.

       A review of ASPR 6.805.2,      "Procurement      Limitations,"
dated January 1, 1969, perhaps partially            explains     the re-
lative   absence of cost studies.        Part (viii)      (A) allows
procurement    of certain    foreign  end products       and services    for
use outside the United States "providing            they do not dup-
licate   or replace an existing      organic service capability."
In addition    to transportation     services,     some other procure-
ments covered under this provision          include packing and crat-
ing services,    laundry and dry cleaning         services,    and han-
dling and storage requirements.

        In the absence of more precise guidelines,         local trans-
portation     officials   are not required    to evaluate potential
economic advantages which might be realized           through the use
of American-made vehicles       where the size of the activity
justifies     procurement   of such vehicles.

        Another problem that the military   services have in
making studies is caused by the general unavailability       of
data on operations     and maintenance costs at local command
levels.

       The following subsections  describe the few military
cost studies that had been made and compares t'ne conclusions
reached by the military    to our calculations   of economic ad-
vantages that might be realized    if better   studies were made
and if changes implemented were favorable      to the United
States,

                                      14
Thailand

      Armed forces    officials    informed us that they had not
made cost studies     to evaluate the economic feasibility    of
using U,S. trucks     in Thailand,

      Operations  and maintenance cost data and data on cargo
movements and per-mile     costs were not maintained for mili-
tary transport   operations;    this made it difficult   to calcu-
late comparative   costs and hampered evaluations      of contract
rates for commercial hauling.

      Also, these officials      believed that a balance-of-
payments determination      was not required    because the pro-
curement was exempted by Army regulations          which permit pro-
curements of foreign     transportation    services outside the
United States provided the services do not duplicate           or re-
place an existing    organic service capability.

       We understand that,     in early 1968, an American firm
had conducted a study to determine if it could provide a
trucking     service at a profit,     but that the firm had lost
interest     because of the difficulty      of developing sound cost
information.

       In addition to the above-mentioned   private   industry
study, we learned that,     in early 1968, a transportation
study concerning in-transit     rates from Thailand to Laos was
performed by a U.S. Embassy consultant.       The resulting    re-
port, however, was thought by military     officials    to be in-
conclusive.

      As shown in appendix I, GAO's cost calculations,                using
the best data available,       indicate     that significant     economic
advantages could be realized         by increasing     the military's
organic capability.        For transportation      charges tested
(amounting to $3,342,500)        we calculated     cost savings of
$656,000 (after     allowing   liberal    margins for unforeseen
costs) and reductions       in dollar payments abroad of
$2,362,200.

      Still another way to achieve balance-of-payments  ad-
vantages would be for the United States to buy and provide
contractors  with American trucks, or to require    the


                                    15
contractors    to use American trucks,      One local Thai corn,
mercial contractor     and his subcontractors     was using about
950 trucks    and truck tractors,     of Japanese, German, and
other foreign    manufacture,     to haul U.S. military   cargo in
Thailand.

      U.S, officials     agreed in principle      that any firm oper-
ating under a contract         to haul U.S. military   supplies should
use American equipment, however, they had not explored the
desirability    or feasibility      of doing so.

        GAO visited    the largest  local commercial firm carry-
ing military      cargo and explored the feasibility       of its buy-
ing or using Government-furnished         American trucks.      A high
company official       expressed interest    in using Government-
furnished     equipment under military     transportation    contracts.
We further     discussed this proposal with appropriate         Embassy
officials     who agreed to pursue this matter.

      Subsequently,   we were advised that          the contractor    had
agreed to purchase some U.S.-manufactured               equipment
(material-handling)    to cover replacement           and expansion   re-
quirements    based on the expected furture           level of U.S.   Gov-
ernment activities.

         Another indication     of contractor     receptivity    was that
one     of the larger    subcontractors    volunteered      to explore
with     appropriate   U.S. manufacturers      the purchase of trans-
port     and material-handling      equipment during a forthcoming
visit     to the United States.

Germany

       Comparative cost studies of military  cargo movements
were not available   within  the European Command at the be-
ginning of our review.

      With the cooperation   of transportation     officials    we
obtained data on contracting     for line haul services      from
the German and Benelux ports and from Kaiserslautern           to
local sites.     We compared contractual     costs with estimated
costs of using American-made equipment operated by local
national  drivers.



                                      16
   . As shown in appendix I, GAO's cost calculations,                using
the best data available,      indicate    that significant      economic
advantages could be realized        by increasing     the military's
organic capability.      For transportation       charges tested
(amounting to $3,406,700),      we calculated      net cost savings
of $620,600 (after    allowing    liberal    margins for unforeseen
costs) and reductions     in dollar payments abroad of
$1,499,000.

      We noted that, over the last few years, military                offi-
cials in the European Command had experienced            difficulties
in determining    the actual cost of certain        transportation
expenses and had experienced     difficulties       in deciding what
costs to include in arriving     at sound cost comparisons.                 In
late 1967 the command revised its standard method for cost-
ing military   line haul operation      for traffic     management
studies.

        In February 1969, we learned that cost-per-mile        factors
developed from military         cost and performance reports were
unreliable.,     Army officials     stated that they had problems
with the input of these reports          and that the reports were
not completely     understood by all personnel.       They informed
us that obvious errors were noted by their internal           auditors
in past reports and that they were in the process of ac-
quainting    their personnel with the report and correcting          the
errors.

     We have since learned that the European Command has
made cost comparisons using our preliminary study as a guide.

Japan

     The military services in Japan had made more and better
cost studies than those made in Thailand or in Germany.

        One study, made in 1967, showed that about $1 million
a year could b e saved by transporting    fuel to an air base
if rail tank cars were used instead of commercial tank
trucks.

      Although we do not dispute the savings claimed, we be-
lieve that still  greater savings are possible   through use
of military-owned  tank trucks of large carrying    capacity.


                                     17
     Another study was made by the Army to compare co-mmer-
cial and military  transport costs between the port of Yo-
kohama and the U,S. Army Depot at Sagami.

      Pertinent    cost records for operation        of Government-
owned trucks between these two points were not readily
available.      Therefore,  cost and performance data over a
3-month period for vehicles          maintained  at Yokohama were
selected as representative         for computation    of average costs
applicable    to the vehicles      by type--for    example, 5-to lo-ton
truck tractors      and semitrailers--utilized       on this run,

       The Army study concluded that l'the            military    operation
Jx** is more economical than contractual              highway    operation."
Agency personnel recommended that:

      "a. J;** the utilization of Government-owned vehi-
      cles should be encouraged to the maximum extent
      feasible.

      'lb. The military  linehaul  rate ***9 should be re-
      viewed and up-dated at least annually and be used,
       in lieu of the reimbursement    rates ***k,in traffic
      cost analysis being performed ***.

      "c. The cost      and performance data for the vehi-
      cles utilized       ***, which are reported under ve-
      hicle groups      -fc*Jcp should be maintained separately."

        Transportation         officials        at Yokohama agreed with the
conc~Jusions reached in the study.                   They stated,    however,
that    limited      available      equipment precluded        their own in-
house operation          and that they must continue to move their
c.lE‘go by use of a more costly method--common carrier                      ser-
vice.      Jn fact,     due to an expected lo-percent              manpower re-
duction,       transportation         officials     contemplated    reducing or-
~;,IIc~.c military     capability         and increasing    commercial carrier
transport        with resultant        higher costs,

     As shown in appendix I, GAO's cost calculations,           using
the best data available,    indicate    that   significant   advan-
tages could be realized    by increasing     the military's    or-
ganic capability.    For transportation      charges tested
(amounting to $3,972,000),     we calculated      cost savings of


                                      18
$552,500 (after   allowing liberal     margins   for unforeseen
costs) and reductions     in dollar   payments   abroad of
$2,512,400.




                                 19
                                CHAPTER
                                      -5

              COMMENTSOF LQCAL DOD, OTHER MILITARY

                     AND
                     -_I_ CONTRACTORPERSONNEL

      Military   operating officials    agreed generally    that
there is a need to make thorough comparative        cost studies
to evaluate    economic advantages that might be realized         if
more American-made vehicles       were used in transporting      mili-
tary cargo abroad.

     They advised us of certain           steps   taken   to increase    the
use of American trucks abroad.

      --In     Europe, certain     steps were taken to make better
          use of existing     military    equipment.   This made it
          possible    to reduce the volume of cargo transported
          by commercial carriers        which were using foreign    ve-
          hicles.

      --In     the Far East, we were advised that the military
          planned to buy 374 pieces of used American-made
          equipment (trucks,       tractors,    and trailers) from an
          American contractor.          This equipment was to be re-
          distributed     to military     units in Vietnam, Okinawa,
          and Japan.      This action was expected to result      in
          contract    cost savings of about $836,000,

        Military     officials  advised us of factors   they believed
were relevant        to the question of whether commercial carrier
arrangements        should be reduced in scope by augmenting the
military's       organic capability.    These included:

      --The greater       administrative         convenience of using con-
         tract    services.       With an increased military          fleet,
         associated      burdens of administration            would increase,
         such as licensing          requirements,       problems of legality
         and liability,        difficulties        of operations   under ad-
         verse road and traffic             conditions,     and problems of
         off-base     security      and labor arrangements.




