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Summary of Army Installation Rail Operations: Implications of Increased Outsourcing

Core Content

This document analyzes the three business models used by the U.S. Army for installation rail operations: Government Owned, Government Operated (GOGO); Government Owned, Contractor Operated (GOCO); and Privatized. It evaluates the cost and risk implications of shifting from government-operated models to privatized rail operations, with a focus on how these models affect the Army's ability to meet deployment and training requirements.

The Army's rail operations are essential for transporting heavy equipment over long distances, but the demand is highly variable, driven by contingency deployments, training rotations, and equipment distribution. The study highlights that while the Army currently owns and operates rail infrastructure, it relies on commercial rail carriers for off-post movements.

Main Business Models

GOGO (Government Owned, Government Operated)

• The Army owns and maintains locomotives, track, and related equipment.
• Rail crews are government civilian employees.
• These crews are immediately available for short-notice deployments.
• Higher fixed costs due to full-time staffing and maintenance.
• Personnel are familiar with the installation's rail infrastructure and procedures.

GOCO (Government Owned, Contractor Operated)

• The Army owns and maintains the infrastructure but employs contractor personnel for rail operations.
• Rail crews are typically hired under an umbrella contract for Logistics Readiness Center (LRC) operations.
• Less flexibility compared to GOGO in responding to sudden deployment needs.
• Higher fixed costs similar to GOGO, but with more contractual constraints.

Privatized

• The Army does not own or operate locomotives or rail crews.
• These are provided by the rail carrier as part of the shipping cost.
• Lower fixed costs but higher variable costs per rail car.
• Potential risks include reduced responsiveness, loss of surge capacity, and increased likelihood of safety and environmental violations.

Cost and Risk Analysis

Cost Analysis

• The privatized model is more cost-effective for installations with low monthly rail car activity (fewer than 30-40 rail cars).
• Annual cost savings are modest, typically less than $300,000 per installation.
• Commercial rail carriers may charge between $400 and $900 per rail car for additional services.
• The Army currently contracts separately for each rail movement, which can lead to higher costs.

Risk Analysis

• Loss of responsiveness: Commercial carriers may not be able to accommodate short-notice deployments unless contingency plans are in place.
• Loss of surge capacity: GOGO and GOCO installations can share rail crews for 24-hour operations, whereas privatized models may not.
• Safety and environmental risks: Unfamiliar commercial crews may increase the risk of accidents or rule violations.
• Unexpected costs: Potential for price increases if rail carriers have local monopoly power.
• Infrastructure requirements: Some upgrades may be necessary to meet Federal Railroad Administration (FRA) standards.

Key Recommendations

1. Evaluate cost-effectiveness: Privatization may be viable for installations with low rail activity.
2. Consider deployment needs: The Army must ensure that privatized rail services can support surge and contingency operations.
3. Standardize contracts: Long-term contracts should specify the availability and cost of rail crews and locomotives for both peacetime and surge operations.
4. Include additional services in contracts: Contracts should detail costs for switching rail cars and overseeing loading and securing operations.
5. Monitor local monopoly risks: Some rail carriers may have the power to raise prices after privatization.
6. Leverage the 2017 recompetition of Fort Sill's GOCO LRC contract: This provides an opportunity to compare the costs and risks of privatization with current models.

Key Findings

• The Army shipped approximately 20,000 loaded rail cars at a cost of $120 million in FY 2015.
• U.S. Class I railroads carried nearly 30 million rail cars and generated $70 billion in revenue.
• Privatization could reduce fixed costs but may increase variable costs and operational risks.
• GOGO and GOCO models are more flexible and responsive to deployment schedules.
• The Army should carefully weigh potential cost savings against the risks of reduced readiness and operational flexibility.

Conclusion

The decision to increase reliance on privatized rail operations should be made with caution. While privatization may offer cost savings for low-activity installations, it also introduces risks related to operational responsiveness, surge capacity, and safety. The Army should consider these factors and ensure that contracts include clear terms to mitigate risks and support its readiness and deployment needs.