United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Military Readiness, Committee on

National Security, House of

Representatives

May 1995 DOD HOUSEHOLD

GOODS

Increased Carrier

Liability for Loss and

Damage Warranted

GAO/NSIAD-95-48

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-259309 

May 8, 1995

The Honorable Herbert H. Bateman

Chairman, Subcommittee on Military Readiness

Committee on National Security

House of Representatives

Dear Mr. Chairman:

This report responds to a request by the former Subcommittee Chairman that we review

changes proposed by the Military Traffic Management Command regarding carrier liability for

loss and damage on DOD household goods shipments.

We are sending copies of this report to the Secretaries of Defense, the Army, the Navy, and the

Air Force; the Commandant of the Marine Corps; the Senate Committee on Armed Services; the

House Committee on National Security; the House and Senate Committees on Appropriations;

the Director, Office of Management and Budget; and to other interested parties.

This report was prepared under the direction of Mark E. Gebicke, Director, Military Operations

and Capabilities Issues, who may be reached at (202)512-5140 if you or your staff have any

questions. GAO staff members who made major contributions to this report are listed in

appendix V.

Sincerely yours,

Henry L. Hinton, Jr.

Assistant Comptroller General
Executive Summary

Purpose The Department of Defense (DOD) spends more than $700 million each

year to move military servicemembers’ and DOD civilian employees’

household goods. DOD shares liability with carriers for loss and damage

affecting these shipments. During mid-1987, DOD, through the Military

Traffic Management Command (MTMC), increased carrier liability for

domestic household goods shipments, a change that the carrier industry

opposed. In March 1993, MTMC proposed that carrier liability be similarly

increased for international household goods shipments, a change also

objected to by carriers.

At the request of the former Chairman, Subcommittee on Readiness,

House Committee on Armed Services, GAO evaluated DOD household goods

shipment programs to determine (1) the impact of the 1987 increase in

carrier liability on domestic shipments and (2) what level and type of

carrier liability DOD should adopt for international shipments.

Background DOD settles servicemember claims for household goods shipment loss or

damage directly with the servicemember. Servicemembers generally

receive the full depreciated value or repair cost, whichever is less, for all

approved claims up to a maximum of $40,000 per shipment for both

domestic and international shipments. DOD then attempts recovery from

the carrier up to the extent of the carrier’s liability.

From 1967 to early 1987, carriers handling military household goods

movements were liable for damage or loss at the rate of $0.60 per pound

per article for both domestic and international shipments. For example, if

a carrier lost or damaged a 70-pound television worth $400, it was liable

for the depreciated value or for repairs—up to a maximum of $42 

(70 pounds times $0.60).

Under the valuation system MTMC adopted in 1987 for domestic shipments,

the carrier is liable for the full depreciated value of damaged or lost

articles up to a maximum amount per shipment; the maximum amount is

no more than the shipment weight multiplied by $1.25 per pound. For

example, if a shipment weighs 4,000 pounds, the carrier is liable for a

maximum of $5,000 (4,000 pounds times $1.25). In the case of the $400

television, the carrier would be liable for the full depreciated value

($400) or for the cost of repairs, whichever is less, and for all other lost or

damaged items in the shipment until the total amount of loss and damage

reached $5,000. Carrier liability under this system is generally increased

because it is no longer computed on a weight per article basis. In return,

Page 2 GAO/NSIAD-95-48 DOD Household Goods
Executive Summary

DOD agreed to pay a compensatory fee to carriers (in addition to

transportation charges). In a 1988 report,1 GAO determined that the

separate charge would provide sufficient revenue to compensate only the

better performing carriers for their increased liability costs. GAO concluded

that the increased liability program should remain in effect until carrier

performance data or additional cost information indicated that changes

were needed.

In March 1993, MTMC informed the carrier industry that in October 1993 it

intended to implement similarly increased carrier liability for DOD

international household goods shipments. Adoption of the $1.25 rate for

these shipments was deferred because of carrier resistance. However, in

October 1993, MTMC increased carrier liability on international household

goods shipments on an interim basis to $1.80 per pound per article,

pending the completion of GAO’s review.

Results in Brief Household goods claims costs have declined and carrier performance has

improved since DOD increased carrier liability on domestic household

goods shipments in 1987. Claims costs declined by an estimated

cumulative total of $18.9 million during fiscal years 1987 to 1991. However,

these savings were $3.2 million less than projected because only the Air

Force achieved the expected level of cost recovery from carriers.

Carrier liability for DOD international household goods shipments needs to

be increased. Carrier liability of $0.60 per pound per article for these

shipments severely restricts DOD’s ability to recover the cost of loss and

damage inflicted during shipment, increases government costs, and limits

carrier incentive to improve performance.

GAO concurs with DOD’s proposal to change carrier liability on international

shipments from a per pound, per article basis to one based on shipment

valuation. However, such a change could cause major industry disruption

unless carriers initially receive compensatory payments in exchange for

the increased liability.

The household goods program also has management and administrative

problems that need to be addressed concurrently with any increase in

carrier liability. Some of these, such as the unnecessarily long 2-year

1

Household Goods: Implications of Increasing Moving Companies’ Liability for DOD Shipments

(GAO/NSIAD-88-103, Mar. 24, 1988).

Page 3 GAO/NSIAD-95-48 DOD Household Goods
Executive Summary

statutory period for filing personal property claims, are problems GAO

identified in its previous report.

Principal Findings

Domestic Program Cost

and Damage Levels Have

Declined

DOD appears to be achieving its objectives of reducing shipment loss,

damage, and overall program cost by increasing carrier liability. The

percentage of domestic shipments experiencing loss and damage remained

constant at about 20 percent after the implementation of increased carrier

liability in 1987. However, an $18.9 million decline in claims costs during

fiscal years 1987 through 1991 suggests that poorly performing domestic

household goods carriers have improved their performance, withdrawn

from DOD domestic household goods shipment programs, or absorbed

losses. Competition among carriers for DOD business also appears to have

helped reduce damage and loss. GAO believes that carriers now have the

claims experience needed under increased liability to adjust their rates to

compensate for any increased liability costs, thus making further

compensatory payments unjustified.

Carrier Liability for DOD

International Shipments

Needs to Be Increased

Claims frequency and claims costs for international shipments increased

during fiscal years 1988 through 1991. Claims frequency increased from

20 percent to almost 24 percent of total shipments moved. Claims costs,

after adjusting for inflation, increased from $6.22 per 100 pounds shipped

to a high of $6.65 per 100 pounds. At maximum carrier liability of $0.60 per

pound per article, recovery was less than 20 percent of the amount of

claims paid for all the military services reviewed.

Compensatory Payments

Should Accompany New

Liability Formula for

International Carriers

GAO’s analysis of DOD household goods shipment and claims data

established that a rate of from $1.50 to $2.04 for each $100 of shipment

valuation should adequately compensate the better-performing carriers for

increased liability costs associated with adopting the $1.25 rate on

international shipments. These payments should remain in effect for at

least a 3-year period or until such time carriers can adjust their

transportation rates to compensate for increased liability costs.

Such payments would reduce the potentially disruptive aspects of

changing the method traditionally used by carriers to estimate claims costs

Page 4 GAO/NSIAD-95-48 DOD Household Goods
Executive Summary

and determine their transportation rates. Carriers with liability costs

greater than the added revenues could (1) improve performance so less

loss and damage occur, (2) increase transportation rates, or (3) absorb the

loss.

Carrier industry officials were generally opposed to the $1.25 rate

proposed by DOD. They said this rate would be inappropriate for

international shipments because (1) no determination had been made that

the $1.25 liability rate actually reduces program costs, (2) the international

and domestic programs are so different as to prevent meaningful

comparison, and (3) changing carrier liability to the $1.25 rate would result

in severe industry disruption.

Management and

Administrative

Improvements Needed

DOD needs to address several management and administrative problems

affecting its household goods programs if increased liability is to work

properly. First, MTMC does not have adequate household goods shipment

and claims information with which to evaluate individual carrier

performance or to determine program costs associated with increased

carrier liability. Second, varied recovery effectiveness by the military

services resulted in savings being reduced from an expected total of

$22 million to an actual total of $18.9 million during fiscal years 1987

through 1991. Only the Air Force attained the expected recovery levels.

Third, past government actions to recover the cost of losses associated

with household goods carrier bankruptcies have been inadequate. Since

the level of government funds at risk is increased under increased carrier

liability, carrier bonding and insurance requirements need to be reviewed

and increased emphasis placed on bond and insurance collection.

In 1989, GAO concluded that the 2-year period allowed by statute for federal

employees to file household goods claims is needlessly long.2

 The 2-year

period continues to contribute to claims management and adjudication

problems, limits carrier ability to make timely adjustments to

transportation rates, and increases government costs.

Recommendations to

the Secretary of

Defense

GAO recommends that the Secretary of Defense take the following actions:

• Direct the Commander of MTMC to eliminate the separate charge now paid

carriers to compensate them for increased risk on domestic shipments.

2

Household Goods: Evaluation of DOD Claims Payment and Recovery Activities (GAO/NSIAD-89-67,

Feb. 24, 1989), p.16.

Page 5 GAO/NSIAD-95-48 DOD Household Goods
Executive Summary

• Direct the Commander of MTMC to increase carrier liability to the $1.25 rate

on international household goods shipments after providing adequate

notice to carriers through the Federal Register. However, GAO also

recommends that this rate be accompanied by a compensatory payment

for 3 years, or until adequate claims data permits carriers to file

transportation rates that will adequately compensate them for the

increased risk they would assume.

Other recommendations to the Secretary of Defense regarding

management and administrative problems affecting DOD household goods

programs are contained in chapter 4 of this report.

Matter for

Congressional

Consideration

A 1989 GAO report recommended shortening the statutory period for filing

household goods claims. Making timely adjustments to transportation

rates will be even more important to carriers under increased carrier

liability. GAO therefore again recommends that the statute—insofar as it

pertains to household goods claims—be changed to limit the time

allowable for filing claims to 1 year after the claim accrues.

Agency and Industry

Comments and GAO’s

Evaluation

GAO asked DOD and the carrier industry to comment on this report. Carrier

industry comments were consolidated and submitted by the American

Movers Conference and the Household Goods Forwarders Association of

America, Inc. DOD and industry comments are addressed in more detail in

the report chapters to which they pertain. Complete DOD and industry

comments are included as appendixes I, II, and III.

DOD Comments DOD concurred with all the findings and recommendations in this report

except the recommendation that Congress consider shortening the statute

of limitations for filing household goods claims. In commenting on this

report, DOD stated the statutory period should remain unchanged so as to

retain consistency with other claims statutes and because some

servicemembers on operational deployments or overseas assignments

might be precluded from filing a claim within a 1-year period. It believes

shortening the time allowed for filing claims would be perceived as an

erosion of benefits by servicemembers. GAO believes a 1-year statute of

limitations would be adequate, and that the implementing regulations

allow for exceptions where warranted. Specific actions taken by DOD in

response to GAO’s other recommendations are discussed in each report

chapter.

Page 6 GAO/NSIAD-95-48 DOD Household Goods
Executive Summary

Carrier Industry

Comments

The carrier industry generally disagreed with GAO’s findings and

recommendations regarding increased carrier liability. It believes

increased carrier liability has had little impact on domestic household

goods shipments beyond transferring the cost of claims from DOD to the

carrier industry, and that the inflation index GAO used to calculate DOD’s

savings causes the amount of these savings to be overstated. The carrier

industry also believes that experience with increased liability on domestic

shipments cannot be appropriately used as the basis for expanding

increased carrier liability to international shipments, and that the industry

cannot compensate for its increased liability costs by adjusting

transportation rates. The industry therefore favors retention of the

traditional per pound per article basis for calculating carrier liability on

international shipments. The carrier industry agreed with GAO’s

recommendation that Congress consider shortening the statutory period

allowed for filing household goods claims.

Shifting more of the burden of claims costs from DOD to the carrier

industry was a primary objective of DOD’s implementation of increased

carrier liability. DOD has historically borne a disproportionately large share

of claims costs. Increasing carrier liability transfers a greater portion of

claims costs to the industry responsible for causing them. Even under

increased liability, DOD still pays at least 20 percent of claims costs.

Increased liability also provides increased incentive for carriers to find

ways to reduce shipment damage and loss. If carrier transportation rate

increases are needed to pay for increased carrier costs, the only real

restraint is competition among the carriers themselves.

Differences do exist with regard to the amount of carrier risk associated

with domestic as opposed to international shipments, but the process for

adjudicating claims for loss and damage is essentially the same. The issue

is what liability rate should be applied. The per pound per article basis for

determining maximum carrier liability should be abandoned because it

bases liability on a lost or damaged item’s weight rather than its value.

When designing the methodology for this review, GAO reached agreement

with the carrier industry that the Consumer Price Index would be used to

enable cross-year dollar comparisons and to adjust for inflation. Carrier

industry officials suggested an alternate index only after seeing the results

of GAO’s analysis. Nevertheless, GAO acknowledges general controversy

over whether the Consumer Price Index overstates inflation. Regardless of

which index is used, increased carrier liability still results in reduced DOD

claims costs.