                                     20
      --Uncertainty        as to the permanency and level of U.S.
         presence at military        installations   abroad.   The
          level and permanency of military         activities  are sub-
         ject to change and any significant          reduction  in mil-
          itary   activities    could cause major reductions      in
          transport     equipment needs.

      --In certain     countries,  U.S. policy might favor a "low
         profile"    or less conspicuous American presence in
          spite of   economic disadvantages.     This consideration
          seems to   merit special attention    since Embassy offi-
          cials in   a particular  country reiterated   this view.

      --The relative   low priority   given to procurement   of
         trucks,  as opposed to weapons and ammunition,     mili-
         tate against acquisition    of sufficient   number of
         trucks to permit contracting     to be reduced to a min-
         imum.

       Although  we do not minimize the need for giving weight
to these factors,    we do not believe that they normally
would be insuperable    obstacles.     American-made trucks are
operated by or for the military       throughout    the world and in
the same countries    where foreign-made     trucks are used.
Also, local national    drivers    are used for both arrangements.
Therefore,    it appears that the military      usually has been
able to solve local problems associated         with owning and op-
erating American-made trucks abroad.         Moreover,   it seems
reasonable to suppose that vehicles        could be redistributed
if the level of operations      were reduced at some locations
or in some countries.

     Our comments on the funding of acquisition              costs   of
more American vehicles  are included in chapter             6.

      Factors hindering       the purchase of American-made trucks
by foreign      commercial carriers       also were enumerated by mil-
itary officials.         They include uncompetitive     U.S. prices,
generally     higher costs to transport        vehicles  (resulting     in
greater    initial    investment),    higher financing     costs, and
higher customs duties.          In view of the uncertainty        of time
and level of U.S. transport          needs and limited    availability
of capital      funds, contractors      find it necessary to purchase



                                   21
foreign-manufactured'trucks       which may be cheaper initially
but not necessarily       the most economical over a longer term.

      Commercial carriers    with whom we discussed the matter
were receptive   to Government-furnished         American-made equip-
ment for use on transportation      contracts.         They recognized
the advantage of reducing their       initial      investment   in
equipment and saw a further      benefit      if they could buy the
used American equipment at reduced prices at a later               date.




                                   22
                                 CHAPTER 6

                   CONCLQS~ONSAND RECOMMENDATIONS

      Our cost calculations     show that    significant    savings and
substantial   balance-of-payments     advantages can be realized
at some overseas locations      if the armed services make ar-
rangements which would increase the use of American trucks
and trailers   in place of foreign     vehicles      being used by com-
mercial carriers    under contract    with the military.

       In the course of our review, we observed that there is
a paucity of reliable   cost data maintained  by the armed ser-
vices to serve as a basis for making sound comparative    cost
studies.

      We recommend to the Secretary          of Defense that:

      1. The military   services develop sound local operating
         and maintenance cost data to serve as a factual        ba-
         sis for evaluating     the comparative costs of alter-
         native arrangements for the use of American vehi-
         cles as opposed to the use of foreign      vehicles.

      Cost studies for the identification           of potential     trans-
port cost and balance-of-payments          savings generally       were not
available     at the locations    we visited.     We believe that the
general permissiveness       pertaining    to foreign    contracting     for
transportation      services   contained in ASPR is an underlying
reason for the lack of studies.           These regulations      permit
contracting     for services "providing       they do not duplicate        or
replace an organic service capability."

      We recommend to the Secretary          of Defense that:

      2. Amendments be made to the regulations         requiring
         consideration     of economic advantages which might be
         realized    through the use of American-made vehicles
         where the size of the activity      justifies     procurement
         of such vehicles.

      3. The services make current    cost studies,  using the
         factual  cost data developed.    These studies should


                                     23
           be periodically       updated to ensure that they    have
           continuing    validity     in the light of current   cost and
           balance-of-payments        considerations.

         Military    officials     have advised us that organic capa-
bilities       cannot be increased in some cases and that
Government-furnished           trucks cannot be provided to contrac-
tors,     because lower priority         is accorded the procurement of
commerciai-type          transport   vehicles  than to the procurement
of combat items.            Where this is a problem, we recommend to
the Secretary        of Defense that:

        4. In the situations    where comparative     cost studies show
           economic advantages to the United States (from a
           cost and/or balance-of-payments       standpoint)   the ser-
           vices,   in their budgetary requests to the Congress,
           make appropriate    provisions,   together with support-
           ing justifications,     for procurement of American-made
           trucks and related     equipment.

        5. Where there remains a scarcity      of American-made
           trucks to meet operational      needs, that first  prior-
           ity in the distribution     of trucks be given to those
           overseas locations     where the cost and balance-of-
           payments advantages are the greatest.

        During our review, we noted instances where the military
found it possible      to redistribute     military   equipment and
thus achieve better utilization.           Also, we observed that eco-
nomic advantages could be realized           by using larger capacity
vehicles     (ZO-ton trailers)      and by using equipment more effi-
ciently     (a better tractor-trailer      ratio).1

        We recommend to the Secretary     of Defense that:

        6. Military transportation    officials    make effectiveness
           reviews of the utilization      of their organic equipment
           as one way of reducing contracting       and procurements
           of new vehicles.


1
    See page 12.



                                   24
      7. Military  transportation      officials   make studies of
         the optimum types and sizes of American equipment
         that could be used to improve their organic opera-
         tions and prepare cost evaluations         and replacement
         needs in the light      of these studies.

        In some cases, it may be infeasible      to increase U.S.
organic capability     or to provide American vehicles        to con-
tractors.     In these cases,   the  opportunity   may  exist   to in-
crease the utilization      of American vehicles    by requiring
commercial carriers     to use American equipment and we recom-
mend to the Secretary of Defense that:

      8. Consideration       be given to inclusion in contracts           of
         a preference      for American-made equipment.

        Still     another prospect for reducing the use of foreign
trucks abroad lies in the possibility             of contracting   for
transport        services with American firms using American-made
trucks.        Although this has not been feasible        in the past,
because the military            services were authorized    only short-
term contract         authority     of 1 year, a recent change in the
law (Public Law 90-378, July, 1968) provides long-term                 au-
thority       that may make this arrangement more attractive           to
American firms.           We therefore    recommend to the Secretary      of
Defense that:

      9. Consideration  be given          to contracting    with American
         firms for transportation           services    at foreign loca-
         tions.




                                     25
                               CHAPTER 7

                       OFFICIAL DOD POSITION

       By letter    dated September    17, 1970 (app. III),      the
Deputy Assistant       Secretary of   Defense (Installations       and
Logistics)     advised us that the     military   departments    were in
general agreement with most of         the findings    in this   report.

       He listed  steps that were being taken and that were
planned to be taken along the lines of the recommendations
outlined    in chapter 6 of this report,

         The Secretary   added that the military      departments'
difficulty     in obtaining   sufficiently    good data caused some
doubt about the soundness of GAO's findings            and that there
was some opinion that the study was not fully             consistent
with the provisions       of DOD Instruction     7041.3, "Economic
Analysis of Proposed DOD Investments,"           which set forth re-
quirements     and procedures for comparative        cost analysis.
He pointed out that this raised the possibility             that the
results     of the cost study might have been different           if GAO
had used the DOD guidelines.           The Secretary   stated,    how-
ever, that the military       departments were not able to sup-
port their reservations       by providing    any economic analyses
of their own.

      DOD has requested the military    departments to under-
take detailed  analyses of the various cost factors     and
plans to advise GAO more fully    of the corrective   actions
taken in response to this report.

GAO EVALUATION OF OFFICIAL DOD POSITION

       Since the U.S, Army Transportation        Corps has the over-
all responsibility       for overland movement of military      cargo
of a recurring      nature in overseas areas, we based our com-
putations   on existing     U.S. Army operation    cost data.    We
conferred   with transportation      officers  of the other mili-
tary departments to ascertain        the general validity     of the
various cost elements and, in consideration          of their views,
increased certain       cost items, thus allowing    liberal   margins
for operating      and management costs as well as for other un-
foreseen costs.       For example, overhead costs in our

                                 26
analyses were increased from an actual 10.7-percent          rate
developed from Army cost reports       to a 40-percent   rate for
direct   operations   and maintenance costs.     (See note h,
app. I, p* 43.)     In addition,   we applied a contingency       al-
lowance of 10 percent of total       estimated  costs to own and
operate American-made equipment.         This was done to provide
a margin for unexpected costs and other unknown factors.
 (See note j, app. I, p. 43.)

        After receiving      DOD's comments we recalculated         the po-
tential     savings.     Cur report now uses annual cost amounts
which take into consideration           interest     at the market yield
rate of s.0673 on marketable          long-term      U.S. Treasury bonds
at the end of August 1970.          In our analysis we used the
annual equivalent        cost method because the vehicles         have
varying expected lives,         and this    method     makes it unneces-
sary to find a common-denominator life               for all vehicles.
In this instance the conclusions            based on the method used
are consistent       with the conclusions        that would be drawn us-
ing present value method, which is the method explicitly
referred     to in DOD Instruction        7041,3.

