DTCI: Changing Military Shipping in the USA – and Beyond
It is said that amateurs study tactics, while professionals study logistics. Analysts study procurement, because this is where the decisions are taken that affect both the range of thinkable tactics, and the logistics infrastructure that underpins them. Hence the importance of programs like the USA’s newly-launched Defense Transportation Coordination Initiative (DTCI).
At present, the US Department of Defense’s shippers in the continental US (CONUS) are handled by individual depots, bases, and other locations. Each location independently selects the transportation modes, level of service, and transportation providers they need, and so multiple information systems are employed to execute and manage shipment activity. There is no centralized planning, coordination, or control. The system works, because each shipment is managed. Is it as efficient as it could be? No.
Hence DTCI, which is focused on increasing operational effectiveness, while simultaneously obtaining efficiencies by reducing cycle times, and using best practices such as increased consolidations / load optimization and modal conversions. The premise is for DoD to competitively award a long-term contract with a world-class transportation coordinator/coordinator(s) that will help it achieve these goals, leveraging current commercial capabilities and proven practices save up to 20% as it manages, consolidates, and optimizes freight movements. In the business world, this growing trend is called 3rd Party Logistics (3PL).
The DTCI contract has a multiple phased implementation approach – which DID describes below in our Spotlight article, along with the program’s history & issues faced, the recent announcement of a winning team, the known competitors, and a collection of useful reference resources…
The process of putting together a consolidated freight contract on the scale of DTCI is always arduous, because the task is enormous. Here’s how the pieces came together:
In 2001, the US Department of Defense collaborated with 3PL firm Eagle Global Logistics on a pilot project in which it outsourced the management of its freight across the southeastern United States. The DOD then hired 3PL firm GENCO and the non-profit firm LMI Government Consulting to go through the resulting data and report of the possible benefits of an outsourcing approach. The GENCO/LMI study estimated conservative savings of 10 – 13%, and believed that forecast improvements in both service and cycle time were also possible.
On Sept 16/03, US Secretary of Defense Rumsfeld’s decision made US Transportation Command (USTRANSCOM) the Distribution Process Owner (DPO) for transportation within the USA, and asked for improvements. The DLA followed the September 2003 mandate with a long round of consultations, and finally released an RFI notice on May 15/05; the formal RFP followed on June 22/06.
That RFP quickly encountered a few bumps along the road to implementation. The most prominent were the American Trucking Association and the Transportation Intermediaries Association, who preferred the existing situation because it gave independent owner-operators and smaller firms a much better chance of landing regular work. Their fear was that central management by a large 3PL firm would have the effect of eliminating most of the independents’ work through the use of corporate resources instead, and create a vast disparity in negotiating power for those contracts that did come their members’ way.
A US Government Accountability Office protest was filed in August 2006, claiming that the request for bid proposals included an impermissible bundling of requirements under the Small Business Act, was unduly restrictive of competition, and provided for the performance of services that are inherently governmental in nature. In September 2006, the GAO refused the DoD’s attempt to have the protest dismissed. There’s an out clause in US federal regulations, however, that allows such activities if the benefits are great enough, and if these practices are necessary in order to realize those befits. After evaluating the complaints, the GAO ruled in the DoD’s favor in late November 2006. DTCI was free to proceed.
Proposal review took a full year, extending from August 2006 – August 2007, but Con-way’s team was eventually announced as the winner. This is only the end of the beginning, however; with the award announcement, the real implementation can begin.
DTCI: Contract & Implementation Process
When DTCI is fully implemented, approximately 1/3 of the current DOD second destination freight will be moving by the DTCI coordinator. The existing TTC-II contract vehicle will still be in effect for some non-DTCI shipping locations, and for freight that is excluded from the current DTCI contract as described below. There are no other contracts that DTCI will be eliminating.
DTCI includes a base period of performance (POP) of 3 years worth $525 million, with only $30 million or so in calendar year 2007, followed In addition, there are two possible 1-year option periods (about $543 million for both), and two 1-year award term option periods (about $567 million for both), allowing for a possible 7-year contract. The not-to-exceed (NTE) rates were established for the base period of performance with the contract award, and a mechanism exists for fuel price adjustments within the contract due to their volatility. The not-to-exceed rates will also be somewhat flexible; they will be renegotiated in Year 3 for the Years 4 & 5, and renegotiated again in Year 5 for Years 6 & 7.
DTCI is also a performance-based contract, with a combination of potential bonuses (up to 10% of the coordination management fee) for meeting or exceeding stated goals, and a complex scale of penalties if timeliness and other quality metrics are below the benchmark standards. Award fees will be assessed semi-annually, and a modification issued for any award fee earned.