Page 7 GAO/NSIAD-95-48 DOD Household Goods
Contents

Executive Summary 2

Chapter 1 

Introduction

12

Determining Carrier Liability for Losses and Damage 12

Carrier Liability for Domestic Shipments Increased in 1987 12

Carriers Compensated for Increased Liability 13

We Evaluated Proposed Increase in Liability 14

MTMC Proposes Extending Increased Liability to International

Shipments

15

Objectives, Scope, and Methodology 15

Chapter 2 

Domestic Claims

Costs Reduced and

Carrier Performance

Improved

18

DOD Claims Costs Declined 18

Carrier Industry Concerns Did Not Materialize 25

Claims Frequency Unchanged but Average Amount of Claims

Declined

27

Separate Charge Could Be Eliminated 28

Conclusions 28

Recommendation to the Secretary of Defense 29

Comments From the Department of Defense 29

Comments From the Carrier Industry 29

Chapter 3 

Carrier Liability for

International

Shipments Needs to

Be Increased

32

DOD Proposes Extending the $1.25 Carrier Liability Rate to

International Shipments

32

Analysis of Shipment and Claims Data Supports the Need to

Increase Carrier Liability

33

MTMC’s Proposal Would Reduce International Shipment Costs 35

Determining a Fair and Adequate Separate Charge Is Difficult 37

Impact of the Temporary $1.80 Per Pound Per Article Rate 40

Carrier Industry Opposes the Proposed Change 41

Conclusions 43

Recommendation to the Secretary of Defense 44

Comments From the Department of Defense 44

Comments From the Carrier Industry 44

Page 8 GAO/NSIAD-95-48 DOD Household Goods
Contents

Chapter 4 

Problems Need to Be

Addressed for

Increased Liability to

Be Fully Effective

48

MTMC Data Is Inadequate 48

More Emphasis Is Needed on Military Service Recovery Activities 49

Carrier Bonding and Insurance Needs to Be Reviewed 50

Statute of Limitations Appears Needlessly Long 52

Conclusions 54

Recommendations to the Secretary of Defense 54

Matter for Congressional Consideration 55

Comments From the Department of Defense 55

Comments From the Carrier Industry 56

Appendixes Appendix I: Comments From the Department of Defense 58

Appendix II: Comments From the American Movers Conference 78

Appendix III: Comments From the Household Goods Forwarders

Association of America

95

Appendix IV: Draft of Proposed Statutory Changes 118

Appendix V: Major Contributors to This Report 119

Tables Table 2.1: Air Force Claims Costs, Domestic Household Goods

Shipments

19

Table 2.2: Air Force Claims Cost Savings Under Increased Carrier

Liability, Domestic Household Goods Shipments

20

Table 2.3: Total Air Force Claims Costs, Domestic Household

Goods Shipments

22

Table 2.4: DOD Recovery Effectiveness for Domestic Household

Goods Claims,

24

Table 2.5: Air Force Domestic Household Goods Shipment

Program Net Costs

26

Table 2.6: Average Amounts of Claims Paid to Servicemembers 27

Table 3.1: Transportation and Claims Costs for Containerized

International Household Goods Shipments, Army, Air Force, and

Marines

34

Table 3.2: Impact of the $1.25 Rate on DOD Costs at Varying

Compensatory Rate Levels

40

Table 4.1: Rate of Household Goods Claims Filings, Fiscal Year

1991

53

Figure Figure 2.1: Air Force Claims Cost Comparison, $0.60 Per Pound

Per Article Versus $1.25 Shipment Valuation Liability, Fiscal

Years 1986-91

21

Page 9 GAO/NSIAD-95-48 DOD Household Goods
Contents

Abbreviations

AMC American Movers Conference

DOD Department of Defense

HHGFAA Household Goods Forwarders Association of America

MTMC Military Traffic Management Command

Page 10 GAO/NSIAD-95-48 DOD Household Goods
Page 11 GAO/NSIAD-95-48 DOD Household Goods
Chapter 1 

Introduction

The Department of Defense (DOD) spends more than $700 million each

year to move military servicemembers’ and civilian employees’ household

goods and personal effects. It pays servicemembers and civilian employees

an additional $50 million or more each year in claims for shipment loss

and damage. DOD shares liability with carriers for this loss and damage.

Both government and carrier costs are significantly affected by the cost of

claims.

Determining Carrier

Liability for Losses

and Damage

Servicemembers with loss or damage to their household goods and

personal effects may file claims against the government for the amount of

loss. The military services’ Judge Advocates General have primary

responsibility for operating claims offices, adjudicating claims, and for

authorizing payment to servicemembers. Payment to members is generally

based on the full depreciated value of the damaged or lost items or the

cost of repairs, whichever is less. The maximum amount allowed per

shipment is $40,000. Claims offices then attempt recovery from the carrier

to the extent of the carrier’s liability.

From 1967 to 1987, carriers handling military household goods shipments

were liable for loss and damage at the rate of $0.60 per pound per article

for both domestic and overseas shipments. For example, if a carrier lost or

damaged a 70-pound television worth $400, it was liable for the

depreciated value or for repairs, whichever was less—up to a maximum of

$42 (70 pounds times $0.60).

Carrier Liability for

Domestic Shipments

Increased in 1987

In mid-1987, the Military Traffic Management Command (MTMC)—DOD’s

traffic manager—increased carrier liability for DOD domestic household

goods shipments. Under the new system, the carrier is liable for the full

depreciated value of damaged or lost articles up to a maximum amount

(valuation) per shipment based on the shipment weight multiplied by $1.25

per pound. For example, if a shipment weighs 4,000 pounds, the carrier is

liable for a maximum of $5,000 (4,000 pounds times $1.25). If only one

article in the shipment is lost, and its depreciated value is established at

$5,000, the carrier is liable for this amount. In the case of the $400

television, the carrier would be liable for the full depreciated value

($400) or the cost of repairs, whichever is less, and for all other lost or

damaged articles in the shipment until the total amount of loss and

damage reached $5,000. Carrier liability under this system is generally

increased.

Page 12 GAO/NSIAD-95-48 DOD Household Goods
Chapter 1 

Introduction

MTMC increased carrier liability in 1987 based on the results of an Air Force

test—Project REVAL. Project REVAL reported that the average amount of

household goods claim paid to the servicemember would be reduced by

34 percent on shipments moved at the $1.25 liability rate (purchased for a

separate charge of $0.50 per $100 valuation). The Air Force concluded that

(1) the increased liability gave the carriers incentive to reduce shipment

damage and (2) the combination of reduced average claim amounts and

added liability compensation would reduce claims costs for both the

government and the carriers.

Other major factors in MTMC’s decision to increase carrier liability included

(1) the high frequency and cost of damage and loss to military

servicemembers’ household goods, (2) the inadequacy of the former

liability rate in covering a reasonable share of the liability for losses,

(3) the need to provide increased carrier incentive for reducing claims,

and (4) increases in government costs associated with military

servicemembers’ household goods claims.

Carriers Compensated

for Increased Liability

When DOD increased carrier liability on DOD domestic shipments to the

$1.25 rate in 1987, MTMC began paying carriers a separate charge (in

addition to transportation charges) for the additional liability. MTMC set

this separate charge at $0.64 per $100 of shipment valuation, plus

10 percent of temporary storage charges.

The increased liability system adopted by MTMC was similar to that

available for commercial shipments in 1987. Carrier transportation rates

then automatically provided for carrier liability of $0.60 per pound per

article. Increased liability could be purchased for a separate charge. At the

time, carrier liability up to $1.25 times the shipment weight was available

for $0.50 for every $100 of shipment valuation (shipment weight multiplied

by $1.25 divided by $100 multiplied by $0.50). Rates for additional liability

on commercial shipments are approved by the Interstate Commerce

Commission. However, DOD household goods shipments are governed

generally by provisions in DOD rate solicitations, and may differ from

commercial practices.

The carrier industry objected to moving DOD household goods at the

commercial $1.25 rate primarily because military servicemember claims

for loss and/or damage are settled by the military services. In commercial

practice, the carrier usually settles such claims directly with the owner.

The carrier industry generally believed that military claims settlement was

Page 13 GAO/NSIAD-95-48 DOD Household Goods
Chapter 1 

Introduction

too generous and resulted in excessive claims costs to the carrier. At one

time, DOD allowed carriers to settle claims directly with the

servicemember. This practice was changed, according to DOD, because

carrier resolution of claims was found to be unacceptable.

MTMC agreed to pay a separate charge of $0.64 per $100 valuation plus

10 percent of temporary storage charges instead of the commercial

separate charge of $0.50 per $100 valuation plus 10 percent of temporary

storage charges because the military services wanted to retain claims

settlement authority for DOD household goods shipments. At the time,

carrier industry associations contended that the separate charge for this

level of carrier liability should have been $1.13 per $100 valuation, plus

10 percent of temporary storage charges.

We Evaluated

Proposed Increase in

Liability

Shortly before MTMC increased carrier liability on DOD domestic shipments

in 1987, the Chairman, House Committee on Armed Services, asked us to

review MTMC’s proposed changes and to determine a fair and adequate rate

to compensate carriers for the increased liability. We subsequently

reported that such a rate could not then be determined because (1) at the

time of our review it was too early to determine the impact that increased

liability would have on carrier performance and (2) determining a fair and

adequate compensation level required a policy judgment about the

appropriate performance level to be expected from carriers.1

We also reported that the $0.64 rate proposed by MTMC would compensate

only the better-performing carriers if carriers performed as they did in

fiscal year 1985, the most recent year for which adequate claims data was

available. We estimated that at the 1985 performance level, approximately

$3 million to $4 million in government costs would be transferred to the

carriers under the increased liability, and that this should provide

increased incentive for carriers to improve their performance. Carriers

with liability costs greater than added revenues could (1) improve

performance so less damage and loss occurred, (2) increase transportation

rates, or (3) absorb the loss.

We consequently supported MTMC’s 1987 policies for increasing carrier

liability on domestic household goods shipments and concluded that the

rate of carrier compensation for the increased liability established by MTMC

1

Household Goods: Implications of Increasing Moving Companies’ Liability for DOD Shipments

(GAO/NSIAD-88-103, Mar. 24, 1988).

Page 14 GAO/NSIAD-95-48 DOD Household Goods
Chapter 1 

Introduction

in 1987 should remain unchanged until carrier performance data or

additional cost information indicated that changes were needed.

MTMC Proposes

Extending Increased

Liability to

International

Shipments

In March 1993, MTMC proposed that carrier liability also be increased from

the $0.60 per pound per article rate to the $1.25 rate for international

household goods shipments. However, MTMC’s proposal did not include a

provision for any separate compensation to carriers for the increased

liability. The carrier industry objected to the proposed changes, stating

that international shipments were vastly different in nature from domestic

shipments, and that no determination had been made of whether MTMC’s

1987 increase in domestic shipment liability had achieved its objectives of

reducing the number and amount of damage claims and reducing

government costs.

During October 1993, MTMC increased carrier liability on international

household goods shipments on an interim basis to $1.80 per pound per

article, pending the completion of our review.

Objectives, Scope,

and Methodology

At the request of the former Chairman, Subcommittee on Readiness,

House Committee on Armed Services, we evaluated DOD household goods

shipment programs to (1) determine the impact of the 1987 increase in

carrier liability on domestic shipments and (2) suggest the level and type

of carrier liability DOD should adopt for international shipments.

During this review, we interviewed officials and reviewed documents

associated with programs for the movement of household goods at MTMC,

the Department of State, the offices of the Army, Navy, and Air Force

Judge Advocates General, and Headquarters, U.S. Marine Corps. We also

interviewed and obtained documents from carrier association officials and

representatives of selected carriers.

To facilitate our analysis, we obtained computerized records on almost

2.5 million DOD household goods shipments moved during fiscal years 1986

through 1991. We obtained computerized shipment and claims data from

MTMC on all DOD domestic household goods shipments (MTMC shipment

codes 1 and 2) and most international shipments (MTMC shipment codes 4,

7, 8, and J) initiated during fiscal years 1986 through 1991. We analyzed

shipment and claims data for each of these codes. However, unless

otherwise indicated, the data presented in this report for domestic

shipments refers to uncontainerized van shipments (code 1) and to

Page 15 GAO/NSIAD-95-48 DOD Household Goods
Chapter 1 

Introduction

containerized international shipments (code 4). These two major types of

shipments comprise the vast majority of DOD household goods shipments

by both number and weight.

MTMC data was not available for shipments occurring prior to fiscal year

1986. Also, we did not evaluate data for fiscal years after 1991 because

considering the 2-year statute of limitations for servicemembers to file

household goods claims against the government, inadequate time has

passed to obtain sufficient claims data for analysis on these shipments.

To verify the accuracy of claims data in the MTMC shipment records, we

obtained from the offices of the service Judge Advocates General all

computerized claims payment and recovery data available as of

August 1993 for fiscal years 1986 through 1991. Only the Air Force could

provide complete claims data for all years requested. The Army and the

Marine Corps data was complete only for fiscal years 1988 through 1991

because claims data records for these services were not computerized

prior to fiscal year 1988. We did not obtain data from the Navy because

this service has not computerized its claims records. We did not attempt to

manually review claims payment and recovery records because of the time

and resources such analyses would require.

We then did a computer matching of MTMC shipment data with the

available military service claims data by Government Bill of Lading

number. We associated all recorded claims data with the shipments

involved, regardless of when the claims were filed, adjudicated, paid, and

recovered. We used this method rather than rely on summarized military

service claims payment and recovery records because the services

summarize this information according to the fiscal year in which payment

and recovery occurred. Service claims payment and recovery on a

shipment often occurs in a different fiscal year than the one in which the

shipment was moved.

We evaluated carrier performance and claims costs by computer sorting

the available shipment and claims data by carrier identification codes. In

some cases, we also sorted carrier data by a specific traffic route.

Carrier industry representatives (the American Movers Conference and the

Household Goods Forwarders’ Association of America, as well as selected

carriers) and DOD reviewed and concurred with our methodology for

analyzing household goods shipment and claims data before we did this

analysis. MTMC and each of the military services providing shipment and

Page 16 GAO/NSIAD-95-48 DOD Household Goods
Chapter 1 

Introduction

claims data concurred with the accuracy of the results of our data

analysis.