       In DOD Instruction   7041.3 the prescribed    interest   rate
is 10 percent.      We have chosen in our analysis     to use the
interest   rate that is currently    prescribed   in the Office of
Management and Budget Circular      A76, that is, the current
U.S. Treasury long-term     borrowing rate.




                                     27
                              CHAPTER8

                          SCOPEOF REVIEW

      This review was directed  primarily    toward determining
whether cost and balance-of-payments      advantages could be re-
alized by the U.S. Government if U.S.-manufactured       trucks
were used to a greater extent in overseas areas.

      The review was conducted at DOD in Washington, D.C.,at
the European and Pacific     military    headquarters,     and at var-
ious armed forces installations       throughout     Europe and Asia.
It included an examination      of available     records and discus-
sions with military  officials.




                                   28
APPENDIXES




 29
                                                                                                                      APPENDIX I
                                                                                                                          Page 1
,
                                POTENTIAL COST SAVINGS           IN    TRANSPORT OF MILITARY
                                     CARGO ARROAD.BY REPLACING COMMERCIAL CARRlER
                                       SERVICES WITH ORGANlC MILITARY TRANSPORT


                         SUMMARYOF SELECTED ROUTES IN JAPAN, THAILAND, AND GERMANY
                                                        FISCAL YEAR 1969


                                                                                     Smmary    of selected    routes
                                                                                               by country
                                                                         Total             Japan       Thailand                 GCXULSKly
    A ESTIMATED ANNUAL COST OF MOVING CARGO
         BY COMMERCIALCARRIER SERVICES (note a>                   $10,721,167          $3,971,994         $3,342,517       $3,406,656
    Al Less services where furnishing  American-
         made trucks would not be economical                            1,580,758          265,558                             1,315,200

                Net estimated        annual   cost   of moving    $ 9,140,409          $3.706.436
                                                                                        --                $3.342.517       $2.091,456
    B DEDUCT--ESTIMATED ANNUAL COSTS FOR THE
        GOVERNMENTTO OWN AND OPEMTE AMERICAN-
        MADE TRUCKS (note b):
    31    Acquisition     costs (note c)                          $ 1,445,602          $   677,255        $ 494,780        $     273,567
    B2    Transportation       costs (inland,      port
             handling,    and ocean freight)                               279,956         146,466             100,767            32,723
    B3    Shelf support parts (note d)                                     163,286          79,605              54,863            28,818
          Maintenance     float     (note e)                               163,730          79,924              54,980            28,826
    2     Local national       driver    costs (note f)                 1,451,300          744,300             396,800           310,200
    B5    Operation     and maintenance       costs
             (note g>                                                   2,X4,833           814,023             957,205           473,605
    B7    Overhead costs (note h)                                          897,933         325,609             382,882           189,442

                Total   deductions       (Bl through       B7)    $ 6,646.640          $2a- '67,182       $2,442,277       $1,337,181

    C DIFFERENCE 1N ESTIMATED COSTS WITHOUT
        ALLOWANCE FOR 10 PERCENT CONTINGENCY
        FACTOR (A minus B) (note j):
    Cl    Where furnishing  American-made trucks
            would be economical                                       $ 2.493.769      $      839,254     $     900.240    $     754.275

    c2      Where furnishing American-made             trucks
             would not be economical                                  $ -506,646       $ -101.808         $       -        $ -404.838

    D DIFFERENCE IN ESTIMATED COSTS AFTER
        ALLOWING A 10 PERCENT CONTINGENCYFACTOR
         (note j>:
    Dl     Where furnishing   American-made trucks
              would be economical                                     $ 1.829.105      $      552,536     8     656,012    $620,557

    D2      Where furnishing Amaricao-made             trucks
             would not be economical                                  $ -715.387       $ -138,545         $       -        $ -576,842

    E ESTIMATED ANNLJAL REDUCTION IN DOLLAR
        OUTFLOW IF AMERICAN-M4DE TRUCKS WERE
        TO REPLACE FOREIGN COMMERCIAL CARRIER
        SERVICES--FOR COMpARISON PURPOSES ONLY
        {see app. II>                                                 $ 6.373,=0       $2,512,435         $2,362.246       $1,498,549
                        The notes       on pages 42 to 44 are an integral              part     of this       statement.




                                                                 31
                             POTENTIAL COST SAVINGS IN TRANSPORT OF MILITARY
                              CARGO ABROAD BY REPLACING COMMERCIAL CARRIER
                                 SERVICES WITH ORGANIC MILITARY                        TP.ANSPORT

                             SUMMARY AND RESULTS OF SELECTED ROUTES IN JAPAN
                                                      FISCAL YEAR 1969

                                                                                                                   Summary
                                                                                                              of     selected
                                                                                                                   routes
A ESTIMATED ANNNCTAL  COST OF MOVING CARGO BY COMMERCIAL
      CARRlER SERVICES (note a)                                                                               $3,971,994
Al Less services  where furnishing  American-made trucks
      would not be economical                                                                                       265,558
                     Total     estimated      annual     cost         of moving                               $3,706,436

B      DEDUCT--ESTIMATED ANNUAL COSTS FOR THE GOVERNMENT TO
         OWN AND OPERATE AMERICAN-MADE TRUCKS (note b):
Bl         Acquisition       costs including          interest   (see app. I,
              pp. 38 to 41) (note c)                                                                          $     677,255
B2         Transportation          costs (inland,        port handling,   and
              ocean freight)                                                                                        146,466
B3         Shelf support        parts      (note d)                                                                   79,605
B4         Maintenance       float      (note e>                                                                      79,924
B5         Local national          driver     costs (note f)                                                        744,300
B6         Operation      and maintenance          costs (note g)                                                   814,023
B7         Overhead costs (note h)                                                                                  325,609

                     Total     deductions       (Bl    through         B7)                                    $2,867,182
G DIFFERENCE IN ESTIMATED COSTS WITHOUT ALLOWANXE FOR
     10% CONTINGENCY FACTOR (A minus B) (note j):
Cl     Where furnishing American-made trucks would be
         economical                                                                                           $     839,254

c2          Where  furnishing              American-made             trucks    would     not
               be economical                                                                                  $ -101,808
D DIFFERENCE IN ESTIMATED COSTS AFTER ALLOWING A
     10% CONTINGENCY FACTOR (note j):
Dl     Where furnishing American-made trucks would                                       be
         economical                                                                                           $     552,536
D2          Where  furnishing              American-made             trucks    would     not
               be economical                                                                                  $ -138,545
E ESTIM4TED ANNUAL REDUCTION IN DOLLAR OUTFLOW IF
    AMERICAN-MADE TRUCES WERE TO REPLACE FOREIGN COM-
    MERCIAL CARRIER SERVICES--FOR COMPARISON PURPOSES
    ONLY (see app. II, pp. 46 and 47)                                                                         $2,512,435
'Not      included       in summary of selected                  routes.
The notes           on pages      42 to 44 are an integral                    part     of this   statement.




                                                             ‘i-.-
                                                                                                         APPENDIX 1
                        -c
                                 ‘ 1’
                                                                                                            Page   2   .




                   North Pier      to various       sites
                  Truck
Refrigerated       General                                           Petroleum,     oil,
      arRo           cargo                                           and lubricants

   $265,558      $1,251,994                     $664,411                                   $1,790,0X

    265.558

   $A            $1,251,994                     $664,411                                   $1,790,031



   $ 80,572      $   170,039                    $146,591                                   $   360,625

     23,024           58,868                         27,789                                     59,809
     11,038           22,743                         17,544                                     39,318
     12,142           23,612                         19,298                                     37,014
     83,300          286,800                        144,000                                    313,500
    112,350          331,821                        135,450                                    346,752
     44,940          132,728                         54,180                                    138.701
   $367,366(l)   $1,026,611                     $544,852                                   $1.295,719



   S--Z.-        $   225,383                    $119,559                                   $   494,312

 -$101,808       $     -                        $-I-                                       $     -



   $&            $   122,722                    $ 65.074                                   $   364,740

 -$138,545       $           -                  s           -                              9     -



   $118,902(11   $   762,558                    $453,441                                   $1,296,436




                                                                33
                  POTENTIAL COST SAVINGS IN TPaSPORT OF MILITARY

                       CARGO ABROAD BY REPLACING COiQ%RCIAL CARRIER
                         SERVICES WITH ORGANIC MILITARY TRANSPORT

                SUMMARYAND RESULTS CF SELECTED ROUTES IN THAILAND
                                        FISCAL YEAR 1969

                                                                                                     Summary
                                                                                                   of selected
                                                                                                     routes
A    ESTIMATED ANNUAL COST OF MOVING CARGO BY COMMERCIAL
       CARRIER SERVICES (note a)                                                                   $3,342,517

