Questions? GAO Presentation 2007 International Food Aid Conference Transportation Challenges That Impede the Efficiency of U.S. Food Aid Delivery

2 GAO Objectives To inform Congress as it begins the process of reauthorizing the food aid provisions of the 2007 Farm Bill, we examined some key challenges to the (1) efficiency of U.S. food aid programs and (2) effectiveness of the use of U.S. food aid. In this presentation, we focus on transportation issues relevant for improving efficiency of food aid in terms of cost, time and quality of food aid delivered.

3 GAO Methodology Our transportation-related findings are based on: Analysis of KCCO commodity and ocean transportation procurement data Structured interviews with the 14 U.S.- and foreign-flag ocean carriers that transport over 80 percent of U.S. food aid tonnage, supplemented by additional interviews with other ocean carriers, freight forwarders, and shipping agents Visits to the WFP headquarters in Rome, various ports, and prepositioning warehouses in Lake Charles and Dubai Interviews with numerous government officials, nongovernmental organizations, and transportation experts, including an expert roundtable held in early 2007 Conducted work between May 2006 and March 2007 in accordance with generally accepted government auditing standards

4 Food Aid Procurement and Transportation Are Costly and Time-Consuming Title II business costs now account for 65% of expenditures (business costs include inland and ocean transportation, in-country delivery, cargo handling and administration). As a share of total U.S. food aid procurement costs (commodity plus ocean transportation), ocean transportation has been rising – see figure. Delivering U.S. food aid from vendor to village requires, on average, 4 to 6 months.

5 Funding and Planning Processes Increase Costs and Lengthen Time Frames Agencies rely on uncertain supplemental funding - see figure. Although improving, agencies “bunch” procurement of food and transportation at the end of the fiscal year, which results in higher prices ($12 to $14 per ton difference between 1 st and 4 th quarters). Options to improve planning in an uncertain environment: Flexible procurement schedules Increased use of forecasting Communication/coordination Funding for USAID Food Aid Programs Fiscal Years 2002 to 2006

6 Transportation and Contracting Practices Increase Costs and Contribute to Delays Noncommercial and nonstandardized freight terms Example: Processed food booking note holds carriers responsible for logistical problems outside their control. Bulk contracts are nonstandardized. Impractical time requirements Example: Agencies are challenged to compel time performance from carriers, but contracts may also include impractical time requirements with penalties for delay. Lengthy claims processes Example: Transportation claims may take several years to get resolved and may have to be referred to the Department of Justice. Lengthy payment time frames and burdensome administration Example: Carriers reported that they may have to wait several months to get paid, though USAID disputes this claim.

7 Carriers’ Views on Costly Food Aid Transportation Practices and Recommended Improvements

8 Legal Requirements Can Increase Delivery Costs and Time Frames Procurement requirements, including cargo preference and the Great Lakes Set-Aside, can result in higher costs. Sufficiency of DOT cargo preference reimbursements varies - see figure. Vessels over 25 years old Shipments with no foreign- flag bid Additional costs of cargo preference estimated by agencies at about $34-56 million over last several years. Estimated Cargo Preference Ocean Freight Differential Costs and Department of Transportation Reimbursements to Food Aid Programs

9 Inadequate Coordination Limits Agency and Stakeholder Response to Food Delivery Problems Agencies have disparate quality complaint tracking mechanisms that monitor different levels of information such that food quality trends are unknown. Agency country offices are often unclear about their roles in tracking food quality, creating gaps in monitoring and reporting. There is no clear, coordinated process for seeking assistance when problems arise. Delays Led to Contamination of U.S. Food Aid in Durban, South Africa

10 U.S. Agencies Have Taken Measures to Improve Timeliness in Food Aid Delivery USAID has been stocking food commodities, or prepositioning them, in Lake Charles (Louisiana) and Dubai (United Arab Emirates) for the past several years and is expanding this practice. Challenges include: Higher costs for increased cargo loading and unloading Appropriateness of prepositioning locations Inventory management and cargo infestation Phytosanitary certification Regulations such as marking requirements for bags In February 2007, USAID and USDA implemented a new transportation bid process to increase competition and reduce procurement time frames.

11 GAO Recommendations Related to Transportation To improve the efficiency of U.S. food aid—in terms of its amount, timeliness, and quality—we recommend that USAID, USDA, and DOT improve food aid logistical planning through cost-benefit analysis of (1) supply- management options, such as long-term transportation agreements, and (2) prepositioning, including consideration of alternative methods; work with stakeholders to modernize ocean transportation contracting practices to include, to the extent possible, commercial principles of shared risks, streamlined administration, and expedited payment and claims resolution; minimize the cost impact of cargo preference regulations by updating implementation and reimbursement methodologies to account for new supply practices, such as prepositioning, and costs associated with older vessels or limited foreign-flag participation; and establish a coordinated system for tracking and resolving food quality complaints.