To perform this analysis, we combined data using different computer

languages and formats into a single, common database. We provided our

computer programs and analysis results to MTMC at the conclusion of our

review because this information has many potential applications for the

improved management of household goods activities, particularly those

associated with evaluating individual carrier performance and military

claims office adjudication and recovery efforts. To adjust our cost data for

the effect of inflation, we used the Consumer Price Index to convert actual

dollars to constant fiscal year 1993 dollars.

We conducted our review from May 1993 to November 1994 in accordance

with generally accepted government auditing standards.

Page 17 GAO/NSIAD-95-48 DOD Household Goods
Chapter 2 

Domestic Claims Costs Reduced and Carrier

Performance Improved

DOD claims costs declined after DOD increased carrier liability on domestic

household goods shipments in 1987. Our analysis of DOD shipment and

claims data for fiscal years 1987 through 1991 showed that DOD saved

about $18.9 million in claims costs during this period. DOD would have

saved an additional $3.2 million if all the military services had pursued

claims recovery from carriers as effectively as the Air Force.

Carrier performance on domestic shipments also improved. Although the

claims frequency rate remained unchanged at about 20 percent of all

shipments, the average amount of claim DOD paid to servicemembers

declined under the increased liability from over $800 in fiscal year 1986 to

$728 in fiscal year 1991. This represents an overall reduction of about

9 percent.

The carrier industry generally opposed increased carrier liability, citing

concerns that higher military service recovery levels would result in

almost all claims being paid by the carriers. The industry questioned

whether increased liability would reduce overall government household

goods program costs. Our analysis showed that these concerns did not

materialize.

DOD Claims Costs

Declined

DOD claims costs for domestic household goods shipments declined after

maximum carrier liability on these shipments was increased in 1987 from

$0.60 per pound per article to the $1.25 valuation rate. For example, our

analysis of Air Force computerized household goods shipment and claims

data showed that the Air Force reduced annual domestic shipment claims

costs during fiscal years 1988 through 1991 by 20 to 27 percent compared

to the fiscal year 1986 level. This resulted in savings on Air Force

shipments totaling about $7 million for the period.

We could not determine overall DOD savings with the same accuracy as we

could for the Air Force because Army and Marine Corps claims records

were not computerized until 1988, and Navy claims records had not been

computerized at the time of our review. However, our review of the

available data showed that claims costs for the other services also

declined. We estimate that increased carrier liability resulted in overall

DOD savings totaling about $18.9 million during fiscal years 1987 through

1991.

Page 18 GAO/NSIAD-95-48 DOD Household Goods
Chapter 2 

Domestic Claims Costs Reduced and Carrier

Performance Improved

Air Force Claims Data

Demonstrates the Impact

of Increased Carrier

Liability

We analyzed claims costs for 363,776 Air Force domestic household goods

shipments moved during fiscal years 1986 through 1991. The Air Force

paid servicemember claims for loss and/or damage on 75,198, or about

21 percent, of these shipments.

Annual Air Force claims costs after implementing the $1.25 rate (fiscal

years 1988 through 1991) ranged from 20.3 percent to 27 percent less (an

average of almost 24 percent less) than what they were in fiscal year 1986.

Table 2.1 compares claims costs at the $1.25 rate after fiscal year 1987

with those at the $0.60 per pound per article rate in fiscal year 1986. The

decrease for fiscal year 1987 is much less than for the other fiscal years

because the $1.25 rate was implemented in mid-year. Claims costs are

expressed in terms of claims cost per hundredweight [cwt]1

 to minimize

the skewing effect of yearly fluctuations in shipment numbers, claims, and

weights.

Table 2.1: Air Force Claims Costs, Domestic Household Goods Shipments

Fiscal year

Costs in constant fiscal year 1993 dollars

1986 1987 1988 1989 1990 1991

Number of shipments 72,930 65,474 68,647 62,591 41,046f 53,088

Shipment hundredweight

(cwt)a

3,654,125 3,315,087 3,298,684 3,200,404 2,184,620 2,776,982

Total claims cost b $8,665,342 $7,228,765 $6,220,856 $5,543,828 $4,085,774 $4,818,759

Claims cost per cwtc $2.37 $2.20 $1.89 $1.73 $1.87 $1.74

Cost difference (cwt)

compared to FY 1986d

$0.00 $(0.17) $(0.48) $(0.64) $(0.50) $(0.63)

Percent cost reduction

compared to FY 1986e

7.2 20.3 27.0 21.1 26.6

aTotal weight of shipments divided by 100.

bAmount of claims paid less recoveries for fiscal year 1986; amount of claims paid less recoveries

plus separate charges for fiscal year 1987 and after.

cTotal claims cost divided by shipment hundredweight.

dFiscal year 1986 cwt cost ($2.37) less current year cwt cost.

eCost difference (cwt) divided by fiscal year 1986 cwt claims cost ($2.37).

f

Air Force officials told us that the reduced number of shipments in fiscal year 1990 was probably

at least partially caused by Operation Desert Storm.

1

Per 100 pounds of shipment weight.

Page 19 GAO/NSIAD-95-48 DOD Household Goods
Chapter 2 

Domestic Claims Costs Reduced and Carrier

Performance Improved

We estimate that these claims cost reductions resulted in total savings of

$7 million on Air Force domestic household goods shipments during fiscal

years 1987 through 1991, or an average savings of about $1.6 million per

year for fiscal years 1988 through 1991. We calculated the amount of

savings by multiplying the hundredweight cost differences from fiscal year

1986 levels in table 2.1 by total shipment hundredweight for each fiscal

year, as shown by table 2.2.

Table 2.2: Air Force Claims Cost Savings Under Increased Carrier Liability, Domestic Household Goods Shipments

Fiscal year

Constant fiscal year 1993 dollars

1987 1988 1989 1990 1991 Total

Shipment cwt 3,315,087 3,298,684 3,200,404 2,184,620 2,776,982 14,775,777

Cwt cost difference

compared to FY1986

$(0.17) $(0.48) $(0.64) $(0.50) $(0.63) •

Amount saved $563,565 $1,583,368 $2,048,259 $1,092,310 $1,749,499 $7,037,001

Figure 2.1 illustrates the amount saved by comparing claims costs for

fiscal years 1986 through 1991 with those that would have occurred in

these fiscal years if claims cost per hundredweight levels had remained the

same as occurred under the $0.60 rate in fiscal year 1986. For example, the

figure shows that fiscal year 1989 claims costs at the $0.60 rate would have

been $7.6 million in constant fiscal year 1993 dollars. However, at the $1.25

rate, these costs were actually $5.5 million during fiscal year 1989,

resulting in constant dollar savings of over $2 million during that fiscal

year.

Page 20 GAO/NSIAD-95-48 DOD Household Goods
Chapter 2 

Domestic Claims Costs Reduced and Carrier

Performance Improved

Figure 2.1: Air Force Claims Cost

Comparison, $0.60 Per Pound Per

Article Versus $1.25 Shipment

Valuation Liability, Fiscal Years

1986-91 (Constant Fiscal Year 1993

Dollars)

Millions

0

2

4

6

8

10

FY86 FY87 FY88 FY89 FY90 FY91

8.7

0.0

7.9

7.3

7.8

6.2

7.6

5.5 5.2

4.1

6.6

4.8

Cost @$0.60

Cost @$1.25

Air Force overall claims costs for these shipments declined beginning in

1987 even though DOD paid carriers a separate charge in addition to

transportation charges for the increased liability. In other words, the Air

Force recovered more from carriers than the separate charge paid them

for the increased liability.

Table 2.3 illustrates the impact of increased recovery on Air Force

constant dollar claims costs and shows (1) how overall Air Force costs for

domestic shipments declined from about $8.7 million in fiscal year 1986 to

between $4 million and $5 million in fiscal years 1990 and 1991, (2) how

much the Air Force paid carriers for the increased liability, and (3) how

the increased liability adjusted the percentage of overall claims costs paid

by the Air Force and household goods carriers. Total Air Force claims

costs declined by more than the 24-percent average reduction attributable

to increased carrier liability because the total number of shipments, and

consequently claims, also declined during this period.

Page 21 GAO/NSIAD-95-48 DOD Household Goods
Chapter 2 

Domestic Claims Costs Reduced and Carrier

Performance Improved

Table 2.3: Total Air Force Claims Costs, Domestic Household Goods Shipments

Fiscal year

Constant fiscal year 1993 dollars

1986a 1987 b 1988 1989 1990 1991

Claims paid by Air Force $12,369,117 $10,228,040 $9,937,746 $10,310,063 $6,868,076 $7,653,141

Less recovery from carriers 3,703,775 5,396,387 7,763,666 8,264,884 5,379,556 5,584,825

Subtotal 8,665,342 4,831,653 2,174,080 2,045,179 1,488,520 2,068,316

Plus amount paid carriers

for increased liability

(compensatory payment)c

0 2,457,112 4,046,777 3,498,649 2,597,254 2,750,443

Total Air Force claims cost $8,665,342 $7,288,765 $6,220,856 $5,543,828 $4,085,774 $4,818,759

Percent claims cost paid by

Air Force

70 71 63 54 59 63

Percent claims cost paid by

carriers

30 29 37 46 41 37

aCarrier liability at $0.60 per pound per article.

bCarrier liability increased (May 1987) to $1.25 shipment valuation.

c$0.64 per $100 valuation plus 10 percent of certain storage fees.

Increased Carrier Liability

Offers Potential DOD

Savings of $22 Million

Based on the complete Air Force data, and Army and Marine Corps data

that was available, we estimate that DOD would have saved $22 million

during fiscal years 1987 through 1991 as the result of increased carrier

liability on domestic household goods shipments if all the military services

had performed as effectively as the Air Force. As previously mentioned,

we could not determine the impact of increased carrier liability on DOD’s

overall costs as accurately as we could for the Air Force because claims

data for the other services was less complete.

However, both DOD and carrier industry officials told us, and MTMC

shipment data confirmed, that the physical characteristics of household

goods shipments vary little between the military services. Air Force

shipments averaged almost 32 percent of total DOD domestic household

goods shipments by weight during fiscal years 1986 through 1991. We

therefore estimated that if all the services had performed at the Air Force

level, then total DOD savings at the $1.25 rate would have been slightly over

$22 million (known Air Force savings of $7,037,001 divided by 0.3193).

Page 22 GAO/NSIAD-95-48 DOD Household Goods
Chapter 2 

Domestic Claims Costs Reduced and Carrier

Performance Improved

Varying Recovery

Effectiveness Limited DOD

Savings

The amount of savings that can be realized from increased carrier liability

depends on how effectively DOD recovers claims costs from carriers.

Project REVAL estimated that under the increased liability, DOD recovery

from carriers would average 78 percent of the amount of claims paid to

servicemembers.

We found, however, that DOD did not realize its full savings potential of

$22 million during fiscal years 1987 through 1991 because the other

military services were not as effective as the Air Force in recovering from

carriers. Only the Air Force met REVAL expectations. Our analysis of

Army and Marine Corps data for fiscal years 1988 through 1991 showed

that these services did not meet this recovery standard, which brought the

overall average DOD recovery rate down to about 65 percent of the amount

of claims paid during this period. Table 2.4 illustrates these variations in

military recovery effectiveness in actual dollars.

Page 23 GAO/NSIAD-95-48 DOD Household Goods
Chapter 2 

Domestic Claims Costs Reduced and Carrier

Performance Improved

Table 2.4: DOD Recovery Effectiveness

for Domestic Household Goods

Claims, (Fiscal Years 1986-91) 

Actual dollars

Fiscal

year

Amount claims

paid

Amount

recovered

Percent

recovered

Air Force 1986 $9,412,898 $2,818,573 29.94

1987 8,008,555 4,225,371 52.76

1988 8,099,263 6,327,388 78.12

1989 8,804,794 7,058,211 80.16

1990 6,160,664 4,825,462 78.33

1991 7,209,259 5,260,905 72.97

Total FY1988-91 30,273,980 23,471,966 77.50

Army 1988 10,582,444 5,613,977 53.05

1989 11,487,650 6,961,575 60.60

1990 9,221,234 5,354,449 58.07

1991 9,482,467 5,143,991 54.25

Total FY1988-91 40,773,795 23,073,992 56.59

Marine Corps 1988 1,303,877 900,925 69.10

1989 1,245,811 873,826 70.14

1990 1,020,348 642,618 62.98

1991 515,392 238,334 46.24

Total FY1988-91 4,085,428 2,655,703 65.00

Combined 1988 19,985,584 12,842,290 64.26

1989 21,538,255 14,893,612 69.15

1990 16,402,246 10,882,529 65.98

1991 17,207,118 10,643,230 61.85

Total FY1988-91 $75,133,203 $49,261,661 65.57

Note: The percent recovered by the Marine Corps during fiscal year 1991 was unusually low due

largely to claims recovery processing backlogs.

To determine actual savings, we adjusted the $22 million downward to

reflect the differences between the Air Force recovery rate and those

actually achieved by the other services. We estimated that actual DOD

savings attributable to increased carrier liability for domestic shipments

during fiscal years 1987 through 1991 was $18.9 million, or almost

$3.2 million less than it would have been if all the services had recovered

as effectively as the Air Force. The impact of variances in military service

recovery effectiveness is discussed further in chapter 4.