B DEDUCT--ESTIMATED ANNUAL COSTS FOR THE GOVERNMENTTO OWN
    AND OPERATE AMERICAN-MADE TRUCKS (note b):
Bl       Acquisition      costs including        interest   (see app. I,
            pp* 38to41)       (note c)                                                             $   494,780
B2       Transportation        costs (inland,       port handling,   and
            ocean freight)                                                                             100,767
B3       Shelf support       parts     (note d)                                                         54,863
B4       Maintenance      float     (note e>                                                            54,980
B5       Local national        driver     costs (note f>                                               396,800
B6       Operation      and maintenance        costs (note g>                                          957,205
B7       Overhead costs (note h)                                                                       382,882

B8             Total     deductions    (Bl   through     B7)                                       $2,442,277
                                                                                                    --
C DIFFERENCE IN ESTIMATED COSTS WITHOUT ALLOWANCE FOR
     10 PERCENT CONTINGENCY FACTOR (A minus B) (note j>:
Cl       Where furnishing         American-made        trucks    would   be
           economical                                                                              $   900,240

c2       Where furnishing         American-made        trucks    would   not     be
           economical

D DIFFERENCE IN ESTIMATED COSTS AFTER ALLOWING A 10 PERCENT
     CONTINGENCY FACTOR (note j>:
Dl       Where furnishing         American-made        trucks    would   be
           economical                                                                              $   656,012

D2       Where furnishing         American-made        trucks    would   not     be
           economical

E    ESTIMATED ANNUAL REDUCTION IN DOLLAR OUTFLOW IF AMERICAN-
       MADE TRUCIr.S WERE TO REPLACE FOREIGN COMMERCIAL CARRIER
       SERVICES--FOR COMPARISON PURPOSES ONLY (see "pp. II,
       pp.   48 and 49)                                                                            $2,362,246

The notes     on pages     42 to 44 are an integral             part   of this        statement.
                                                                                   APPENDIX I
                                                                                       Page 3




                             General     cargo (trucks)
                            Sattahip    Port Complex to
  Ubon       Udorn    Nakhon Phanom     -Khorat     -Takhli        Uta Pao   Chacheongsao

$573,113   $470,057    $1,026,052      $394,737    $419,870       $254,385     $204,303



$102,970   $ 70,222    $   162,036     $ 49,423    $ 55,175       $ 25,334     $   29,620
  20,452     13,801         32,520       10,222         11,540       5,760          6,472
  11,506      7,370         18,199        5,481           6,362      2,735          3,210
  11,712      7,298         18,506        5,456           6,425      2,530          3,053
  86,800     60,450        136,400       35,650         40,300      17,050         20,150
 206,388    125,832        325,861       94,500        112,560      41,160         50,904
  82,555     50,333        130,344       37,800         45,024      16,464         20,362
$522,383   $335,306    $   823,866     $238,532     $277,386      $111,033     $133,771



$ 50,730   $134,751    $   202,186     $156,205     $142,484      $143,352     $ 70,532

                                                                                            .A




$ -1,508   $101,220    $   119,799     $132,352     $114,745      $132,249     $ 57,155




$360,155   $333,093    $   690,478     $301,550     $310,850      $212,667     $153,453




                                                  35
                                                             PiriE’.TIAL            COST SAVINLS             IN TRNiSPORT           OF MILITARY

                                                                cAi(CO AERO.43 BY RfYIACIK                          CO?z:WCIAL          CARRIER

                                                                     SERVICES WiTll OP:/AIC                       XILITARY       TRANSPORT




                                                           SUl4NA!tY P.XD IGSULTS                    OF SELECIED ROLTES IN CERMNY

                                                                                           FISCAL          YEAR 1969




                                                                                                                                                  Refrigerated       cargo
                                                                                                                                                           Truck
                                                                                                   Sunm;al-y                Bremrhaven                    Rott&am           Local     service
                                                                                                 of selected                      to                           to                  from
                                                                                                   routes                Kaisersleutern              Kaf serslautern       Kaiserslautern

     A ESTI!‘,ATED AiiNUAl. COST OF tiOVILG CARGO BY
           COHPKRCIAL CAREIER SER’ZCES (mtc         a)                                           S3,406,656                      S1bB,OOOk               $367 ,zoo*
     Al Less services   vhere furnlshlng    Jzerican-
           nade trucks  would not be econoaical                                                      1,315,200                    --.zL-.
                         Total estimated                 annual       cat      of
                           s.oving                                                               52,091,456                      $168,000                $367,200               $226,800

     B      DEDUCT--ESTI%TED            AhNWi. COSTS FOR TVE GOV-
              ERNKEX TO OX A?‘D OP&AiE AXRICJ&-YtiE
              TRUCKS (note b):
     Bl         kc     isition       costs       inc1udir.g         interest
                   9"see 2pp. I, pp. 33 to <1)(aote                          c)                  S        273,567                $ 30,857                $ 34.714               s 16,267
     82         Transporta:ion             cos:s      (.nlarrc,        port
                   handling,         and ocean ireioht)                                                    32,723                     3.837                  4.316                   2.049
     a3         Shelf support           parts       (note ::                                               28.818                    3,234                   3.639                   1,638
     84         Haintenance          float       (note     e)                                              28.826                    3,201                   3,602                   1,579
     B5         Local national             ariver       c35t*       (note f)                              310 ( 200                 33,000                  36,300                 19,800
     86         Operation        and aain~enance                costs
                   (note      g)                                                                          473,605                   50,560                  56,880                 23,700
.a7             Overhead        costs      !note h)                                                       189,442                   20,224                  22,752                   9,480

     BB                  Total         deductions         (Bl     through           87)          $1,337,181                      $144,913                $162.203               $ 74,513
--                                                                                                                                --
     C      DIFFEREHCE IN ESTlMiED     COSTS KITROUT AL-
               LOWANCE FOR 10 PE?Clrhs CO:;TIECEXCY FACIOil
               (A minus B) (note j):
     cl          Where furnishing   American-made  trucks
                   would be economicel                                                           s        754.275                $ 23.087                $204.997               $152.287
     c2            Where furnishing &wrican-mde                              trucks
                     would not be econoir.ics.1                                                  $ 404,838                                                     -

 D  DIFFERENCE IN ESTIYXTED COSTS AFTER PLUJW-
       ING A 10 PERCZNT CO~TIXZ;.CY         FAXOR
        (note j):
 Dl       Where furnishing    American-aade     trucks
             wuld  be economiral                                                                 S        620,557                $8,596
                                                                                                                                  A                      $188,777               $144,836

 D2                h'hcze furnishing  &wrican-u&de                           trucks
                      vould not be economical                                                    S -576,842
 E          BSTIWZED PI;tXJ>L RXD’JCTiCX IN WLLAR OUI-
              FLO'd IF EXEkiCAK-WA,;   Ti.L’CKS ‘P.E TO
              RFPLACE FORSIGN CO!‘? :?ICAL CXRIER
              SERVICES--FOR CO!PAkl%‘.      PURPOSES CSLY
              he      “Pp.       II.     pp.   50 and       51)                                  $1,498,549                      $105,053                $297,211               $193,139

 1
      Hot     included       in        summary      of    selected          r’Oiltes.
     The notes        on pages           42 to      44 are        an integral             part       of    this     statement.
                                                                                                                                          APPENDIX I
                                                                                                                                              Page 4




                     Refrigerated           carco
       Truck                                     Pail                                              Truck._.--
Seacontainer
--__                                      Brererhaven                                                 Sea cO”tal”Pr                       Rail
  Rotterdan     to                  to                           to                      Breserhaven          to  Rotterdam        to    Local
Kai serslautern          local        service           RaISeISlaUtS-ll                  Kaiserslautern                                  service


    $68,400                 $126.480                        $561,000       S86,lOO           5735,600               $579,600            5487.476

     A                       A                               A              L                 735,600                 579,600


    $6B,400                 $126,480                        $561
                                                             -L      000   $ss,roo                                  s---                $487,476
                                                                                                                                         --




    s 9,941                 S 19,286                        $ 84,856       $ 6,212           $155.744               $122,607            s 71,434

       1,045                      2,398                          10,549            682          16,371                 12.888              7,847
       1,150                      2,021                            8,894           659          18,038                 i4;177              7,583
       1.265                      2,001                           8.835            670          19,809                 15,594              7.703
      13,200                     23,100                          92,400         6,600          234,300                181,500             85,800

      23,700                     31,600                      139,040        11,850             371,300                292,300            136,275
      9.4po                      12,640                        55.616       4,740              148,520               --116 920             54,510

    $59,7n                  $ 93,046                        $400,160       $31.*13           $964,0&)               $755.986(1)         $371,152
                                                                            --
             -_




    $8,619                  $ 33,434                        $160,840       $54.687                                                      $116,324


                                                                                            -$228,452              -$176,386
                                                                                               --




    $z=.A1_
       2 641                $ 24,129                                       $51,546                                                      $ 79,209
                                                             Q!zcL!m

                                                                                            -$324,857              -5251,985




    $40,632                  $ 84,663                        5386,249      $72,333            $273,057(l)            $218,420(l)        $319,269
     --




                                                                                         37
                                                                                                                                                                                                           .
                                                                                                                                                                                                               c

