U.S. Military Reduces Scope of DTCI Cargo Program

This story appears in the April 8 print edition of Transport Topics.

The U.S. Army has removed all specialty and flatbed freight from its outsourced logistics Defense Transportation Coordination Initiative program because those freight categories have not produced the anticipated cost savings, Transport Topics has learned.

“Consolidation opportunities never materialized, nor were cost reductions for the movement of cargo requiring specialized and flatbed equipments realized,” said a March 13 Pentagon memo obtained by TT. “As a result, headquarters, Department of the Army, requested the removal of all U.S. property and fiscal offices, as well as the exclusion of shipments requiring the use of specialized or flatbed equipment.”

The memo said that, effective March 17, DTCI sites in California, Florida, Utah and Washington would no longer participate in the program, which is run by San Mateo, Calif.-based Menlo Worldwide Logistics, a subsidiary of Con-way Inc.

Menlo was awarded the seven-year, $1.7 billion DTCI contract in 2007 to oversee nearly one-third of all military freight movements within the continental United States. It was said to be the largest defense logistics outsourcing in history and was intended to bring best commercial practices to the military.

Instead, the Army said those freight shipments will be sent “using voluntary tenders or spot bid, whichever is applicable,” military officials said in the memo.

A military spokeswoman said that an “enterprise” analysis conducted by an independent third-party contractor showed that freight volume moved via specialized and flatbed equipment was approximately 21% of the 2011 total freight volume, but represented a much larger percentage of costs — 62%. The precise figures were not provided.

The analysis confirmed that, in some cases, specialized and flatbed tenders — publicly posted rates — were outperforming DTCI contract rates.

“So, pending these results, we received requests from Army, Navy, Marine Corps and the Defense Logistics Agency to remove specialized and flatbed equipment requirements from the contract,” a Surface Deployment and Distribution Command spokeswoman, who asked not to be identified, said.

The types of goods moved on specialized and flatbed equipment is “freight of all kinds,” including general cargo, tools, parts, boxes of supplies, military equipment and trucks moving within the continental United States, the spokeswoman said.

The dollar value of revisions to the DTCI contract is currently being negotiated with Menlo, the spokeswoman added.

Gary Frantz, spokesman for Menlo parent company Con-way, said the changes were made after an assessment of current volume activity and an ongoing analysis of cost-saving opportunities for shipment types and volume patterns by mode and by location.

“These changes represent the natural evolution and prudent ongoing management of a large, sophisticated management program like DTCI, which continues to serve hundreds of commercial and military locations generating tens of thousands of shipments,” Frantz said. “What remains under contract between Menlo and the government is the vast majority of the originally planned volume of freight moving by all major modes.”

Department of Defense officials have boasted in the past that the Pentagon would cut military transportation costs by at least 19%, and Menlo has said the program already has saved the military millions of dollars in shipping costs.

In October, the military awarded Menlo a one-year contract extension despite a DOD inspector general’s report made public a month earlier that raised questions about whether the program had produced the huge savings claimed by Menlo, in large part because of DOD’s failure to scrutinize the contract requirements closely.

In a written announcement to customers last month, Menlo said its “scope of services to the government will be modified.”

“All specialized equipment — flatbed, step deck, lowboy, over-dimension/overweight and flatbed less-than-truckload will be ordered directly by the government and not fall under Menlo’s agreements,” Menlo wrote.

Menlo said that those who wish to continue to ship the excluded shipments will need to make sure they are DOD-approved carriers and submit their own rate agreements directly with the government.

In addition, Menlo said a total of 20 “lower-volume” DTCI locations are being removed from the program.

Menlo said all truckload van/reefer, all expedited truckload, heavyweight airfreight, less-than-truckload, and other offers planned through Menlo by DOD will continue to operate under DTCI.

“We will still handle more than 1,300 shipments daily from hundreds of military and commercial shipping locations across the U.S.,” Menlo said.

Menlo said there were exceptions to the announced modifications. All U.S. Air Force sites will continue to ship through Menlo for all modes, and Menlo will continue to tender and route all Air Force shipments.

In addition, all Defense Logistics Agency sites with dedicated flatbed lanes would continue to operate under the DTCI contract, Menlo said.

Con-way ranks No. 3 on the 2012 Transport Topics Top 100 list of U.S. and Canadian for-hire carriers.