Page 24 GAO/NSIAD-95-48 DOD Household Goods
Chapter 2 

Domestic Claims Costs Reduced and Carrier

Performance Improved

Carrier Industry

Concerns Did Not

Materialize

In commenting on our 1988 report, carrier industry officials objected to

DOD’s implementation of the increased liability program in part because

they believed the DOD recovery rate would increase to as much as

95 percent. At this rate, almost all claims costs would be passed to

carriers. As shown in table 2.4, this did not occur. Instead, because of

varying service recovery effectiveness, actual carrier claims costs were

lower than predicted by REVAL, and far lower than carrier estimates.

Increased carrier liability does transfer a greater portion of claims costs to

carriers, but DOD still pays more than half of household goods claims costs.

For example, under the $0.60 rate in fiscal year 1986, the Air Force

recovered from carriers about 30 percent of the amount of claims paid to

servicemembers. Under the $1.25 rate after fiscal year 1987, Air Force

recovery from carriers on domestic shipments increased to an average of

almost 78 percent of the amount of claims paid, but carriers also received

payments for the additional liability through separate charges.

Consequently, under increased liability during fiscal years 1988 through

1991, the carriers actually paid a maximum of 46 percent of Air Force

claims costs (see table 2.3).

Carrier industry representatives also told us they believed that even if DOD

claims costs declined under the $1.25 rate, overall DOD costs might still

have increased over the levels experienced under the $0.60 per pound per

article rate if carriers had increased their transportation rates to

compensate for the increased liability. However, we found that DOD

household goods program net costs for domestic shipments

(transportation costs plus claims costs less recoveries) also declined after

the $1.25 rate was adopted in 1987. Table 2.5 illustrates how program costs

declined from the level experienced before increased carrier liability was

implemented in 1987.

Page 25 GAO/NSIAD-95-48 DOD Household Goods
Chapter 2 

Domestic Claims Costs Reduced and Carrier

Performance Improved

Table 2.5: Air Force Domestic Household Goods Shipment Program Net Costs

Fiscal year

Constant fiscal year 1993 dollars

1986 1987 1988 1989 1990 1991

Carrier transportation costsa $244,360,192 $208,032,331 $210,942,545 $180,923,059 $134,302,174 $149,653,535

Claims paid by Air Force 12,369,117 10,228,040 9,937,746 10,310,063 6,868,076 7,653,141

Total 256,729,309 218,260,371 220,880,291 191,233,122 141,170,250 157,306,676

Less recovery from carriers 3,703,775 5,396,387 7,763,666 8,264,884 5,379,556 5,584,825

Net program cost $253,025,534 $212,863,984 $213,116,625 $182,968,238 $135,790,693 $151,721,851

Net program cost per

hundredweight shipped

$69.24 $64.21 $64.61 $57.17 $62.16 $54.64

aIncludes any compensatory payments for increased liability.

Declining program costs cannot be attributed solely to increased carrier

liability. Transportation rates are influenced by many factors other than

claims costs, such as insurance, competition, and individual carrier costs

related to personnel, equipment, and facilities.

Our analysis of DOD claims data by individual carrier confirmed that many

carriers, especially those with high rates of loss and damage, were

encountering claims costs higher than the compensatory revenues they

received for the increased liability. These carriers could have

compensated by raising their transportation rates. However, carrier

industry officials told us that carriers had instead chosen to absorb these

costs. They said the carrier industry was overbuilt, and that carriers in

general were reluctant to increase transportation rates for fear of losing

DOD business to other carriers with unchanged or lower rates. Both intense

carrier competition and increased carrier liability therefore appear to have

contributed to lowered DOD net program costs.

We could not determine to what extent lowered net program cost was due

to reduced claims costs versus other factors. These other factors vary

between carriers and are difficult to measure. It is clear, however, that net

domestic program costs declined after DOD implemented increased carrier

liability, and that reduced claims costs contributed to this decline.

Page 26 GAO/NSIAD-95-48 DOD Household Goods
Chapter 2 

Domestic Claims Costs Reduced and Carrier

Performance Improved

Claims Frequency

Unchanged but

Average Amount of

Claims Declined

One of DOD’s objectives in increasing carrier liability was to increase

carrier incentive to prevent loss and damage to household goods. We

found that while the percentage of domestic household goods shipments

incurring servicemember claims changed very little under increased

carrier liability, the average amount of claim paid declined.

Our analysis of Air Force shipment and claims data showed that claims

were paid on 20.7 percent of this service’s domestic shipments under the

$0.60 rate in fiscal year 1986. After the $1.25 rate was implemented in 1987,

the Air Force claims frequency rate showed little change, ranging from

19.3 to 22.7 percent between fiscal years 1987 and 1991. The combined

Army, Air Force, and Marine Corps claims frequency rate was similar,

ranging from 18.3 percent to 21.8 percent during fiscal years 1988 through

1991.

However, the average amount of claim paid the servicemember declined

under increased liability. Expressed in constant fiscal year 1993 dollars in

order to adjust for the effects of inflation, the average amount of claim

paid by the Air Force dropped from $821 in fiscal year 1986 to $637 by

fiscal year 1991, and similar trends appear to have occurred for the Army

and Marine Corps claims. Table 2.6 illustrates the declines in average

amount of claim paid for the services we reviewed.

Table 2.6: Average Amounts of Claims

Paid to Servicemembers

Fiscal year

Constant fiscal year 1993 dollars

1986 1987 1988 1989 1990 1991

Air Force $821 $788 $750 $766 $738 $687

Army a a 831 807 807 765

Marine Corps a a 820 706 697 674

Combined a a $796 $784 $772 $728

aData not available.

Increased liability appears to have provided carriers with increased

incentive to improve performance. Carrier industry officials cited a variety

of actions they had recently taken to reduce their claims costs. These

included holding drivers more responsible for any damage, improving

packing and inventory techniques and materials, and providing training

and offering incentives designed to improve performance and reduce

shipment damage and loss.

Page 27 GAO/NSIAD-95-48 DOD Household Goods
Chapter 2 

Domestic Claims Costs Reduced and Carrier

Performance Improved

Although such improvements do not appear to have had an appreciable

impact on claims frequency, they are likely to have been a significant

factor in reducing the extent of the damage occurring on shipments with

claims. This in turn has contributed to reductions in claims costs to both

carriers and DOD.

Separate Charge

Could Be Eliminated

MTMC should now eliminate the separate charge paid carriers for the

increased liability on domestic shipments. Carriers have had 7 years of

claims cost experience under increased liability, and should therefore now

be able to compensate for the loss of the separate charge by adjusting

their transportation rates. Because none of the military services recovered

more than an average of 80 percent of the amount of claims paid in any of

the fiscal years we reviewed (see table 2.4), DOD would still absorb at least

20 percent of household goods claims costs. DOD should bear some

responsibility for claims costs since DOD, rather than carriers, settles

servicemember claims.

Conclusions The expectations for increased liability set by DOD have in part been

achieved. DOD domestic household goods claims costs have declined,

carrier performance is somewhat improved, and overall program costs are

down. However, claims costs have not declined as much as expected

because of varying military service effectiveness in recovering these costs

from carriers.

We believe the increased carrier liability at the $1.25 rate was fair and

equitable to both DOD and the carrier industry for the period we reviewed.

Under the $0.60 per pound per article rate, DOD bore more than 70 percent

of claims costs, and carriers had little incentive to improve their

performance. Under the increased liability, DOD still paid more than half

the cost of servicemember claims for shipment loss and damage while

reducing overall government costs and encouraging improved carrier

performance. Carriers also received financial compensation for additional

costs incurred as a result of increased liability.

Carriers have now gained experience with increased liability claims costs,

and should be able to build these costs into their transportation rates.

Therefore, MTMC should eliminate the separate charge paid carriers for the

increased liability on domestic shipments.

Page 28 GAO/NSIAD-95-48 DOD Household Goods
Chapter 2 

Domestic Claims Costs Reduced and Carrier

Performance Improved

Recommendation to

the Secretary of

Defense

We recommend that the Secretary of Defense direct the Commander of

MTMC to eliminate the separate charge now paid to carriers to compensate

them for increased risk on domestic shipments.

Comments From the

Department of

Defense

DOD concurred with our findings and recommendation. DOD’s comments

indicated that by March 31, 1995, the Office of the Secretary of Defense

will direct the Commander, MTMC, to eliminate the separate charge now

paid carriers to compensate them for increased risk on domestic

shipments. This change is scheduled to take effect on domestic shipments

beginning November 1, 1995.

Comments From the

Carrier Industry

In commenting on this report, the American Movers Conference (AMC) and

the Household Goods Forwarders Association of America, Inc., disagreed

with our findings and recommendation. They said that the inflation index

we used—the Consumer Price Index—overstated the actual amount of

inflation and resulted in an overstatement of the amount of savings

accruing to DOD as the result of increased carrier liability on domestic

household goods shipments after fiscal year 1987. The AMC further noted

that since there was no decrease in the frequency of household goods

claims on domestic shipments after 1987, the primary impact of the

increase in carrier liability was to transfer the cost of these claims from

DOD to the household goods industry.

We used the Consumer Price Index to adjust for inflation and enable dollar

comparisons over fiscal years 1986 through 1991 for two primary reasons.

First, in order to avoid just such methodology disputes, during the design

phase of this assignment, we sought and obtained carrier industry review

and concurrence with our analysis methodology, including the use of the

Consumer Price Index as the appropriate index for such comparisons.

Carrier industry officials suggested changing this index only after seeing

the results of our analysis.

After reviewing the alternate index proposed by the AMC, we are not

convinced that AMC’s index provides a more accurate estimate than the

index we used. The AMC maintained that the Consumer Price Index should

not be used because it contains many components that have no direct

bearing on claims costs, and instead proposed a combination of Consumer

Price Index components that it claimed were more directly related to

claims costs. However, while the overall Consumer Price Index does not

match the specific makeup of household goods claims, neither does the

Page 29 GAO/NSIAD-95-48 DOD Household Goods
Chapter 2 

Domestic Claims Costs Reduced and Carrier

Performance Improved

index proposed by the AMC. It still excludes certain items and costs

frequently found in household goods claims such as bicycles, music

equipment, and photographic equipment. Also, the weighted values used

by AMC’s index are based on the pattern of consumer expenditures rather

than claims. It is therefore unclear whether or to what degree AMC’s index,

or any similar index, might be more appropriate for tracking household

goods claims costs. Furthermore, the overall Consumer Price Index is

readily available in published form and is widely accepted as the

appropriate standard for establishing constant dollar comparisons.

However, while the overall Consumer Price Index remains a generally

accepted standard for constant dollar comparisons, we acknowledge the

existence of controversy over whether this index overstates inflation. AMC

acknowledged in its comments that even using their index, increased

carrier liability resulted in DOD claims costs reductions of 5.2 percent

instead of the 9 percent we reported. Regardless of which index is used,

increased carrier liability still resulted in reduced DOD claims costs.

AMC’s comments provided numerous additional reasons and data analyses

to support further disagreement with the results of our analysis. The AMC

cited analyses from our previous reports as the source of some of this

data. In fact, the source of the preponderance of this data was AMC

comments to our prior report, not work performed by us. Also, this data

was based on MTMC data shown to be inaccurate by our current analysis.

Furthermore, we disagree with the appropriateness of various technical

aspects of the methodology AMC uses in reaching many of its conclusions.

The AMC also suggested that fiscal year 1991 data be removed from our

analysis because of differences in certain claims data for this fiscal year

compared with similar data for other fiscal years. AMC’s comments cited

lower claims cost recovery ratios for the Air Force and the Marines in

fiscal year 1991 than in any of the prior fiscal years we evaluated, and

suggested that some claims data might not have been included for fiscal

year 1991 due to late claims filing times.

We believe these fluctuations are within normally expected ranges and

that they do not warrant exclusion of the fiscal year 1991 data. For

example, while Air Force officials told us that Operation Desert Storm

affected claims personnel priorities, they also told us that claims

personnel shortages and conflicting priorities were generally likely to

affect their ability to consistently maintain an 80-percent recovery rate. All

the services confirmed that our analysis accurately reflected their

Page 30 GAO/NSIAD-95-48 DOD Household Goods
Chapter 2 

Domestic Claims Costs Reduced and Carrier

Performance Improved

shipment and claims data for the period reviewed. We also previously

investigated the drop in Marine recovery effectiveness from 63 percent in

fiscal year 1990 to 46 percent in fiscal year 1991 that AMC cited in its

comments. We found that due to a Marine Corps claims processing

backlog, some Marine data had not been included in our initial analysis

and we modified our report accordingly. However, our review of the

missing data revealed it was little different from other Marine claims data

and that it was of insufficient volume to affect our analysis results.

We agree with AMC’s comment that increased carrier liability has

transferred a greater portion of DOD household goods claims costs to the

carrier industry. Even after carrier liability was increased for domestic

shipments in 1987, DOD paid the majority of these costs—the percentage of

claims costs actually paid by carriers ranged from only 29 percent to a

high of 46 percent annually. Removing the compensatory payment as we

recommended would transfer more, but not in excess of 80 percent, of

household goods claims costs to the carrier industry. We believe the

carrier industry, not DOD, should be responsible for damage and loss

occurring while the shipments are under the control of carriers.

Furthermore, increased carrier liability provides carriers with increased

incentive to find new ways to prevent or reduce shipment damage and

loss. Poorly performing carriers would probably be forced to increase

their transportation rates, thus becoming less competitive for DOD

business.