                                                              'I'itTS    OF I-KULXS, 'IHUCK IXACTORS AND lMILMS

                                                                L1E.E EXPFCIAK‘I              AND OTIIEX CRITERIA                     USED IN

                                                                WHPUTINC           1HE ACQUISITION                  COST OF EQUIMENT

                                                                                                                                                                         Estimated        Estimated
                                                                                                                 TYF=                                                     Mmber of       acquisition
                     country                                                                                       ef                                                   operational        cost      per
               type of cerpo                                                                                  vehicle                                                      vehicles        WlIiC1.Z
                  --and route                                                                                 (note a)                                                     (note
                                                                                                                                                                            -       b)     -in    1969
JAPAN:
    General   carjio:
         North Pier to Sagami:
              Container movement                                    Truck   tractor,            with cab 32,000 GVW, 55,000                               GCU,
                                                                       4x2. gasoline             engine driven  (note d)                                                       16          5 7,634
                                                                    Semitrailer,       low-bed.                   15 ton.     4 wheel,           tilt       deck,
                                                                      fixed      goose neck                                                                                    49                3,187

                    conve"tio"al             moveir.ent             Truck    tractor,           with         cab 28.000        GVU, 4x2.                gasoline
                                                                       engine drive"                                                                                            4                5,953


                                                                    Semitrailer,             stake,          12    ton.     2 wheel,          30 foot                          13                2,553


           North      Pier to other   sites:
                    Gmtainer  nwvement                              Truck    tractor,     with cab 32,000 GVW, 55,000                                     CCW,
                                                                       4x2, gasoline       engine drive"                                                                        3                7,634
                                                                    Semitrailer,       low-bed,   15 ton, 4 wheel, tilt                                     deck,
                                                                       fixed     goose neck                                                                                     3                3.187
                    Conventional             movement               Truck,     cargo,     with cab. 24,000                     GVW, 4x2,                6 ton,
                                                                       gasoline       engine drive"                                                                            so                5,309
                    Conventional             movement               Truck    tractor,      hith cab 28,000                     CVU,      4x.2,          gasoline
                                                                        engine      driven                                                                                     10                5,953
                                                                    Semitrailer,             stake,          12 to",        2 uhecl,          30 foot                          10                2,553

     Refrigerated                 cargo:
           North       Pier          to various       sites         Truck,    refrfgerator                   van, with        cab,      19,000 GVW,
                                                                       4x2, 470 cubic                 foot      volume,       4-l/2       to", gasoline
                                                                       enginr     driven                                                                                        6                6,826
                                                                    Truck,    refrigerator                   van, with        cab.      24,000 GVU,
                                                                       4x2, 500 cubic                 foot      volume,       6-l/2       to", gasoline
                                                                       engine drive"                                                                                           19                9.033
     Petroleum.            oil,       and lubricant
        Ca*gO:
           North        Pier to various   sites:
                    'fenk truck  novaents                           Truck.       tank.     with cab. 34.500 GVU. 6x4. fuel ser-
                                                                       vicing,         2;200 gallon,       g&line  engine drive"                                               43            13,735
                    Rail       tank     mvements                    Truck      tractor.       with cab. 39.000 GW. 60.000 GCU.
                                                                       6x4. gasoline            engine &r&n           ’   ’      .                                             86                9,404
                                                                    Semitrailer,           tank,    with pumps, 6,000 gallon.
                                                                       4 vheels         (tanden     axles)                                                                     86            13,000
TliAILAND:
      General    cargo:
           Sattahip     Port            Complex       to:
                uban                                                Truck     tractor,          with         cab, 32,000 GVW,                 60,000        GCU,
                                                                       4x2. diesel             eng:"e         drive"                                                           42            10.460
                                                                    Semitrailer.             stake,          12 :on, 2 wheel,                 30 foot                          42             2.553
                                                                    Semitrailer,             low-ted.           20 to",      4 wheel,            40 foot                        7             3,820
                    Udorn                                           Truck     tractor,           hr'.h       cab, 32,000 GVW,                 60,000 GCU,
                                                                       4x2, diesel             eqzine         driven                                                                         10.460
                                                                    Semitrailer,             stake,          12 ton, 2 wheel,                 30 foot                          :z             2,553
                                                                    Semitrailer,             lov-brd,           20 to", 4 reheel,               40 foot                          6            3,820
                    N&bon           Phanom                          Truck     tractor,          with         cat,     32,000 GVW.             60.000 GCW.
                                                                       4x2, diesel             enqne          driven                                                                         10.460
                                                                    Semitrafler,             stake,          12 ton, 2 wheel,                 30 foot                                         2,553
                                                                    Semitrailer,             low-led,             20 to",    4 wheei,           40       foot                                 3,820
                                                                    Truck     tractor,           with        cab, 32,000 GVW,                 60,000        GCW,
                                                                       4x2, diesel             wqine          driven                                                           20            10,460
                                                                    Semitrailer.             stake,          12 to",       2 wheel.           30 foot                          27             2,553
                                                                    Semitrailer,             low-ted,             2ti to",   4 wheel,           40 foot                          3            3.820
                    Trdfhli                                         Truck     tractor,          with         cab,    32,OUO      CVk‘,        60,000        GCW,
                                                                        4x2, diesel           engine          driven                                                           20            10,460
                                                                     Semitrailer.            stake,          12 ton. 2 wheel.    30 foot                                       27             2,553
                                                                    Semitrailer;             lov-b;d.           20 ton, 4 whrcl.   40 foot                                      3             3,820
                    uta       P&o                                   lruch     tractor,           wi:h        cab. 32,000 GVW, 60,000 GCW,
                                                                        4x2, diesel            engine driven                                                                   10
                                                                     Semitrailer.            stalic.   12 ton. 2 wheel.   30 foot                                              22
                                                                    SemItrailer;             lov-t.fd,    20 to", 4 wheel, 40 foot                                              3
                    Chacheongsao                                    Truck     tracroz.           wit"  cab, 32.030 GVh', 60.000 CCW,
                                                                        4x2. dlexl             eu@nc driven                                                                    12           10,460
                                                                    Scmltroil~r,             sr-ke.    12 ton,   2 vheel, 30 foot                                              22            2,553
                                                                    ScmltralIer,             low-tcrl.    2C to". 4 wheel, 4G f0ar                                              3            3.820

                                         The notes          On par,es       40 and 41 sre                an integral           part      of     this       stnteme"t.
                                                                                                                        APPENDIX I
                                                                                                                            Page 5




       .             3 trips
  46                       a night                                                                      $ 28,566.30
                           (note e)             582.7                            *   4.3
                     1     trip
                           a night                                                                        15.585.60
                                                582.7            12                   15
                           .!note e)

  46                 3 trips
                       a night
                                                145.7                                4.3                    E-,569.01
                       blote e)
                     1 trip
                       * night                                                                              3,312.38
                       (note   e)               145.7            11                    15


                                                  59.6                                2.9                   7,472.26
 138                     I.5       trips

                         I trip                                                                                954.22
                           hate            f)     59.6            12                       15

  138                                            375.4                5               2.9                  86.608.70
                         1.5       trips
  138                                            160.9                                 2.9                  19,422.90
                         1.5       trips
  138                     1 trip
                            <note          f)    160.9            11                       15                2,547.99



                                                  24                  4                1.6                  22,832.60
      214                 1 trip

                                                                      5.5              2.8                  57,739.20
      214                 1 trip                  103.2



                                                  945.3               7.4                  4.0             146,591      .OO
       50                  3 trips
                                                5,037.o                                    3.1              249,044      .oo
-64                        3 trips
                                                5,031.o           19.5                       15             111,581.00
                               3 trips




 1,170                                                  77.5                                                  89,600.00
                               6 days                                                                         10,701.60
                               7 days                   65.9           11                                       2,668.X
                               7 days                   11.6           15
       856                     5 days                   74.3
                               6 days                   63.2              ii
                               6 days                   11.1              15
  1,158                         6 days              125.4                                    5.2
                                7 days              106.6                 1;
            -                   7 days                  18.8              15

                                2 days                 117.7                                    5.3
        450
                                3 days                 100.0               ii                    15
            -                                            17.7              15                    15
                                3 days
        536                      2 days                 116.0                                                  476.;;;*25;
                                 3 days                  98.6               ti                  “iZ
                                                          17.4              15                    15             1:143:75
                                 3 days
                28                                      838.2                                    6.1           18.584.40
                                 7 trips
                                                                                                   15            5,605.57
                                 3 trips                                                                         1,143.75
                                 3 trips                71% .                                     15