As noted above, however, DTCI does not cover all items. The initial solicitation listed a number of possible exclusions, and noted that the government might add some of these items later. By the time the formal RFP was release, however, the exclusions were clearer. USTRANSCOM has since informed DID that they have no plans to add excluded items during the life of the contract. Excluded items include:
- OCONUS (Outside the CONtinental US) freight movements beyond Port of Embarkation
- OCONUS Unit Moves
- Movements using DoD organic equipment (unless otherwise identified, see below)
- Vendor shipments. Government shippers are not required to utilize the DTCI under this contract for CONUS unit movements or vendor shipments. However, if requested, the contractor shall provide transportation services for requested portions that aren’t covered by contract exclusions.
- Universal Services Contract and Regional Domestic Contract ocean carrier contracts
- Shipments moved under existing Small Package contracts (less than 150 pounds)
- Household goods to include Direct Procurement Method (DPM) shipments
- Privately owned vehicles (POV) moved via any conveyance
- Shipments under on-site local drayage contracts and/or agreements
- Bulk and missile fuels
- Sensitive and/or classified shipments
- Arms, Ammunition and Explosives (AA&E)
- Cash/Collect on Delivery (C.O.D) Shipments
Before Phase I even begins, the winner has 15 days to submit a detailed implementation plan, and 105 days to implement their underlying information technology and other systems for use at the initial roll-out locations. It is anticipated that an Interim Authorization to Operate (IATO) accreditation decision will be granted within 60 days of the contract award, followed by various system audits and certifications, resulting in full Authorization To Operate.
Phase I includes 18 DLA distribution centers stateside and will be completed within 22 months. This phase will create improved processes that reduce cycle times (the time from request for materiel movement to delivery), increase operational effectiveness, improve customer confidence, and increase efficiencies. DTCI’s first phase will show a cost savings by using a single-touch transportation provider for stateside freight. The 18 locations involved, in order of scheduled addition, are:
DDBC – Barstow, CA
DDCT – Corpus Christi, TX
DDPW – Puget Sound, WA – award + 165 days, followed by program management review (PMR)
DDDC – San Diego, CA
DDRT – Red River, TX
DDJC – San Joaquin, CA – award + 265 days, followed by PMR
DDOO – award + 12 months – Oklahoma City, OK
DDHU – award + 13 months – Hill AFB, UT
DDSP – award + 14 months – Susquehanna, PA
DDNV – award + 15 months – Norfolk, VA
DDAG – award + 16 months – Albany, GA
DDJF – award + 17 months – Jacksonville, FL
DDAA – award + 18 months – Anniston, AL
DDTP – award + 19 months – Tobyhanna, PA
DDWG – award + 20 months – Warner Robins, GA
DDCN – award + 21 months – Cherry Point, NC
DDRV – award + 22 months – Richmond, VA
Defense Mapping Agency, Richmond, VA – award + 22 months
Phase II will start before the completion of Phase I; indeed, the first Phase II sites are scheduled to begin rollout within 10 months of contract award, and the last is scheduled to finish before Phase I finishes, just 21 months after contract award.
Phase II will increase the number of sites participating in DTCI, allowing even better load consolidation, more informed scheduling, increased use of cost-efficient intermodal transport (by moving freight in the same container using different types of transportation), and other efficiencies that avoid costs. According to the RFP, it will add another 37 sites, incorporating shipping activities within close proximity of the distribution centers, selected aerial ports, and DoD shippers.
For instance, near DDPW Puget Sound, the program would add (at the award + 11 month mark):
- The Naval Undersea Warfare Center Division in Keyport, WA
- FISC Puget Sound DET in Everett, WA
- FISC Puget Sound in Bremerton, WA
- The TRIDENT REFIT FAC in Bangor, Silverdale, WA
- Fort Lewis, WA which is home to a Stryker Brigade; and
- USPFO Camp Murray.
Phase III will expand to all other scheduled DoD activities and will be completed in months 23-25 (July-Sept. 2009). The RFP lists 16 sites, but the government may require the coordinator to implement an additional 50 sites per year after successful Phase II implementation. In no event will the number of sites under this contract exceed 260.
Postscriptum: Improvements are expected during this time, with refinements to the system over the course of the 3-7 year contract. Since changes to processes often require changes in the underlying I.T. systems, DID asked USTRANSCOM how that would be handled under the contract. They replied that:
“Any required upgrades to the DTCI contractor’s IT systems as a result of process improvements that are approved by the DTCI Process Improvement Team in accordance with Performance Work Statement (PWS) paragraph 18.104.22.168 would be addressed under Federal Acquisition Regulation clause 52.243-1, Changes, via a modification to the contract.”