In summary, we believe DOD should reasonably expect carriers to deliver

shipments in the same condition as when they were submitted for

shipment. Costs associated with any damage should be borne by the party

causing the damage. Carriers should include costs for loss or damage

inherent in moving household goods in their transportation rate bids just

like they include other costs, such as packing, unpacking, linehaul, and

insurance. Also, we want to make it clear that MTMC does not establish a

ceiling on carrier transportation rate bids as implied in AMC’s comments. It

does establish a standardized baseline rate against which carriers are

expected to bid. Carriers can and do bid both above and below this

baseline rate. The only restraint to any rate increases is competition

among the carriers themselves.

Page 31 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

At the $0.60 per pound per article carrier liability rate, DOD absorbed a

disproportionate share of the claims costs resulting from loss and damage

to international household goods shipments, and carriers had only limited

incentive to improve their performance. Our evaluation of DOD shipment

and claims data indicates that adoption of the $1.25 valuation rate for

international shipments would be an effective way to lower program costs

and reduce the level of loss and damage to servicemembers’ household

goods.

However, adoption of DOD’s proposal to implement the $1.25 liability rate

without any type of compensatory payment or premium might cause a

major disruption in the carrier industry. Implementation of the $1.25 rate

would therefore need to be accompanied by a compensatory payment for

a limited period. This would give carriers an opportunity to gain

experience under the higher claims liability, enabling them to include

claims cost increases in future transportation rates.

DOD Proposes

Extending the $1.25

Carrier Liability Rate

to International

Shipments

DOD officials told us that their proposal to increase carrier liability to the

$1.25 rate for international shipments was made for the same reasons it

was implemented domestically (see ch. 1). They said that reducing damage

to household goods shipments was important because it affected

servicemember morale, quality of life, and retention rates. In addition, they

said that loss and damage, and consequently, the average amount of claim,

was greater for international shipments than for domestic shipments. They

cited instances of careless dockside handling of shipments, said that

shipment pilferage and theft was a substantial problem in several overseas

regions, and stated that the $0.60 per pound per article carrier liability rate

in effect since 1967 provided little incentive for carriers to correct these

problems or otherwise improve their performance. According to these

officials, standardization of carrier liability would also simplify claims

adjudication and recovery procedures.

The primary problem with continuing carrier liability on a per pound per

article basis is that it limits carrier liability on the basis of an item’s weight

rather than its value. DOD officials expressed concern about the costly

impact of paying servicemember claims according to an item’s depreciated

value or repair cost, while recovering claims costs from carriers on the

basis of item weight. For example, under this liability system DOD is unable

to recover reasonable repair or replacement costs for low-weight, easily

damaged items such as stereos, televisions, compact disks, and other

high-value items that are also frequently the targets of shipment pilferage.

Page 32 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

Analysis of Shipment

and Claims Data

Supports the Need to

Increase Carrier

Liability

We believe that implementing the $1.25 rate on international shipments

will improve carrier performance and reduce program costs. Our

evaluation of DOD domestic shipment and claims data for household goods

moved during fiscal years 1986 through 1991 showed that after

implementation of the $1.25 rate, carrier performance improved and DOD’s

overall program and claims costs for these shipments declined (see ch. 2).

These patterns contrast with those for international shipments during the

same period. At the $0.60 per pound per article rate, international

shipments experienced a gradual increase in damage and loss frequency,

and incurred relatively high and generally increasing claims costs.

International Shipment

Claims Frequency and

Costs Are Increasing

Our analysis of DOD claims data for international shipments revealed that

both the frequency of loss and/or damage to international shipments and

the average amount claimed increased during fiscal years 1988 through

1991. Of the 150,345 overseas containerized household goods shipments

moved by the Air Force, the Army, and the Marine Corps at the $0.60 rate

in fiscal year 1988, loss and damage claims were filed on 30,657

(20.4 percent). The claims frequency rate then increased to 22.4 percent,

23.5 percent, and 23.7 percent, respectively, during fiscal years 1989 to

1991. While this increase is a relatively moderate 3.3 percentage points for

the period, it differs from the domestic claims frequency rate in that it is

consistently increasing.

The average amount of claim paid for these shipments also increased

overall during this period. After adjusting for inflation (converting to

constant fiscal year 1993 dollars), the average amount of claim paid per

hundredweight (per 100 pounds shipped) for these shipments was $6.22 in

fiscal year 1988, and $6.39, $6.65, and $6.26, respectively, during fiscal

years 1989 to 1991.

Low Carrier Liability

Limits Recovery

At the $0.60 rate, DOD claims cost recovery from carriers has been limited

on both domestic and international shipments. For example, the Air Force

paid servicemembers over $9.4 million for claims on fiscal year 1986

domestic shipments, and recovered (at the $0.60 rate) over $2.8 million

(29.9 percent) from carriers. Air Force recovery on fiscal year 1986

containerized international shipments at the same $0.60 rate was

substantially less—about $1.8 million of the $7.2 million paid for claims, or

24.9 percent. Air Force recovery at the $0.60 rate for unaccompanied

baggage shipments, which comprise several additional types of

Page 33 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

international household goods shipments, was less still—$367,555 of the

$1,760,212 paid for claims, or 20.9 percent.

Recovery activities for the other military services were less effective than

those of the Air Force for all types of shipments during the period we

reviewed. Table 3.1 shows transportation and claims costs for Air Force,

Army, and Marine Corps containerized international shipments at the $0.60

rate during fiscal years 1988 through 1991.

Table 3.1: Transportation and Claims

Costs for Containerized International

Household Goods Shipments, Army,

Air Force, and Marines Fiscal year

Millions of actual dollars

1988 1989 1990 1991

DOD transportation cost $400.0 $368.0 $280.6 $404.3

Claims paid 23.9 25.4 21.2 26.2

Recoveries –4.6 –5.3 –3.3 –5.2

Claims cost 19.3 20.1 17.9 21.0

Total cost $419.4 $388.1 $298.6 $425.3

Percent of claim amount paid

that was recovered

19.1 20.9 15.3 19.8

Note: Totals do not add due to rounding.

As shown by table 3.1, on average only about 15 percent to 21 percent of

the amount of claims paid was recovered at the $0.60 rate.

Unaccompanied baggage recovery averaged only 14.7 to 17.6 percent of

the claims paid during this period. We could not determine recovery rates

for the Navy because its claims data is not computerized. However, MTMC

officials told us that they believed Navy recovery performance was

unlikely to be substantially different from the average of the other military

services.

The $0.60 rate usually results in the government bearing more than

80 percent of the costs associated with claims for shipment loss and

damage on international shipments. We believe this level of carrier liability

is too low to provide the necessary financial incentive to improve carrier

performance. During work on a prior report,1

 carrier industry officials told

us that before implementation of the $1.25 rate for domestic shipments,

carrier liability at the $0.60 rate was so limited that claims recovery

attempts were often not contested, and some carriers did not even have

1

Household Goods: Evaluation of Department of Defense Claims Payment and Recovery Activities

(GAO/NSIAD-89-67, Feb. 24, 1989).

Page 34 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

claims departments. During our current review, industry officials told us

that increased liability levels and other factors have forced carriers to pay

much more attention to both avoidance of shipment damage and loss and

claims adjudication.2

MTMC’s Proposal

Would Reduce

International

Shipment Costs

Changing carrier liability to the $1.25 rate as proposed by MTMC should

reduce both DOD claims costs and overall program costs. Recoveries from

carriers would likely increase in a fashion similar to that experienced after

the adoption of this rate for domestic shipments in 1987. However, MTMC’s

proposal to increase carrier liability in this fashion without any type of

compensatory payment or premium could unfairly shift increased claims

and other costs to carriers and could cause substantial industry disruption.

Implementation of this increased liability rate would therefore need to be

accompanied by a compensatory payment to carriers. The amount of

increased carrier costs and subsequent government savings would vary

depending on the compensatory rate used and assumptions regarding the

effectiveness of military service recovery activities.

Claims Costs Would

Decline

Adoption of the $1.25 rate for DOD international shipments would probably

cause claims costs for these shipments to decline in much the same

fashion as did domestic shipments. DOD claims officials told us that claims

adjudication for international shipments is essentially the same as that for

domestic shipments, except for the carrier liability rate. For example, both

involve the same types of household goods, the same claims adjudication

and payment process for the servicemember, and the same recovery

process from carriers. We found the average amount of claim paid is

higher for international shipments, but military service recovery activities

are less effective on international shipments than they are on domestic

shipments. The main difference occurs in the carrier liability rate, or

determining how much of the amount paid is to be recovered from the

carrier.

Net Program Costs Are

Also Likely to Decline

Any increase in carrier liability would reduce DOD claims costs because the

overall amount of DOD recoveries from carriers would then increase.

However, the carrier industry maintains that low liability rates, such as the

$0.60 rate, might result in lower net program cost to the government

because low liability rates would allow carriers to charge lower

2

MTMC initiated the Total Quality Assurance Program in 1992, which scores carrier performance in

several areas, including shipment loss and damage, and penalizes poorly performing carriers by

denying them future DOD shipments for a specified period of time.

Page 35 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

transportation rates, which would more than offset the high DOD claims

payment costs associated with this rate. Carrier industry representatives

said that increased carrier liability might not reduce net program costs

because carriers would be forced to increase transportation rates to cover

their increased liability costs.

However, transportation rates did not increase enough to prevent a net

decline in program costs after implementation of the $1.25 liability rate for

domestic shipments. As discussed in chapter 2, our analysis of household

goods shipment and claims data showed that both DOD claims costs and

net program costs declined after the implementation of the $1.25 rate for

domestic shipments in 1987, resulting in savings totaling about

$18.9 million during fiscal years 1987 to 1991.

DOD and carrier industry officials told us that domestic shipment

transportation rates have not increased substantially since 1987 because

the carrier industry is overbuilt and competition for DOD business is fierce.

They said this is partially due to recent reductions in both the size of the

U.S. military and the number of personnel stationed overseas. Some

carrier industry officials told us, and our analysis also indicates, that

domestic carriers absorbed a portion of the additional costs associated

with increased liability rather than becoming less competitive for DOD

business through increased transportation rates.

We could not determine what might happen to international transportation

rates under the $1.25 liability rate. Many factors other than liability could

have an impact on these rates. For example, carrier industry officials told

us that carrier transportation charges did not increase with the

implementation of the temporary $1.80 per pound per article rate, due

largely to declining steamship transportation rates. We believe it

appropriate for DOD to realize financial benefits occurring as the result of

intense carrier competition as long as carriers have the opportunity to

adjust the rates they charge DOD for transporting household goods

shipments.

Compensatory Payments

May Be Necessary

Implementation of the $1.25 rate for international shipments could result

in carrier industry disruption if it is not accompanied by additional

payments to carriers in compensation for the increased liability. MTMC did

not make provision for a compensatory rate when it proposed the 

$1.25 rate for international shipments.

Page 36 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

Most of the carriers we interviewed told us they would have difficulty

adjusting their international shipment transportation rates to cover the

cost of their increased liability. Many of them perform only DOD

international shipments, and therefore have no commercial or domestic

experience using the $1.25 rate. They said that overestimation of the costs

they might experience at the $1.25 rate would cause them to set

transportation rates too high, making them noncompetitive for DOD

business. Conversely, underestimation would result in transportation rates

insufficient to cover claims costs. Either could lead to financial losses or

bankruptcy. They also cited other uncertainties, such as how such a

change in liability might affect insurance and other costs.

We believe it is a normal business practice for the carrier industry to

estimate its costs and determine its transportation charges to provide

whatever service is needed by DOD. However, we believe DOD should

compensate carriers in exchange for their added risk. Carrier industry and

DOD officials told us the financial status of many carriers is weak due, in

part, to military reductions in force and intense competition for existing

business. Compensatory payments would provide a financial buffer during

the period when carriers were adjusting to the new liability rate, thus

reducing the potential for carrier bankruptcies and subsequent stranding

of en route shipments.

Adequate claims data to evaluate the impact of increased liability on

international shipments should be available within 2 to 3 years from the

implementation date. By then carriers will have had adequate claims

experience under the new rate to accurately estimate their claims and

other costs associated with the increased liability, and should be fully

capable of adjusting their transportation rates as needed. Also, MTMC could

then evaluate the impact of the increased liability and determine whether

to continue compensatory payments to carriers.

Determining a Fair

and Adequate

Separate Charge Is

Difficult

We could not, with certainty, determine a fair and adequate separate

charge to compensate carriers for their increased liability, for two reasons.

First, because carrier performance levels vary, establishing a single

separate charge that is fair and adequate for overseas carriers requires

policy judgments about the appropriate performance level to be expected

from carriers. Second, the impact of this proposed increase on carrier

performance, and consequently on the number and amount of claims

submitted by servicemembers, cannot be accurately predicted. However,

we did develop an expected impact of increased liability on international

Page 37 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

shipments, based on the available shipment and claims data and certain

aspects of increased liability’s impact on domestic shipments.

Carrier Performance

Differs

We evaluated carrier performance data for all international household

goods shipments moved by the top 50 carriers by total weight shipped

during fiscal years 1989, 1990, and 1991. These carriers moved 75.2 percent

of all containerized international shipments moved by DOD in fiscal year

1989, 76 percent of those moved in 1990, and 71.9 percent of those moved

in 1991. We found that the average level of loss and damage to these

shipments varied according to carrier.

For example, the percentage of these shipments incurring claims during

these 3 fiscal years ranged from slightly under 9 percent for the

best-performing carrier to over 30 percent for the worst, with the average

varying between 22 percent and 24 percent for each fiscal year. The

average amount of claim paid by DOD to the military servicemember also

varied widely by carrier, ranging from $580 for the best-performing carrier

to more than $1,200 for the worst, with averages ranging from $779 to

$898.

Such variations in carrier performance contributed to our difficulty in

determining a separate charge that would be fair and adequate for all

carriers. A high separate charge would result in significant revenue

increases for the better-performing carriers, while revenue for a low

performer would be inadequate to cover costs associated with increased

liability.