            202                   1 day                 146.0
                                  2 days                124.1
                                  2 days                  21.9
                                                                                                                                                                 Estimated                        Est im.ltrd
                                                                                                                   Type                                          number of                       acquisitton
                             Countey                                                                                 of                                         opcrntionnl                        cost prr
                       type of cArgo                                                                            vehicle                                            vehicles                        vehicle
                           end
                          --     route                                                                          (note   a)                                         (note    b)                     in    1969
cm(ANK :
     Refrigerated              cargo:
           Truck            movements:
                        Bremerhnven              to      Keisers-            Truck      tractor.       ;ith      cab.    32.000  CW. . 60.000
                                                                                                                                          _   GCU.
                            lautero                                               4x2,    diesel-engine           driven-                                                                          $10,460
                                                                              Semitrailer,          refrigerator          van, 20 ton, 35 foot                                                        7,101
                                                                             Refrigerator           "n,t                                                                                                3,000
                        Rotterdam              to Kaisers-                   Truck      tractor,       k.lth cab, 32.000 GVW, 60,000 GCW,
                           lautern                                               4x2, diesel          enrine driven                                                                                  10,460
                                                                             Semi&iler.            r&igerator             "an, 20 ton. 35 foot                                                        7,101
                                                                             Refrigerator          unit                                                                                                 3,000
                        local    zrvice                from      Kai-        Truck     tractor,        with cab, 32,000 GVW, 60,000 CCW,
                           serslautern                                          4x2. diesel          engine driven                                                                                  10.460
                                                                             Semitrailer,          refrigerator           van. 20 ton, 35 foot                                                       7,101
                                                                             Refrigerator          unit                                                                                              3,000
                        Rotterdam      to Kaisers-
                           lautern:
                              Container    movement                          Truck     tractor,    with cab, 32,000 GVW. 60,000                      GC!J,
                                                                                4x2. diesel       engine driven                                                                                     10,460
                                                                             Container        and chassis  (note g) (bogie)                                                        3
             Rail         movements:
                        lacal   service                from      Bre-        Truck     tractor.         with cab. 32,000 GVU. 60,000 GCU,
                           merhaven                                             4x2. diesel           engine driven                                                                5                10.460
                                                                             Semitrailer.           refrigerator    van, 20 ton, 35 foot                                                             7,101
                                                                             Refrigerator           unit                                                                           .:                3,000
                        Bremerhaven              to      Kaisers-            Truck     tractor,        with cab. 32.000 GVW, 60.000 GCU
                            lautern                                             4x2, diesel           engine driven                                                           22                    10,460
                                                                             Semitrailer,           refrigerator    van. 20 ton, 35 foot                                                             7,101
                                                                             Refrigerator           unit                                                                      it                     3,000
       General          cargo:
             Truck         tmvements:
                        Local        service                                 Truck     tractor,        with cab. 32,000 GVW, 60,000 GCU,
                                                                                  4x2.   diesel       engine driven                                                                2                10,660
                                                                             Semitrailer,           stake,   12 ton, 2 wheel. 30 foot                                              6                    2,553
                        Bremerhaven              to      Kaisers-
                            1aurern:
                                 Container             movement              Truck       tractor,    with cab, 32.000 GVW, 60,000                    GCW,
                                                                                  4x2,     diesel   engine driven                                                            67                     10.460
                                                                             Container          and chassis  (note g) ibogie)                                                71

                        Rotterdam             to Kaisers-
                            lautern:
                               Container               movement              Truck     tractor,    with cab, 32,000 GVU, 60.000                      GCX.
                                                                                4x2, diesel       engine driven                                                               37                    10,460
                                                                             Container        and chassis  (note g) (bogie)                                                   56
             Rail        nmvement:
                        Local service                                        Truck     tractor.        with cab, 32,000 GVW, 60,000 GCW,
                                                                                4x2,     diesel       engine driven                                                          23                     10,460
                                                                             Semitrailer,           stake,   12 ton. 2 wheel, 30 foot                                        46                         2,553

+quip,,ient needs                   used      in our          comparisons             were   developed     from     discussions           and suggestions       of         armed        forces      trans-
 portation             offtcials.
bbes       not     include           extra       vehicles           on hand           used   as maintenance         float.

 A ratio      of one semitrailer                          refrigerator             van to each required      tractor               was used in Germany.                    Army officials        in-
 formed      us this ratio     is                     necessary        to      maintain  flexibility    since      the            same tractor is used               for      other   semitrail-
 ers .
'Based on maximum age or mileage,             whichever   is attained       first.       Where mileage    becomes       the basis,     life   expectancy
  MS converted       to years.     The life    expectancy     for trailers         is based on 15 years.       Hileage       is not normally         con-
  sidered     in determining    the life    expectancy    of trailers.
d
  GVU is the gross vehicle         weight   of a vehicle     and includes          the weight of the chassis         and cab, with all attach-
  ments, accessories,        and equipTent;      body or fifth     wheel (except         for chassis   types);     full     complement      of fuel,
  lubricants,     end coolants,     driver    and a payload;      excluding        the weight of a semitrailer.

 Ccv is          the     gross       combination                 weight      of      a vehicle      end includes       items      of     the   GVW and weight         Of a semitrailer.

 "4x2"       means the              vehicle           consists          of   4 wheels        vith    2 wheels      providing           the driving    action.
                                                                                                                                              APPENDIXI
                                                                                                                                                 Page 6




      800              2.5 days                       48.0                                                       3.7              8 22.164.60
      -                2.5 days                       -                           1;                              :i                 5.669.65
                                                                                                                                     3.012.67
                                                      -

      800              2.5 days                       55.4                                                      '3.7                   24,935.20
                       2.5 days                       -                           15                                                     6.378.35
                                                                                                                  :i                     3.400.50
      400              1.5   days                     50.3                                                       5.0                   10.834.70
                       1.5   days                                                 1;                                                    3,x3.53
                                                                                                                  ::                    1.869.17


      600              2 days                         22.4                                                       3.0                    9.941.14
                       3 days                                                     1;                                                       -

      600              2.5 days                       29.6                                                       3.7                   13.852.90
                       2.5 days                                                   1;                                                    3.543.53
                                                                                                                                        1.889.17
      800              2.5 days                      132.0                                                       3.7                   60,952.70
                       2.5 days                                                   1;                                                   15.591.50
                                                                                                                  ::                    8.312.34
 -.

      300              1 day                          14.0                                                       4.0                    5J92.44
                       2 days                                                      s                               15                   1,019.20


      600              2 days                        263.3                                                       3.0                  155,714.oo
                       3 days                                                     1;



      800              2 days                        223.3                                                       3.0                  122.607.00
                       3 days                                                     15

      300              1 day                         184.3                                                       4.0                   59.713.00
                       2 days                                                          i                           15                  11,720.70
eAgency        personnel    stated   that     this     cargo   would      be moved at night          in order   to take   advantage      of   less
 traffic        congestion.
fAdditiru,al        semitrailers     would     be available        from     the night      routes.
%Tontainers   may be Covernwnt                owned or may be furnished       by the stearnship         companies  elong with chassis
 (bogies)   to move containers               u-aland.    Cost for the furnished     conrainers         and chassis   are mrnally   in-
 cluded with freight     charges             rather   than with the Inland cor;;nercial        carrier     costs and therefore   are in-
 applicable    to this study.




                                                                                           41
APPENDIX I
    Page 7                                                                    .
                                                                                  .

aExcludes      U.S. costs    incurred    in administering      the con-   .
 tracts.

bThe computation   of Government-owned costs is based on the
 use of trucks,  truck tractors2   and semitrailers    procured
 from the United States and on the use of local national
 drivers  on an average of 250 workdays per year.        An average
 of 300 workdays was used in the container       computations   for
 Germany a

cIn computing interest        on capital    investment,  we use the an-
 nual equivalent      cost method because the vehicles        have vary-
 ing expected lives.        Interest     is based on the market yield
 rate of s.0673 on marketable         long-term    U.S. Treasury bonds
 at the end of August 1970. This form of computing interest
 is consistent     with Office of Management and Budget Circular
 A76 instructions.        (See note i.>

dDiscussions  with armed forces transportation     personnel dis-
 closed that a lo-percent   factor  of acquisition   and trans-
 portation  costs is a good estimate for the shelf support
 parts cost element.

ew
 e used    the following     percentage factors         of the acquisi-
 tion,  transportation,      and shelf support         costs for the
 maintenance float      estimate.

     Trucks,      truck   tractors,     refrigerator   units        10%
     Trailers                                                        4%

 Normally a 7-percent  factor   is used for trucks             and tractors
 in the United States.    A lo-percent  factor was             thought by
 armed forces personnel to be more than adequate                 in view of
 the higher deadline rate due to the longer time                 to acquire
 parts overseas.

f The driver    cost includes a manpower allowance for relief
  drivers   at the rate of 1.11 times the number of regular
  drivers   as stated in Army regulations.       Local national
  driver  costs were computed using the following       average an-
  nual salaries     and include fringe benefits:

                                        42
                                                                  APPENDIX I
                                                                      Page 8

Country               Type of equipment       driven          A~ual     salary

Japan                    Truck tractor                            $3,300
                         Heavy truck                               3,000
                         Light                                     2,900
                         Petroleum tank      truck                 3,000
Thailand                 Truck tractor                             1,500
G2mm)p                          do.                                3,300

gFue1, tires,   miscellaneous     attachments,   and repairs   are in-
 cluded in this cost category.         Based on available    and/or
 military   experience,   we used a mileage rate of .084 for
 computing the direct     operation    and maintenance costs in
 Japan and Thailand and a rate of .079 for our computations
 in Germany.

