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Research Question

  1. What is the most appropriate financial structure for the U.S. Army's two ammunition ports — Military Ocean Terminal Concord and Military Ocean Terminal Sunny Point?

The U.S. Army's two ammunition ports — Military Ocean Terminal Concord (MOTCO) and Military Ocean Terminal Sunny Point (MOTSU) — have different funding approaches and accounting systems, and a central question in this research is what the most appropriate financial structure should be. Would consolidation to a single approach be desirable? To help answer this question, the authors develop two variations of an ammunition port funding policy. To do so, they interviewed subject matter experts, reviewed the literature on working capital fund pricing policies, and examined Department of Defense financial regulations. They developed several criteria to help in their evaluation: The funding mechanism should encourage efficient use of the ports; funding should not vary sharply over time; the funding mechanism should use existing or easily obtained financial data as much as possible; and the other military services should pay for their use of the ports. The authors' proposed variations have customers facing marginal costs when deciding how much workload to put through a port. Efficiency is enhanced when customers make decisions based on marginal, not average, costs. However, a key mitigating characteristic for ammunition ports is the apparently limited price elasticity of demand for the ports' services. When customers have greater demand elasticity, pricing decisions and hence the chosen funding approach are of greater importance.

Key Findings

Efficient Use, Funding Stability, Simplicity, and Fairness Are Important Considerations

  • The funding mechanism must encourage efficient use of the ports.
  • Funding should not vary sharply over time.
  • The funding mechanism should use existing or easily obtained financial data as much as possible.
  • The other military services should pay for their use of the ports.

Efficient Use, Funding Stability, Simplicity, and Fairness Are Important Considerations

Recommendations

  • Expenditures used to maintain a port's existing capabilities and capacities should be funded by appropriation.
  • Using a single funding approach at both ports would greatly increase simplicity.
  • A port's variable or marginal costs should be funded by customers through revenue from Transportation Working Capital Fund prices.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    MOTCO's and MOTSU's Workload and Finances

  • Chapter Three

    Prospective Port Funding Arrangements

  • Chapter Four

    Conclusions

  • Appendix

    An Overview of Defense Working Capital Funds

Research conducted by

The research described in this report was sponsored by the United States Army and conducted by the RAND Arroyo Center.

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