Expected Impact on

Performance

To determine an appropriate separate charge for the $1.25 rate, an

evaluation must first be made of the rate’s expected impact on the amount

DOD would recover from carriers. We believe that application of the $1.25

rate to international shipments would have a similar impact on the

percentage of the amount of claims paid recovered from carriers as it did

for domestic shipments. DOD claims officials told us that no differences

exist between domestic and international shipments with regard to the

procedures used for determining the amount of the claim to be paid to the

servicemember—only the method for calculating the carrier’s liability is

different.

Our analysis of Air Force, Army, and Marine Corps claims data showed

that application of the $1.25 rate to domestic carrier liability caused DOD

Page 38 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

recovery from these carriers to increase from less than 30 percent of the

amount of claim paid to an average of about 65 percent. Among the

services, after implementing the $1.25 rate, only the Air Force achieved

and maintained the expected recovery level of 78 percent of the amount of

claims paid. We assumed a recovery effectiveness rate of 69 percent of the

amount of claim paid for developing our compensatory rate estimates for

overseas shipments. We chose this recovery rate rather than the

78 percent used by Project REVAL and demonstrated by the Air Force on

domestic shipments because (1) it was the highest combined single-year

recovery rate achieved by the services on domestic shipments under

increased carrier liability during fiscal years 1988 through 1991 

(see table 2.4) and (2) military service recovery for overseas shipments is

less effective than for domestic shipments.

We determined that, on average, an appropriate compensatory rate could

range from $1.50 to $2.04 per $100 of shipment valuation,3

 depending on

the criteria used. For example, our computerized analysis of claims data

showed that a compensatory rate of $1.50 would result in carriers paying

37 percent of total claims costs and DOD 63 percent for a government

savings of $5.7 million per year if carriers performed like they did during

fiscal years 1989 through 1991. However, at this rate, almost no carriers

would have sufficient compensatory payments to cover their claims costs,

and consequently would have to raise their transportation charges,

improve their performance, or absorb the loss. At $1.69, about 5 of the 50

carriers we reviewed would have sufficient revenues to cover their claims

costs, carriers would pay 32 percent, and DOD 68 percent of claims costs,

with DOD savings of $4.4 million per year. At $2.04, at least 28 percent of

the carriers we reviewed would have sufficient revenues to cover claims

costs, and DOD savings would average almost $2 million per year. Table 3.2

shows the impact of these compensatory rates on DOD costs for

international household goods shipments.

3

This rate makes no provision for additional payment to carriers for the increased liability based on a

percentage of storage in transit costs. Carrier industry officials told us that, unlike domestic agents,

many foreign agents responsible for final delivery and storage of international household goods

shipments are unwilling to assume any liability for shipment loss or damage. The method we used to

calculate the rate was adjusted to include these payments.

Page 39 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

Table 3.2: Impact of the $1.25 Rate on

DOD Costs at Varying Compensatory

Rate Levels (Constant Fiscal Year 1993

Dollars)

Dollars in millions

Old $0.60

rate

New $1.25 rate

at $1.50

compensatory

rate

New $1.25 rate

at $1.69

compensatory

rate

New $1.25 rate

at $2.04

compensatory

rate

Claims paid by DOD $32.5 $32.5 $32.5 $32.5

Less recovery from

carriers

–6.2 –22.5 –22.5 –22.5

Plus compensatory

payment for

increased liability

0 10.6 11.9 14.4

Total DOD claims

cost

$26.4 $20.6 $22 $24.5

Percent paid by

DOD

81 63 68 75

Percent paid by

carriers

19 37 32 25

Note: Figures are based on average performance levels, all services, fiscal years 1989-91. Totals

may not add due to rounding.

Carriers whose claims would not be fully covered by the separate charge

would have to improve their performance, absorb the loss, or cover their

claims costs through higher transportation rates. Carriers with continued

poor performance would probably be forced to increase their

transportation rates, thus becoming less competitive in obtaining

contracts for the movement of DOD household goods shipments. Carrier

selection for DOD business would then be more closely aligned with the

cost and quality of the service rendered.

These calculations were not adjusted to give consideration to other carrier

costs that could change as the result of the increased liability (such as

insurance premiums and administrative costs). These costs vary by carrier

and are difficult to substantiate and measure.

Impact of the

Temporary $1.80 Per

Pound Per Article

Rate

DOD did not implement the $1.25 rate for international shipments in

October 1993 as proposed. Instead, it increased carrier liability on these

shipments on an interim basis to $1.80 per pound per article, pending the

completion of our review.

We could not evaluate the impact of the $1.80 rate because insufficient

time has passed to accumulate adequate shipment and claims data for

Page 40 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

such an analysis. The maximum effect of this increase would be to triple

recoveries from carriers since the rate itself was tripled 

(3 X $0.60 = $1.80). However, carrier industry officials told us they

expected this rate would result in recoveries being increased by a factor of

2 to 2.5 times current levels rather than tripling them. This would occur

largely because the replacement or repair costs of some heavier, relatively

low-cost items would be more than $0.60 times the item weight, but less

than $1.80 times the item weight.

The $1.80 does represent a substantial increase in carrier liability. If this

rate does cause recoveries to increase by a factor of 2 to 2.5, then the

amounts recovered from carriers would increase from a high of about

24 percent of the amount claimed on Air Force international shipments

during fiscal years 1988 to 1991 at the $0.60 rate, to a maximum of about 

48 to 60 percent under the $1.80 rate. By contrast, under increased liability

at the $1.25 rate (with a compensatory payment to carriers of $1.69 per

$100 shipment valuation) we estimate carriers would be responsible for

about 32 percent of shipment loss and damage costs during the 3-year

introductory period if the military services improve overall recovery

effectiveness to an average of 69 percent of the amount of claim paid.

Removing the compensatory payment after 3 years would result in carriers

then being responsible for about 69 percent of shipment loss and damage

costs.

Whether the $1.80 rate will reduce overall government costs depends on

whether and to what degree carriers might increase their transportation

rates to obtain additional revenue with which to pay increased claims

costs. According to DOD and industry officials, transportation rates bid by

the carriers did not increase with the implementation of $1.80 per pound

per article liability. However, carrier representatives told us this was due

to major decreases in the steamship transportation rates paid by carriers.

Carrier Industry

Opposes the Proposed

Change

Carrier industry officials are generally opposed to the $1.25 rate proposed

by DOD. They believe this rate would be inappropriate for international

shipments because (1) no determination has been made that the 

$1.25 liability rate actually reduces program costs, (2) the international

and domestic programs are so different as to prevent meaningful

comparison, and (3) changing carrier liability to the $1.25 rate would result

in severe industry disruption.

Page 41 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

First, carrier industry officials have acknowledged that increasing carrier

liability would reduce DOD claims costs. But they questioned whether this

would result in a reduction in overall program costs. They said that

limiting carrier liability allowed carriers to keep transportation rates low,

and that these lower rates might well offset any savings in claims costs.

Overall government costs thus might be lower at $0.60 per pound per

article than with a higher liability rate. However, our analysis showed that

overall government costs on domestic shipments were lower under

increased liability (see ch. 2).

Furthermore, as noted in chapter 1, carrier industry officials told us that

raising carrier liability for DOD household goods shipments was unfair

because military servicemember claims for lost or damaged household

goods are settled by the military services. In commercial practice, the

carrier usually settles such claims directly with the owner. The carrier

industry believes that military claims settlement is too generous, and

results in excessive claims payments. Carrier industry officials told us that

liability based on per pound per article tended to protect carriers from the

high costs associated with military claims settlement, and that increased

carrier liability would simply allow DOD to pass these payments on to

carriers.

Under increased liability DOD still pays more than half of all claims costs.

Therefore, we believe carriers are compensated for any additional claims

costs resulting from military claims settlement. Furthermore, our analysis

of military service claims data showed that, on average, military claims

offices authorize payment for about 66 percent of the amount claimed by

servicemembers. Although this may be more than would be allowed under

carrier settlement, we do not believe it results in excessive claims costs

for carriers.

Second, carrier industry officials told us that the risks associated with

international household goods shipments are vastly different than those

for domestic shipments. They said international shipments are usually in

transit for much longer periods of time than domestic shipments, handled

by more parties, and subjected to more loading, unloading, and other

movement in transit (such as ship roll) than domestic shipments. They

also said that other factors, such as limited control over shipping lines and

destination agents, foreign laws and customs, and varying currency

exchange rates all cause international carriers to have much less direct

control over shipments for which they are liable.

Page 42 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

We agree that risks and costs are generally higher for overseas shipments,

but these costs vary between carriers and routes. Also, compensatory

payments for international shipments could be set higher than those for

domestic shipments ($1.50 to $2.04 for international shipments compared

to $0.64 plus 10 percent of storage in transit costs for domestic

shipments). In any event, carriers continue to have the option to adjust

their transportation rates to compensate for such costs.

Third, carrier industry officials told us that many overseas carriers would

be unable to develop accurate claims cost estimates under the $1.25 rate.

Because carrier liability for overseas DOD shipments has been based on a

per pound per article basis, many carriers have had no claims experience

with the $1.25 rate. This is particularly the case for carriers we interviewed

that handle only DOD international shipments. Overestimation of their

claims costs under the new rate might cause carriers to raise their

transportation rates too much and consequently lose government traffic to

competing carriers. On the other hand, underestimation could result in

inadequate revenues to cover costs.

Carrier industry officials also told us that the carrier industry was

overbuilt and financially stressed, that the number of DOD overseas

shipments was declining, and that making major changes now in the way

carrier liability is computed for international shipments could lead to

many carrier bankruptcies, which in turn result in disruption of both the

industry and DOD operations. They said that any increase in carrier liability

for these shipments should be kept on a pound-per-article basis, and that

DOD should collect and review claims at the current temporary carrier

liability rate of $1.80 per pound per article before making any changes.

We believe the payment of a compensatory rate for at least 3 years would

avoid industry disruption and allow carriers adequate time to obtain

sufficient claims experience under increased liability to enable adjustment

of their transportation rates. After 3 years, MTMC and the military services

should also have sufficient claims data to determine what level of carrier

liability is desired and whether the compensatory rate should be adjusted

or terminated.

Conclusions The maximum carrier liability rate of $0.60 per pound per article for

international household goods shipments is too low. At this rate, carriers

have limited incentive to improve performance, and the government bears

a disproportionate percentage of household goods claims costs. The 

Page 43 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

$1.25 rate would more fairly allocate claims costs between DOD and the

carriers. However, industry disruption may occur unless this rate is

accompanied by a temporary compensatory payment.

Recommendation to

the Secretary of

Defense

We recommend that the Secretary of Defense direct the Commander of

MTMC to increase carrier liability to the $1.25 rate on international

household goods shipments after providing notice to carriers through the

Federal Register. However, we also recommend that this rate be

accompanied by a compensatory payment for 3 years, or until sufficient

claims data is available to permit carriers to file transportation rates that

will adequately compensate them for the increased risk they would

assume.

Comments From the

Department of

Defense

DOD concurred with our findings and recommendation. Its comments

indicated that the Secretary of Defense will direct MTMC to increase carrier

liability on international household goods shipments made on or after

October 1, 1995. MTMC subsequently notified carriers through the Federal

Register, dated February 16, 1995, that as of October 1, 1995, it intended to

increase carrier liability on international shipments to the $1.25 rate with a

compensatory rate of $1.28 per $100 of shipment valuation.

Comments From the

Carrier Industry

Both the AMC and the Household Goods Forwarders Association of

America, Inc. (HHGFAA), disagreed with our findings and recommendation.

In commenting on this report, the AMC said that carrier liability should not

be increased to the $1.25 rate on international shipments because nothing

was achieved by increasing carrier liability on domestic shipments except

that liability for shipment loss and damage was transferred from DOD to the

carrier. The AMC said that if the $1.25 rate is implemented for international

shipments, MTMC should pay a valuation charge (compensatory rate) of

$2.31 per $100 of shipment valuation. It further said that if MTMC is

unwilling to pay this level of compensation, then carrier liability should be

returned to the $0.60 per pound per article rate.

We believe the $2.31 compensatory rate proposed by the AMC is too high

and would provide little incentive for carriers to reduce shipment damage

and loss. This rate would cause carriers to pay higher claims costs initially,

but would also result in DOD reimbursing them for the added cost. The

overall financial impact on both DOD and the carrier industry would thus

remain unchanged. The better performing carriers would realize windfall

Page 44 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

profits, the average carrier would break even, and only the worst

performing carriers would have incentive to improve. We believe the

compensatory rate should be designed to fully compensate only the better

performing carriers. Other carriers would have to improve their

performance, increase their transportation rates, or absorb the loss.

Changing carrier liability is pointless unless it will have a significant

monetary impact on both DOD and the carriers.

Woven throughout carrier industry comments is the theme that increasing

carrier liability actually does little more than to transfer claims costs to the

moving industry. This is exactly what DOD has attempted to do. DOD has

historically borne a disproportionately large share of claims costs.

Increasing carrier liability would transfer a greater portion of the costs

associated with damaged and lost household goods to the industry

responsible for the problem. Even under increased liability, DOD would still

be paying at least 20 percent of claims costs.

The carrier industry further stated that carriers should be allowed to settle

claims for loss and damage directly with servicemembers. They noted that

it is common commercial practice for the carrier to settle claims directly

with the shipper, and that DOD claims settlement is too generous. DOD

officials told us that carriers had been allowed to settle claims directly

with servicemembers in the past, but that this practice had been

discontinued because DOD believed many settlements had been unfair.