Contracts & Key Events
Aug 23/07: Menlo Worldwide Government Services’ parent firm Con-way announces that it has completed its $750 million acquisition of Contract Freighters Inc. (CFI), a privately held North American truckload carrier based in Joplin, MO. CFI adds 3,000 employees and a fleet of more than 2,600 tractors and 7,000 trailers, offering market-leading less-than-truckload, truckload and supply chain management services with a diverse suite of high-value solutions for shippers in North America as well as globally. eTrucker report.
Aug 22/07: Menlo Worldwide Government Services’ parent firm Con-way announces that its less-than-truckload freight transportation subsidiary Con-way Freight Inc. will combine its 3 regional operating companies (Con-way Freight-Central, Con-way Freight-Southern and Con-way Freight-Western) into one centralized operation headquartered in Ann Arbor, MI, “to improve the customer experience and streamline its processes… adopt uniform new processes and best practices designed to make the organization more responsive to the market and to customers throughout North America.” eTrucker report.
Aug 17/07: Con-Way subsidiary Menlo Worldwide Government Services, LLC in San Mateo, CA won a fixed-price/ cost-reimbursement contract for a base period face value of $525.1 million. Menlo will be responsible for deploying and operating an integrated logistics solution under the Defense Transportation Coordination Initiative (DTCI) for shipment planning, optimization, shipment execution and overall transportation resource management governing all Department of Defense (DOD) materiel shipments moving into and among select DOD facilities in the United States. To that end, Menlo will utilize best commercial practices such as load consolidation and optimization, use of more efficient intermodal means of transportation, tailored scheduling, et. al.
Work will be performed throughout the Continental United States and will continue through August 2014, if all option periods and award term option periods are exercised; at that point, this contract has a total estimated value of $1.636 billion. Directorate of Acquisition at Scott Air Force Base, IL issued the contract (HTC711-07-D-0032). DLA release | US TRANSCOM release | Menlo Worldwide Government Services release.
Appendix A: DTCI Competing Teams
The United States Transportation Command refuses to discuss bidders for its contracts other than the winner, even after contracts are awarded. Whatever the merits of that position, it leaves us with 4 publicly known competitive offers for the DTCI contract.
Note that all teams will include US Bank PowerTrack as required by the DTCI RFP. It’s a unit of U.S. Bancorp with a patented, on-demand electronic business-to-business payment network currently used by DoD services and agencies, and by commercial shippers, in order to streamline processes for receiving, auditing, collaboratively resolving billing exceptions and paying freight bills from more than 5,000 carriers.
C.H. Robinson Worldwide, Inc. Large 3PL logistics provider. Offered no team, just a one-company bid to execute all systems through a single point of accountability.
WINNER: Con-Way’s Menlo Worldwide Government Services LLC. Other team members included:
- Computer Sciences Corp. (CSC) will provide IT infrastructure hosting, network management and integration services;
- ONE Networks Enterprises, Inc. will provide the transportation management software for shipment planning, optimization and execution, and;
- Olgoonik Logistics will provide professional services supporting the participation of minority-owned and small business firms as service contractors for DTCI.
IBM’s Team was derived from their own corporate logistics network, and included firms like UPS, and UPS-SCS, FedEx, Menlo Worldwide, Maersk, Eagle Logistics, CSX, Panalpina, APL, and Schneider National; but IBM would be running the show and assigning carriers. Their team also included:
- Anteon (General Dynamics), a leading systems integration company;
- APL Logistics (a sister company of APL, one of the top 3 global logistics providers), providing end-to-end logistics services for global customers;
- FSG, an innovative software engineering small business, delivering C2 and transportation management system solutions to USTC and DoD;
- Horizon Services Group (a wholly-owned subsidiary of Horizon Lines, America’s leading Jones Act container shipping and integrated logistics company), a technology solutions company for transportation management and supply chain security;
- MEB Consulting LLC, a small consulting business, specializing in supply chain management and customer relationship management, and implementing transportation management solutions for DLA;
- PRTM, a premier operational strategy and business process consulting firm;
- Schneider Logistics, a wholly-owned subsidiary of Schneider National, a premier provider of truckload, logistics and intermodal services;
- Sumaria, an innovative information technology and professional services small business, delivering data management and other operational support to USTC and DoD.
UPS Team. UPS chose Science Applications International Corporation (SAIC), known for its defense logistics, security and technology integration systems, as the primary subcontractor. Other Team UPS companies include:
- American Road Lines Inc. (TTC-II contractor), a nationwide agent network trucking firm providing DoD transportation of general commodities, as well as specialized loads.
- Amyx, Inc., an established woman-owned, 8(a) certified business that provides program integration, project management, supply chain management and information technology solutions.