%ch
  is         overhead estimate provides for indirect            operations
    and maintenance costs such as clerical             and supervisory
    personnel,       miscellaneous   supplies,    and  facility     costs.     Our
    estimate      for this cost element was calculated           at the rate
    of 40 percent of the direct          operation    and maintenance
    costs as a result         of conversations    with armed forces offi-
    cials rather than a 10.7-percent           rate developed from army
    cost reports which include the overhead expenditures                   only
    at the motor pool level.

%he allowance for residual      value is estimated at 20 per-
 cent of the acquisition    cost of the vehicles   required.  It
 excludes the residual   value of trucks used for maintenance
 float  and the related  value of shelf support parts.
.
'A contingency  allowance of 10 percent of estimated  costs
  to own and operate American-made equipment is used in this
  comparison to provide a margin for unexpected costs and
  other unknown factors.

kk is       commercial cost was reduced from a previous contract
    estimate of $240,000 for the fiscal         year 1969 by a redis-
    tribution   of the milftary's   refrigerator     fleet.  Redistri-
    bution occurred between April 1969 and August 1969.



                                        43
 APPENDIX I
     Page 9
1 Commercial  cost for this route was reduced (between April
 and August 1969) from a previous contract       estimate of     .
 $554,400 by increased utilization    of refrigerated     sea con-
 tainers  through the port of Rotterdam.

mIn August 1969 the European Command informed us that all
 refrigerated  cargo moved from Kaiserslautern  was now being
 transported  by military means except for certain  small
 shipments for Berlin and Italy not considered highway com-
 patible.




                                44
                                                                                             APPENDIX II
                                                                                                  Page 1
                           POTENTIALREDUCTIONSIN DOLLAREXPENDITURES
                      ABROADBY REPLACINGCOMMERCIALCARRIERSERVICES
                                 WITH ORGANICMILITARY TRANSPORT



                 SUMMARYOFSELECTEDRUUTESINJAPAN,THAIIAND,                   ANDGERMANY
                                         FISCAL YEAR1969



                                                           Summ8ry of selected routes
                                                                   by country
                                                   Total        Japan      Thailand   Germany
A ESTIMATEDANNUALDOLLAROUTFLOW--
     CONIRACTEDCOMMERCIAL   CARRIER
     SERVICES(note a>               $10,721,167                $3,971,994       $3,342,517    $3,406,656
Al Less services where furnishing
     American-made trucks would not
     be economical                    1,580,758                     265,558          -         1,315,200
            Net estimated        annual dol-
              lar outflow                         9,140,409     3,706,436       3,342,517      2,091,456
B DEDUCT--ESTIMATED  ANNUALDOLLAR
   OUTFLOW--PURCHASE   AND OPERATION
   OF AMERICAN-MADE   TRUCKS:
Bl   Local national driver costs                  1,451,300         744,300        396,800       310,200
B2   Transportation   costs
        (note b)                                     15,073             9,800        3,000         2,273
B3   Operation and maintenance
        costs--local  national labor
         costs     (note    c>                    1,122,418         407,012        478,603       236,803
B4     Overhead costs (note d)                       448,967        162,805        191,441        94,721
B5     Less: Allowance for residual
         value (note e)                            -270,579       -129,916         -89,573       -51,090
             Total estimated annual
               dollar outflow                     2,767,179     1,194,001          980,271       592,907
C ESTIMATEDANNllALREDUCTIONIN
    DOLLAREXPENDITURESABROAD                    $ 6,373,230    $2,512,435       $2,362,246    $1,498,549

The notes on page 50 are an integral           part of this    statement.




                                                    45
             POTENTIAL REDUCTIONSIN DOLLAR EXPENDITURES
           ABROADBY REPLACING COMMERCIALCARRIER SERVICES
                     WITH ORGANICMILITARY TRANSPORT


           SUMMARYAND RESULTS OF SELECTED ROUTES IN JAPAN
                              FISCAL YEAR 1969


                                                                          Summary
                                                                        of selected
                                                                          routes
A ESTIMATED ANNUAL DOLLAROUTFLOW--CONTRACTED
    COMMERCIALCARRIER SERVICES (note a>                                 $3,971,994
Al    Less services where furnishing American-
        made trucks would not be economical                                  265,588

Total   estimated    annual dollar     outflow                           3,706,436

B DEDUCT--ESTIMATED ANNUAL DOLLAR OUTFLOW--
    PURCHASEAND OPERATIONOF AMERICAN-MADE
    TRUCKS:
Bl    Local national     driver costs                                        744,300
B2    Transportation     costs (note b)                                        9,800
B3    Operation and maintenance costs--local
        national    labor costs (note c>                                     407,012
B4    Overhead costs (note d)                                                162,805
B5    Less allowance for residual value
         (note e>                                                        -129,916
             Total   deductions      (Bl through        B5>              1,194,OOl
C ESTIMATED ANNUAL REDUCTIONIN DOLLAR EXPENDI-
    TURES ABROAD                                                       $2,512,435

1Not included in summary of selected             routes.      (See app. I,
 pp. 32 and 33.)
The notes on page 50 are an integral             part    of this   statement.
                                                                  APPENDIX II
                                                                      Page 2




                North Pier to various   other    sites
                     Truck                                        Rail
Refrigerated          General                   Petroleum, oil,
     cargo             cargo                     and lubricants

  $265,558         $1,251,994           $664,411            $1,790,031
   265,558
                    1,251,994            664,411             1,790,031




     83,300           286,800            144,000                  313,500
      2,183             4,073              1,685                    4,042
     56,175           165,911                67,725               173,376
     22,470            66,364                27,090                69,351
   -17,472            -33,712            -29,530                  -66,674
   146,656(l)         489,436            210,970                  493,595

  $118,902(l)      $ 762,558            $453,441            $1,296,436




                                        47
                                 POTENTIAL            REDUCTIONS        IN     DOLLAR       EXPENDITURES

                              ABROAD BY REPLACING COMMERCIAL CARRIER SERVICES
                                            WITH ORGANIC MILITARY                      TRANSPORT



                          SUMWRY AND RESULTS OF SELECTED ROUTES IN THAILAND
                                                           FISCAL       YEAR      1969




                                                                                                                     summary
                                                                                                                   of selected
                                                                                                                     routes
A    ESTIMATED ANNUAL DOLLAR OUTFLOW--CONTRACTED COMMERCIAL CARRIER SER-
     VICES (note a>                                                                                                $3,342,517
B    DEDUCT--ESTIMATED ANNUAL DOLLAR OUTFLOW--PURCHASE AND OPERATION OF
     AMERICAN-MADE TRUCKS:

Bl      Local      national       driver        costs                                                                  396,800
B2      Transportation            costs       (note       b)                                                              3,000
B3      Operation        and maintenance                costs--local             national       labor      costs
        (note c)                                                                                                       478,603
B4      Overhead        costs      (note      d)                                                                       191,441
B5      Less     allowance        for      residual        value       (note      e)                                  -89,573
B6              Total    estimated          annual        dollar       outflow                                         980,271
C ESTIMATED ANNUAL REDUCTION IN DOLLAR EXFZNDITURES ABROAD                                                         $2,362,246

The notes   on page           50 are an integral               part     of this         statement.
                                                                                         APPENDIX II
.                                                                                             Page 3




                                    General     cargo (trucks)
                                   Sattahip     Pcjrt Complex to
                             Nakhon
                 Udorn       Phanom            Khorat       Takhli          Uta Pa0   Chacheongsao

    $573,113   $470,057    $1,026,052         $394,737     $419,870        $254,385     $204,303



      86,800     60,450       136,400           35,650         40,300        17,050       20,150
         607         412           965              305              343        174           194

     103,194     62,916       162,931           47,250         56,280        20,580       25,452
      41,278     25,166        65,172           18,900         22,512         8,232        10,181
    -18,921    -11.980        -29,894           -8,918      -10,415         4,318         -5,127
     212,958    136,964       335,574           93,187      109,020          41,718        50,850
    $360,155   $333,093    $ 690,478          $301,550     $310,850        $212,667     $153,453




                                                          49
                                                                                                   POTENTlAL PEI)I’C,,“‘:             ,N DIM.AR EXI’Bt:l)lll~FES

                                                                                             AIIF‘OM BY FEPLACIhC. CO”\‘EFCIAL                        CAY1tIF.R SFRVICELi

                                                                                                             .XITII    OPCANIC EIILITARY TRANSPORT




                                                                                           SU’W.RY AND RESULTS OF SELECTED RO”TES IN CEWY

                                                                                                                          FISCAL. YEAR 1969




                                                                                                                                                                           RefriKerated          catRo
                                                                                                                                                                                   Truck
                                                                                                                      Sunmary of         Bremerhaven                Rorterdam              Local    service      5.2, conta.ner
                                                                                                                       selected                to                        to                     from             -Rotrerdr-     to
                                                                                                                        WYltES          Raiserslautern            Kaiserslautern           Kaiserslautern        Kaiserslaurern

p.      LJ,,ryl,r.Y             H.‘,lYlu.            YYLY-R        vLLiL”“--C”LI‘MC‘YI