Carriers currently can and often do offer servicemembers cash for losses

and damage at the time of shipment delivery in an attempt to avoid the DOD

claims settlement and recovery process. Furthermore, adopting

commercial claims settlement practices would be much more appropriate

if commercial practices were also applied in selecting carriers for DOD

shipments. The current process for awarding DOD business to carriers is

regulated in such a way as to place more emphasis on low transportation

rates and spreading DOD business over a large number of carriers than it is

toward awarding more shipments to those carriers providing the best

service and value for the cost.4

 In any event, carriers can fully compensate

for any increased costs associated with DOD claims settlement practices by

increasing their transportation rates.

4

Issues and recommendations regarding the selection of carriers for moving DOD shipments are

addressed in Household Goods: Competition Among Commercial Movers Serving DOD Can Be

Improved (GAO/NSIAD-90-50, Feb. 12, 1990), DOD Commercial Transportation: Savings Possible

Through Better Audit and Negotiation of Rates (GAO/NSIAD-92-61, Dec. 27, 1991), and Defense

Transportation: Commercial Practices Offer Improvement Opportunities (GAO/NSIAD-94-26, Nov. 26,

1993).

Page 45 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

The HHGFAA objected to any increase in carrier liability for international

shipments. It said carrier liability for these shipments should not be

increased, primarily because we had not evaluated the impact of (1) the

October 1993 increase in carrier liability from $0.60 per pound per article

to $1.80 per pound per article, (2) MTMC’s Total Quality Assurance

Program, or (3) the High Risk Protection Program implemented by the

carrier industry. The HHGFAA also said that domestic and international

shipments are so different that experience with the $1.25 rate on domestic

shipments should not be used as a basis for applying this liability rate to

international shipments. The HHGFAA suggested leaving the liability rate at

$1.80 per pound per article until such time that we could perform a

statistical evaluation of this rate’s impact on claims costs.

MTMC increased the carrier liability rate on international shipments from

$0.60 per pound per article to $1.80 per pound per article as an interim

measure pending the outcome of our study. It was intended only to give

temporary relief to DOD, which had been bearing a disproportionate share

of claims costs for years. As discussed in this chapter, we could not review

the impact of the $1.80 per pound per article rate because inadequate time

has passed to accumulate shipment and claims data to make a meaningful

analysis. We did generally discuss the potential impact of the $1.80 rate.

However, we are opposed to the retention of carrier liability based on a

per pound per article rate because it results in carrier liability being based

on a lost or damaged article’s weight rather than its value. As stated

earlier, this has the costly impact of DOD paying servicemember claims on

the basis of an item’s value or repair cost, while recovering from carriers

on the basis of item weight. Carrier liability for high-value, low-weight

items is greatly limited on the very items that tend to be easily damaged or

are often the target of shipment pilferage. During this review we did do

some audit work regarding MTMC’s Total Quality Assurance Program and

the carrier industry’s High Risk Protection Program. In this chapter we

acknowledged that these programs had potential for affecting claims

costs. However, we could not determine whether or to what degree they

actually impact these costs because both were implemented only recently

and there has been inadequate time to accumulate the claims data needed

for such an evaluation. Furthermore, the work we performed revealed that

MTMC’s Total Quality Assurance Program is being affected by several

implementation problems, and that its effectiveness and appropriateness

as a tool for assuring quality moves is presently unclear.

We agree with the HHGFAA that risks and costs are generally higher for

international shipments than for domestic shipments. However, the

Page 46 GAO/NSIAD-95-48 DOD Household Goods
Chapter 3 

Carrier Liability for International Shipments

Needs to Be Increased

carrier, not DOD, is still responsible for loss and damage occurring while

household goods are under its control, including handling by destination

agents or other subcontractors used by the carrier. The carriers should

build the cost of such risks into their transportation rates. Furthermore,

while differences may exist with regard to the amount of carrier risk

associated with domestic as opposed to international shipments, the

process for adjudicating claims for loss and damage is the same. The issue

is what liability rate should be applied. If DOD decides that it should

assume more liability for loss and damage and the carriers less, then it

should do so by lowering the $1.25 rate to $1.10 or some other level rather

than retaining a liability system based on the weight of the items shipped

instead of their value.

Page 47 GAO/NSIAD-95-48 DOD Household Goods
Chapter 4 

Problems Need to Be Addressed for

Increased Liability to Be Fully Effective

Increasing carrier liability should result in reduced DOD costs and

improved carrier performance. However, several problems affecting DOD’s

household goods programs need to be addressed for increased liability to

achieve its intended effectiveness. These include the lack of shipment and

claims data necessary for managing the household goods program,

variances in cost recovery effectiveness among the military services,

questionable performance bond and insurance collection procedures, and

an unnecessarily long statutory period for filing household goods claims.

MTMC Data Is

Inadequate

MTMC needs accurate household goods shipment and claims cost data to

meet its responsibilities for overall household goods program

management, determine cost effectiveness, and make program changes as

needed. However, MTMC’s household goods program database has major

problems that prevent DOD officials from obtaining adequate information

to effectively manage many aspects of this program.

MTMC officials do not have adequate information with which to evaluate

individual carrier performance. MTMC obtains periodic reports from the

military service Judge Advocates General that include data on the number

and amount of claims paid for loss and damage to household goods

shipments, and stores this information in computerized data banks. We

compared computerized household goods claims data we obtained

directly from the military service Judge Advocates General with that

stored by MTMC for shipments moved during fiscal years 1986 through 1991.

We found that MTMC claims data has major omissions. For example, the

MTMC database was always missing at least 28 percent of the claims paid

and claims recovered data on Air Force shipments made between fiscal

years 1986 and 1991, and at least 40 percent of similar data for the Army

between fiscal years 1988 and 1991. MTMC officials told us that most of the

similar data from the Navy and the Marine Corps had not been submitted

to MTMC in fiscal years 1990 and 1991. Officials from MTMC’s Traffic

Management Analysis Division told us they considered MTMC’s household

goods claims data so unreliable as to prevent meaningful analysis.

We also found that MTMC does not track some costs essential to evaluating

increased liability effectiveness. For example, in exchange for the

increased liability on domestic household goods shipments, MTMC has

since 1987 paid carriers a separate charge of $0.64 per $100 shipment

valuation plus 10 percent of certain storage in transit charges. We found

the MTMC database does not capture what costs are paid as a result of the

Page 48 GAO/NSIAD-95-48 DOD Household Goods
Chapter 4 

Problems Need to Be Addressed for

Increased Liability to Be Fully Effective

storage in transit calculation, and therefore, MTMC could not determine its

total costs for the increased liability. We had to review actual shipment

records stored at the General Services Administration to determine these

costs. We also found numerous other technical problems with portions of

MTMC’s household goods database; these problems greatly limit MTMC’s

oversight of the program’s performance characteristics and cost.

More Emphasis Is

Needed on Military

Service Recovery

Activities

After military service claims offices adjudicate and pay servicemember

claims for loss and damage on household goods shipments, the military

services attempt to recover these costs from carriers up to the extent of

the carrier’s liability. Chapter 2 describes how military service recovery

effectiveness varied under increased carrier liability on domestic

shipments, with only the Air Force attaining the Project REVAL recovery

goal of 78 percent of the amount of claims paid. As a result, DOD savings

were about $3.2 million less than if all the military services had performed

recovery as effectively as the Air Force.

We found that recovery effectiveness varied between the services under

other types of liability and shipments as well. Many of the carriers we

visited told us that Air Force claims recovery was highly effective, and was

attributable to its use of well-trained and knowledgeable personnel. They

said the effectiveness of recovery activities performed by the other

services was mixed.

Our review of household goods shipment claims data confirmed that the

Air Force generally asserted and recovered a higher percentage of the

amount of claim paid than did the other military services, regardless of the

type of carrier liability. DOD officials told us that the nature of household

goods shipments varied little between the military services and that

recovery effectiveness should also be very similar. However, military

claims officials told us that problems such as personnel shortages, poor

coordination between claims offices, claims backlogs, specific office

performance problems, and lost or misplaced payments from carriers had

affected some services in the past and that these had a negative impact on

their recovery effectiveness.

We believe these problems may continue to affect military service

recovery activities. For example, one carrier told us that a recent review of

their bank records revealed that 34 checks totaling $6,820 sent to DOD as

the result of recovery actions between 1990 and 1993 had not been cashed.

The same carrier also identified 13 more payments to DOD during 1994

Page 49 GAO/NSIAD-95-48 DOD Household Goods
Chapter 4 

Problems Need to Be Addressed for

Increased Liability to Be Fully Effective

totaling $1,895 that were still outstanding 2 to 4 months after check

issuance.

Effective recovery of claims costs by the military services is essential for

increased carrier liability to fully meet its goals of reducing claims costs

and increasing carrier incentive for preventing shipment loss and damage.

This is particularly the case since DOD is paying carriers an additional

separate charge in exchange for the increased liability on domestic

shipments, and may do so on future overseas shipments. DOD therefore

needs to place increased emphasis on recovery activities in order to

achieve and maintain levels closer to those demonstrated by the Air Force.

Carrier Bonding and

Insurance Needs to Be

Reviewed

MTMC requires carriers to purchase cargo insurance before giving them

approval to move DOD domestic household goods shipments, and both

cargo insurance and performance bonds are required for approval to move

DOD international shipments. DOD thus protects itself from losses and costs

that might occur if a carrier goes bankrupt and does not complete a move

as contracted, or completes the move and receives payment, but leaves

claims for damage unresolved. Increased carrier liability and other facets

of MTMC’s household goods programs are increasing the level of

government funds at risk. However, past government actions to recover

the cost of losses associated with carrier bankruptcies have often been

inadequate. To ensure that the savings potential of increased liability is

fully realized, we believe DOD needs to (1) place increased emphasis on

bond and insurance collection from carriers and (2) review carrier

bonding and insurance requirements.

Increased Carrier Liability

Increases Funds at Risk

In chapter 2, we described how carriers are subject to potentially greater

DOD claims costs under increased liability. DOD pays carrier transportation

charges after shipment delivery. Most recoveries are made within about 

2 years of shipment delivery, but military claims offices sometimes incur

claims backlogs. By statute, servicemembers have 2 years in which to file

claims against the government, and DOD has 6 years from shipment

delivery to initiate recovery from carriers. More government funds are at

risk under increased liability because (1) more is potentially recoverable

and (2) carriers are also paid a separate charge for the increased liability

shortly after shipment delivery.

Page 50 GAO/NSIAD-95-48 DOD Household Goods
Chapter 4 

Problems Need to Be Addressed for

Increased Liability to Be Fully Effective

Past Recoveries of

Bankruptcy Losses Have

Been Inadequate

Although at least 61 carriers approved to move DOD shipments have

declared bankruptcy or ceased to exist since 1980, government actions to

recover costs incurred as a result of these bankruptcies and terminations

have so far been inadequate. According to MTMC officials, the government

sought reimbursement under only one performance bond—collecting

$17,215 of the $36,014 owed by a bankrupt carrier in late 1993.

MTMC officials told us that bond collections had never been effective,

primarily because MTMC and the General Services Administration, which

jointly shared collection responsibility, never established workable

collection procedures. We could not determine the extent of funds lost.

MTMC officials told us efforts were underway to improve bond collections

and that MTMC would be solely responsible for its own bond collections in

the future. Two additional bond collection attempts had been initiated, but

none completed, by the time we concluded our review in November 1994.

MTMC Insurance and

Bonding Requirements

Need Review

In addition to the increased liability, other factors arising from the highly

competitive nature of the household goods carrier industry are increasing

DOD’s financial risk, particularly on international shipments.

First, both MTMC and industry officials told us that there are too many

carriers competing for a decreasing amount of DOD household goods

movement business. As of 1993, there were 1,227 domestic and 

147 overseas carriers approved by MTMC for moving DOD household goods

shipments. Declining levels of DOD shipments is increasing carrier

competition, and forcing many carriers into a weak financial condition.

Carrier industry officials told us that since claims may not be addressed

until several years after a shipment is completed, many carriers do not set

aside sufficient funding to cover claims, instead expecting to cover these

costs out of their cash flow from new shipments. Declining shipment

levels increase the likelihood of some carriers being forced into

bankruptcy. Furthermore, we noted that many overseas carriers rely on

winning DOD shipment contracts since they have no commercial household

goods shipment business.

Second, both carrier industry and MTMC officials acknowledged a growing

tendency for some carriers to adopt a business strategy of going out of

business. Some carriers have bid unusually low rates to win DOD business,

received payment for moving a number of shipments, and then declared

bankruptcy, leaving a large unpaid claims liability. Some of these carriers

Page 51 GAO/NSIAD-95-48 DOD Household Goods
Chapter 4 

Problems Need to Be Addressed for

Increased Liability to Be Fully Effective

then reenter the business under a new carrier name, and apply for new

MTMC carrier approval.

Many of the carrier industry officials we interviewed told us they believed

MTMC carrier approval requirements were too lax. MTMC officials

acknowledged they rely heavily on bonding and insurance companies to

evaluate the financial suitability of carriers before approving them for DOD

shipments. Both MTMC and carrier industry officials told us that some

disreputable carriers were taking advantage of weak MTMC approval and

collection processes to employ business strategies of going out of

business. They said that the low rates bid by such companies were making

it difficult for reputable carriers to stay in business.