- Boyle Transportation, which specializes in transportation protective services to the defense industry, requiring exceptional security and utmost care.
- CorTrans Logistics, LLC (TTC-II contractor), a minority-owned small business provider of transportation and logistics services utilizing multi-modal independent agents and carriers.
- Crowley Maritime Corporation, a diverse worldwide marine transportation and international logistics services company.
- CRST International (TTC-II contractor), one of the nation’s largest privately-held transportation companies, providing services through CRST Logistics, CRST Malone, CRST Premier Transport and CRST Van Expedited.
- Green Valley Transportation (TTC-II contractor), general commodities, asset-based, specialty and HAZMAT carrier with 35 years of broad based experience and equipment. It is a DoD-qualified munitions carrier and holds a National Hazardous Material Certification.
- IntelliTrans, a provider of consulting services, software products, integration services and inventory tracking for the entire rail industry.
- Landstar System, Inc. (TTC-II contractor), provider of specialized transportation services to a broad range of customers worldwide through independent agents and third-party transportation capacity providers. Landstar has a long history of transport services to DoD including AA&E, over-dimension and FAK.
- Mercer Transportation Company (TTC-II contractor), a truckload carrier of general commodities operating flatbed, dry van, drop deck and specialized equipment throughout North America.
- Norfolk Southern Railway, a subsidiary of Norfolk Southern Corporation, serving every major container port in the eastern United States and providing connections to western rail carriers. Norfolk Southern is North America’s largest rail carrier of automotive parts and finished vehicles.
- Red Arrow, a woman-owned, non-asset based carrier that provides flatbed, step deck, RGN and van shipments, both truckload and less than truckload.
- UTXL, Inc. (TTC-II contractor), provides expedited door to door, LTL, TL services and coverage for seasonal or unexpected surge for commercial and military customers utilizing a large portfolio of small business certified carriers.
- YRC Worldwide Inc., a Fortune 500 company and the holding company for Yellow Transportation (TTC-II contractor), Roadway Express (TTC-II contractor), YRC Regional, among others.
Appendix B: Additional Readings & Sources
- DTCI Program Web Site
- US Army Surface Deployment & Distribution Command – Tailored Transportation Contracts
- US Dept. of Transportation, Federal Highway Administration (Dec 20/06) – Talking Freight: Industry Performance Metrics transcript
- Georgia Institute of Technology et. al. (2006) – 11th Annual Third-Party Logistics Study. Other key contributors included CAP Gemini, SAP, and DHL. Extremely brief and high-level overview of general 3PL trends in a few key sectors.
- Inbound Logistics Magazine (2006) – 3PL Excellence Awards. UPS is #1,
- Logistics Today (2006) – 3PL Solution Selector Chart. Lists capabilities of various 3PL players.
- @Supply Chain Management (Aug 29/07) – DTCI Contract awarded to… Chris Abraham, who worked on DTCI in its early stages as a GENCO employee, adds his analysis of the various bid teams and their strengths/ weaknesses. Note esp. his comments re: C.H. Robinson deciding to go it alone in this situation.
- Kansas City Business Journal (Dec 6/06) – YRC, UTXL join team bidding for $750M Defense contract
- DC Velocity (November 2006) – Uncle Sam’s looking for a few good bids
- @Supply Chain Management (Nov 29/06) – Uncle Sam’s looking for a few good bids (Something I worked on)
- Transportation Intermediaries Association (TIA) – (Nov 29/06) – DTCI Protest Coalition Update, [PDF format]. The TIA is an association of third party logistics companies, including brokers, forwarders, intermodal marketing companies, air freight forwarders and freight audit and payment companies. Copies of all DoD and TIA filings to the GAO can be found here.
- GENCO Response to GAO Challenges [PDF]. Recall that GENCO performed the study that recommended a 3PL approach. Here, they defend their work and its assumptions.
- US TRANSCOM (Nov 30/06) – DTCI selection process continues (after their GAO win)
- eTrucker.com – GAO denies carriers’ protest of defense transportation bid process
- GAO (Nov 27/06) – Decision: B-298651, 2B Brokers et al., November 27, 2006
- UPS (Sept 21/06) – UPS Leading Experienced Team in Bid for DTCI Contract
- Sumaria Systems, via Google Cache (May 1/06) – World-Class Industry Leaders Team for Defense Transportation Coordination Initiative (DTCI)
- US TRANSCOM (June 23/05) – Commercial industry is providing valuable information to support DTCI vision. Includes information re: who attended the information sessions.
- US Federal Business Opportunities (May 15/05) – FBO #1266: SPECIAL NOTICE – Defense Transportation Coordination Initiative (DTCI) Face-to-Face RFI