      COtlMXCIN. CARR;ER SERVICES (note a)                                                                            53.406.656           $168,000                 $367,200                    $226.800                $68,400
Al Less services  vhrre furnirhlnfi Prrrlcan-
     made trucks  vould not be ecanonical                                                                              1,315.200               A                      A                          A                      L
                           Total estimated                          annual                dollar
                             outflow                                                                                    2,091,456              168,ooo                367,200                    226,800                68.400

B  DEDUCT--ESTIK4TED A!WJAL DOLLPP OWFLOW--
     PLQCMSE AND OPERAIION OF AZhICAN-MDE
     TRucKs :
Bl     Local national      drlvsr   costs                                                                                 310,200                  33.000                 36.300                     19,800              13,200
B2     Transportation      costs   (note b)                                                                                 2,273                      256                    287                        137                  68
83     Operation     and Icalntenance     costs--lo-
          cal national     labor costs (note c)                                                                           236,803                  25,280                 28.440                     11.850              11,850
       Overhead costs       (note d)                                                                                       94,721                  10.112                 11,376                      4,740               4,740
       Le;ss&l;;ance       for residual     value
                                                                                                                         -51,090           -5.:oL                    *                           -2,866                 -2.090

86                        Total estimated                          anma                   dollar      out-
                            fl0v                                                                                          592,907              62.947                69.989                     33.661                  27,768

C       ZSSTIHATEOANNUAL REDUCTIo?i tN DOLLAR EX-
          PENDITuhfs Amom                                                                                             $1,498,549           slq5,053                 $297,211                    $193,139                500,632


1 Not included                       in summary.                   <See app.                  I,     p.    36 end X.1

%cludes                  U.S.               costs       incurred               in        administering            the     contract.

?hl         a cost        category                   +epresents                     the    foreign         port       handling      charges.

c
     Local            nationa                labor costs              for thfs   line                     item are estimated    to be 502 of the                      direct        operation         and maintenance
     costs.             It is               assumed that              petroleum.    oil                    and lubricanrs    are of U.S. origin.

dThi~ overhead estimate  (2oZ of the direct   operation     and raintenance                                                                              costs)    provides     for indirect    operations
 and maintenance  COSTS. such as clerIca    and .wpet-vlsory    personnel,                                                                              miscellaneous       supplies,    and facility      costs.

%e     all owance for                               residual   value is estirrared     at                                20% of the acquisition                cost of vehicles           required.        It   excludes     the
 residual    value of                               the trucks    used for ,r.alntenance                                  float and the related                value of shelf           support     parts.
                                                                                                                                   APPENDIX II
                                                                                                                                       Page 4




                                                                                           General    cargo
                Refrigerated                cargo                                              Truck
                                 Rail                                                      Sea container
                             Bremerhaven                                    Bremerhaven                     Rotterdam         Rail
              to                                    to         Local               to                             to          Lccal
    Local          service                 Kaiserslautern     service     Kaiserslautern                Kaiserslautern       service


       $126.480                               $561,000        $86,100        $735,600                         $579,600      $487,476
                                                                              735,600                          579,600       A


            126,480                             561,000        86,100         A                                A             487,476



!            23,100                                 92,400       6,600         234,300                         181,500           85,800
                                                                                                                                     609
                    160                                 702          54          1,075                              846
             15,8bO                                 69,520       5,925        185,650                          146,150           68,138
              6,320                                 27.808       2,370         74,260                           58,460           27,255
        & -3        563                        -15
                                               I       679     -1,182         -32,742                          -25,776       -13,595


             41,817                             174,751        13,767         462,543(l)                       361,180c1)    168,207

       $ 84,663                               $386,249        $72,333        S273,057(1)                      $218,420c1'   $319,269




                                                                                           51
         APPENDIX III
                       Page       P




INSTALLATIOMS   AND   LOGISTICS




       Mr.     Oye V. Stovall
       Director,     International           Div ision
       General     Accounting         Office
       Washington,        D. C.        20548

        Dear     Mr.       Stovall:

       The draft     report    “Economic         Advantages      of Using   American-made
        Trucks    to Transport       Military      Cargo    Abroad”     was forwarded     to each        of
       the Military      Departments          for review    and comment       (OSD Case #3123).

       We have received           their comments        and find that they are in general
       agreement      with most of the report’s            findings.      In fact they are already
       taking    steps to improve        local operating         and maintenance        cost data to be
       used to perform         cost studies.        They are also considering             amending
       procurement        regulations      to require     consideration       of alternative       arrange-
       ments     for use of American-made              vehicles.

        In addition,    the Military           Departments      plan to provide     for the procurement
        of American-made              trucks      when it is advantageous       to do so and to allocate
        them    on a priority       basis      to those foreign     bases which      offer   the greatest
        economic     advantages.             They have also agreed        to continue      their reviews
        of equipment      utilization         and to give preference        for American-made           equip-
        ment and to American               firms.

        Although      there    was general     agreement       with most of the report,            there
        were certain        items  which    did not draw       complete     agreement.         For example,
        there    was some question         regarding      the accuracy       and adequacy        of the data
        on which      the report   is based.        The difficulty      of obtaining   sufficient        good
        data,    cited by GAO in the report,            caused     some doubt about the soundness
        of the findings.




                                                          52
                                                                                        APPENDIX III
                                                                                                    Page 2

In addition,     there    was some opinion          that the study was not fully           consistent
with the provisions          of DoD Instruction         7041.3      l’Economic    Analysis     of
Proposed     DOD Investments”           which     sets forth       requirements     and procedures
for comparative         cost analysis.        This raises        the possibility    that the results
of the cost study might          have been different           if GAO had used the DOD guide-
lines 0 There       is also the question         of whether        all offsetting  costs were
considered      if additional     American-made            trucks      were used abroad.

Although      the Military         Departments          expressed      several       reservations         about
this report,       they did not provide             any economic         analyses       of their      own
which     supported       their    position.        They have been requested                 to undertake
detailed     analyses       of the various         cost factors      so that we may be in a
position     to more       accurately        determine       the most      effective       and economical
means      of transporting          military      cargo     abroad.      While      awaiting      the results
 of these analyses,           the Military        Departments        will continue          to modify      the
necessary        manuals,        regulations        and instructions         to assure        greater
 compliance       with the specific           recommendations            of this report.

We appreciate      the opportunity     to comment                   on this report    and will        inform
you of the results     of the military     analyses                 upon their   completion.

                                                       Sincerely,




                                                        53
APPENDIX IV
    Page 1
                                                                    .
                   PRINCIPAL OFFICIALS OF

                  THE DEPARTMENTOF DEFENSE

                            AND THE

                   DEPARTMENTOF THE ARMY

        RESPONSIBLE FOR ADMINISTRATION OF ACTIVITIES

                  DISCUSSED IN THIS REPORT


                                         Tenure
                                            P-P- of office
                                         From              To
                    DEPARTMENT
                    --I-_I   OF DEFENSE

SECRETARYOF DEFENSE:
   Melvin R. Laird                    Jan.    1969   Present
   Clark M. Clifford                  Mar.    1968   Jan.    1969
   Robert S. McNamara                 Jan.    1961   Feb.    1968

ASSISTANT SECRETARYOF DEFENSE
  (INSTALLATIONS AND LOGISTICS):
     Barry J. Shillito                Feb.    1969   Present
     Thomas D. Morris                 Sept.   1967   Jan.    1969
     Paul R, Ignatius                 Dec.    1964   Aug a 1967


                   DEPARTMENTOF THE ARMY

SECRETARYOF THE ARMY:
   Stanley R. Resor                   July    1965   Present
   Stephen Ailes                      Jan.    1964   July    1965

ASSISTANT SECRETARYOF THE ARMY
  (INSTAL~TIONS   AND LOGISTICS):
   J. Ronald Fox                      June    1969   Present
   Vincent P. Huggard   (acting)      Mar.    1969   June 1969
   Robert A. Brooks                   Oct.    1965   Feb.    1969
   Daniel M. Luevano                  July    1964   Ott"    1965



                              54
                                                                          APPENDIX IV
                                                                              Page 2
.
                                        PRINCIPAL OFFICIALS OF

                                       THE DEPARTMENTOF DEFENSE

                                                AND THE

                                        DEPARTMENTOF THE ARMY

                          RESPONSIBLE FOR ADMINISTRATION OF ACTIVITIES

                                       DISCUSSED IN THIS REPORT (continued)


                                                           __-~-Tenure of office
                                                               From              To
                                          COMMANDERIN CHIEF

      EUROPE:
         Gen. Andrew J. Goodpaster                         July   1969     Present
         Gen. Lyman L. Lemnitzer                           Nov.   1962     July    1969

      PACIFIC:
          Adm. John S. McCain, Jr.                         Aug.   1968     Present
          Adm. Ulysses S. G. Sharp                         July   1964     Aug. 1968


                                 COMMANDER,
                                       -- MILITARY ASSISTANCE COMMAND
      VIETNAM:
          Gen. Creighton W. Abrams                         July   1968     Present
          Gen. William C. Westmoreland                     Aug.   1964     July    1968




    U.S.   GAO   Wash.,   D.C.