This problem is exacerbated by MTMC’s provision of an incentive to the

low-bidding carrier of as much as 30 percent to 50 percent of the traffic on

international routes. This incentive is designed to reduce DOD

transportation costs through increased carrier competition, and to reward

the carrier bidding the lowest rate. However, DOD must ensure that

adequate bonding and insurance levels and collection procedures are in

place to cover shipment and liability costs in the event of carrier

bankruptcy. Otherwise, the government is vulnerable to significant

financial losses. For example, one carrier underbid all others on many

routes for several years. At one point, this carrier was moving more than a

fourth of all DOD overseas household goods shipments. According to DOD

officials, this carrier then went bankrupt, leaving about $7 million in

outstanding claims liabilities. DOD and insurance companies are presently

involved in legal action regarding this matter, and DOD has not yet

recovered any of these funds.

Statute of Limitations

Appears Needlessly

Long

Under the provisions of 31 U.S.C. 3721, federal employees have 2 years to

file claims for loss and damage to personal property, including household

goods. Prior to 1952, the statutory period was 1 year. The period was

extended to 2 years to achieve consistency with other claims statutes.

The 2-year period for filing household goods claims appears needlessly

long. As discussed in our 1989 report on DOD household goods claims

payment and recovery activities, the 2-year period contributes to claims

management and adjudication problems, prevents carriers from making

timely adjustments to their transportation rates, and causes increased

government costs. Making timely adjustments to transportation rates will

be even more important to carriers under increased carrier liability. Nearly

Page 52 GAO/NSIAD-95-48 DOD Household Goods
Chapter 4 

Problems Need to Be Addressed for

Increased Liability to Be Fully Effective

all the carriers we visited said the statute needed to be shortened to a year

or less. They told us that by contrast, claims on commercial shipments

must be filed within 9 months of shipment delivery. DOD claims officials

generally acknowledged that claims requiring more than 1 year to file

usually involved servicemember procrastination.

We analyzed Army and Air Force claims data for fiscal years 1988 through

1991 to determine the average amount of time required between shipment

delivery and the filing of claims. We found that in each fiscal year, more

than 60 percent of all claims filed were filed within 6 months of shipment

delivery, and over 80 percent within 1 year of shipment delivery. For

example, table 4.1 shows the amount of time in months between shipment

delivery and claims filing for combined domestic and international

household goods claims for the Air Force, Army, and Marine Corps in

fiscal year 1991.

Table 4.1: Rate of Household Goods

Claims Filings, Fiscal Year 1991 Months Filings Percent Cumulative filings Cumulative percent

3 23,310 35.6 23,310 35.6

6 19,133 29.2 42,443 64.9

9 8,578 13.1 51,021 78.0

12 5,107 7.7 56,128 85.8

15 3,228 4.9 59,356 90.7

18 2,095 3.2 61,451 93.9

21 1,556 2.4 63,007 96.3

24 1,253 1.9 64,260 98.2

over 24 1,173 1.8 65,433 100.0

DOD officials told us that the 2-year statute of limitations encourages some

servicemembers to take longer than necessary to file their claims. This

tends to increase the already long gaps between the time household goods

shipments occur and the time claims data for evaluating costs and carrier

performance is available. Claims processing and recovery by the military

services often takes an additional 5 months or longer. Both DOD claims

officials and carriers told us that long delays in filing household goods

claims can result in claims settlement or recovery problems.

Unnecessary delays in filing claims also exacerbate carriers’ problems in

obtaining the claims recovery cost information they need to adjust their

rates in a timely fashion. MTMC requires household goods carriers to bid on

transportation rates for contracts to transport DOD household goods

Page 53 GAO/NSIAD-95-48 DOD Household Goods
Chapter 4 

Problems Need to Be Addressed for

Increased Liability to Be Fully Effective

shipments 6 months prior to the beginning of the 6-month period these

rates will be in effect. Increased carrier liability is resulting in increased

carrier costs and consequently a greater need for timely adjustment of

rates.

As discussed in our 1989 report, delays in filing household goods claims

increase government costs. Late-filed claims are generally more difficult to

process and consequently increase administrative costs. DOD also cannot

conduct recovery activities and reuse the funds thus obtained until

servicemember claims are filed and processed. The availability of these

funds and the amount of interest cost to the government thus depend

largely on the amount of time required for servicemembers to file their

claims. We therefore believe that this statute—insofar as it pertains to

household goods claims—should now be changed to allow a maximum of

1 year for filing household goods claims. A draft of the proposed statutory

changes is included in appendix IV.

Conclusions Increased carrier liability for loss and damage on household goods

shipments increases the amount of money recoverable from carriers and

consequently increases the importance of DOD activities and procedures

designed to facilitate recoveries from carriers. DOD needs to address

problems regarding household goods shipment claims data, reduce

variances in military service recovery effectiveness, and review carrier

bond and insurance levels and collection procedures in order to fully

realize the savings potential offered by increased carrier liability. Increases

in the amount of money recoverable from carriers also makes timely

recovery of these funds even more essential so as to reduce government

costs and enable carriers to adjust transportation rates on a more timely

basis.

Recommendations to

the Secretary of

Defense

We recommend that the Secretary of Defense take the following actions:

• Direct the Commander of MTMC to (1) correct inaccuracies in the MTMC

household goods program database regarding claims payments and

recoveries and (2) develop the procedures required to determine overall

household goods program costs.

• Direct the military services to periodically report complete household

goods claims and recovery data to MTMC.

• Direct the Secretaries of the Army and the Navy to increase the emphasis

placed on household goods claims recovery so as to increase these

Page 54 GAO/NSIAD-95-48 DOD Household Goods
Chapter 4 

Problems Need to Be Addressed for

Increased Liability to Be Fully Effective

military services’ recovery effectiveness to approximately the level

demonstrated by the Air Force.

• Direct the Commander of MTMC to review household goods program

carrier bonding and insurance requirements and collection procedures to

ensure that these are adequate to protect government interests under

increased carrier liability.

Matter for

Congressional

Consideration

We continue to believe that shortening the statute of limitations for filing

claims for loss and damage to household goods shipments would facilitate

claims adjudication, enable more timely carrier adjustments to

transportation rates, and reduce government costs without imposing

undue hardship on military servicemembers or civilian employees.

Therefore, we again recommend that the statute—insofar as it pertains to

household goods claims—be changed to limit the time allowable for filing

claims to 1 year after the claim accrues.

Comments From the

Department of

Defense

DOD concurred with our findings and recommendations to them.

Subsequent to our fieldwork, MTMC began working with the military

services to improve the completeness of its claims database. The Office of

the Secretary of Defense will direct the Commander, MTMC, to ensure that

all required program data is included in its database, and to review

household goods program carrier bonding and insurance requirements and

collection procedures. MTMC also began a DOD Personal Property

reengineering process designed to develop a program that is simpler to

administer, reduces the workload on transportation officers, and provides

the servicemember a full-service commercial-quality move. All the issues

discussed in our report will be addressed by this effort, which MTMC

expects to complete by September 30, 1995. DOD’s comments also stated

that the Office of the Secretary of Defense will direct the military services

to ensure that all required claims data is provided to MTMC and will address

the need for the services to emphasize claims recovery actions.

DOD did not concur with our recommendation that the Congress consider

shortening the statute of limitations for filing household goods claims for

loss and damage to 1 year. DOD supported this proposal when it was

originally recommended in our 1989 report. However, it now believes this

statute should not be shortened (1) so as to maintain consistency with

other claims statutes with a 2-year statute of limitations and (2) because it

believes some servicemembers on long operational deployments or

overseas assignments might have difficulty filing claims within a 1-year

Page 55 GAO/NSIAD-95-48 DOD Household Goods
Chapter 4 

Problems Need to Be Addressed for

Increased Liability to Be Fully Effective

period, thus negatively impacting quality of life issues that DOD is working

to enhance.

Although a 1-year statute for filing household goods claims would create

an inconsistency with the 2-year period allowed for other types of claims,

we believe several unique factors affecting DOD household goods claims

settlement warrant the exception. First, the period allowed for filing

claims on DOD shipments is much longer than the 9-months maximum

allowed for commercial shipments. Second, DOD currently requires

servicemembers to report any damage to shipments within 75 days of

delivery. We believe that servicemembers should reasonably be able to

complete the process for filing a claim in the remaining 9-1/2 months of the

1 year statutory period. Third, we believe that since increased liability will

increase carrier claims costs and thus affect the transportation rates bid

by carriers, fairness dictates that claims resolution be performed as

quickly as practical.

Regarding claims filing difficulties caused by long deployments and

overseas assignments, we believe that military regulations implementing

the law permit DOD to provide relief in those rare instances when the

servicemember cannot reasonably file a claim in a timely manner. As

shown by table 4.1, about 85 percent of DOD claims are presently filed

within 1 year of shipment delivery, and DOD officials generally

acknowledged that most claims requiring more than 1 year to file involved

servicemember procrastination.

Comments From the

Carrier Industry

Both the AMC and the HHGFAA concurred that the statute of limitations for

filing household goods claims should be shortened. However, the HHGFAA

suggested shortening this statute to 9 months instead of 1 year so as to be

consistent with industry practices for filing claims on commercial

shipments. We believe a period of 1 year for filing claims is more

reasonable, considering the operational deployments and overseas

assignments cited in DOD’s comments.

The HHGFAA stated that it disagreed with our proposal that performance

bonds and cargo insurance for DOD household goods shipments be

increased. It also said that performance bonds do not cover the payment

of loss and damage claims, only those costs incurred by DOD for the

onward movement of shipments stranded as the result of carrier

bankruptcy.

Page 56 GAO/NSIAD-95-48 DOD Household Goods
Chapter 4 

Problems Need to Be Addressed for

Increased Liability to Be Fully Effective

Our report did not specifically recommend that cargo insurance and

performance bonding levels be increased. It did recommend that MTMC

review carrier bonding and insurance requirements to enable the recovery

of any losses caused by carrier bankruptcies. We believe MTMC should

review both the types and levels of carrier bonding and insurance

requirements because of the increased government risk associated with

increased carrier liability, the business strategies of going out of business

being employed by some carriers, and questions regarding the adequacy of

carrier capitalization. We did not make more specific recommendations in

this area because MTMC acknowledged these problems and now has actions

underway designed to identify and implement the specific changes

needed.

Page 57 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Page 58 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Page 59 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Now on pp. 3 and 12-15.

Now on pp. 18-24.

Page 60 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Page 61 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Now on pp. 4 and 25-26.

Page 62 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Now on pp. 4 and 27-28.

Now on pp. 3 and 32.

Page 63 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Now on pp. 4 and 33-34.

Page 64 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Page 65 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Now on pp. 4 and 35-37.

Page 66 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Now on pp. 4 and 37-39.

Page 67 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Now on pp. 3 and 40-41.

Page 68 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Page 69 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Now on pp. 5 and 41-43.

Page 70 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Now on pp. 5 and 48-49.

Page 71 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Now on pp. 5 and 49-50.

Page 72 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Now on pp. 5 and 50-52.

Page 73 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Page 74 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Now on pp. 5 and 52-54.

Now on pp. 5 and 28.

Page 75 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Now on pp. 6 and 44.

Now on p. 54.

Now on p. 54.

Now on p. 55.

Page 76 GAO/NSIAD-95-48 DOD Household Goods
Appendix I 

Comments From the Department of Defense

Now on p. 55.

Now on pp. 6 and 55.

Page 77 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 78 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 79 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 80 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 81 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 82 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 83 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 84 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 85 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 86 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 87 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 88 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 89 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 90 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 91 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 92 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 93 GAO/NSIAD-95-48 DOD Household Goods
Appendix II 

Comments From the American Movers

Conference

Page 94 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 95 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 96 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 97 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 98 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 99 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 100 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 101 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 102 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 103 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 104 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 105 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 106 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 107 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 108 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 109 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 110 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 111 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 112 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 113 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 114 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 115 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 116 GAO/NSIAD-95-48 DOD Household Goods
Appendix III 

Comments From the Household Goods

Forwarders Association of America

Page 117 GAO/NSIAD-95-48 DOD Household Goods
Appendix IV 

Draft of Proposed Statutory Changes

We propose that 31 U.S.C. 3721(g) be modified as follows:

(g) A claim may be allowed under this section only if it is presented in

writing within 2 years after it accrues, except that a claim for damage to,

or loss of, personal property in a government-arranged or reimbursed

commercial shipment or storage accruing after [DATE] may be allowed

only if such claim is presented in writing within 1 year after it accrues.

However, if a claim under subsection (b) of this section accrues during

war or armed conflict in which an armed force of the United States is

involved, or is not yet untimely under this subsection at the time a war or

an armed conflict begins, and for cause shown, the claim must be

presented within 2 years (or, after [DATE], for claims involving damage to,

or loss of, personal property in a government-arranged or reimbursed

commercial shipment or storage, within 1 year) after the cause no longer

exists or after the war or armed conflict ends, whichever is earlier. An

armed conflict begins and ends as stated in a concurrent resolution of

Congress or a decision of the President.

Page 118 GAO/NSIAD-95-48 DOD Household Goods
Appendix V 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Edward M. Balderson, Assistant Director

Waverly E. Sykes, Assistant Director

William W. Cawood, Evaluator-in-Charge

Christina Quattrociocchi, Evaluator

Daniel C. Hoagland, Operations Research Analyst

Julia M. Kennon, Computer Specialist

Office of the Chief

Economist

Richard S. Krashevski, Senior Economist

Office of the General

Counsel

Michael D. Hipple, Senior Attorney

(703016) Page 119 GAO/NSIAD-95-48 DOD Household Goods
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. Orders for 100 or more copies to be mailed to a

single address are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 6015

Gaithersburg, MD 20884-6015

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (301) 258-4097 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Mail

Postage & Fees Paid

GAO

Permit No. G100
GAO/NSIAD-95-48 DOD Household Goods