0001 1 U.S. DEPARTMENT OF AGRICULTURE 2 COMMODITY CREDIT CORPORATION 3 4 Public Meeting to Discuss 5 Proposed Rule 6 Procurement of Commodities for Foreign Donation 7 8 February 21, 2006 9 10 USDA Moderator: Bert Farrish 11 12 Location: 13 Jamie L. Whitten Building 14 Room 107A 15 1400 Independence Avenue, S.W. 16 Washington, D.C. 17 18 19 20 21 22 23 24 25 0002 1 P R O C E E D I N G S 2 [1:05 p.m.] 3 MR. FARRISH: Well, first of all, I want to 4 take this opportunity to welcome each of you here to 5 this public meeting to hear comments regarding 6 procurement -- of our proposed rule on procurement of 7 commodities for foreign donation under 7 CFR Part 96. 8 We welcome each of you here. I'm glad you 9 could take part of your day to come and listen and make 10 comments. The first thing I want to do is have 11 everyone introduce themselves. And be sure and tell 12 us, also, what organization you represent, if we could 13 do that, too. 14 Just a couple of reminders up front. I know 15 we all appreciate it everybody either turn their cell 16 phones off or turn them down vibrate. I took mine off, 17 because I just hate to stand up here and be buzzed. I 18 don't want my BlackBerry buzzing me all the time. It's 19 very annoying. 20 Also, today we have no formal break scheduled 21 during the 2 hours we have set aside for this. So, if 22 you do need to, feel free to step outside and take a 23 phone call, or make a phone call; or if you need some 24 personal time, there are facilities located on each 25 side of the patio out here. 0003 1 But, why don't we get started with self- 2 introductions? And we'll go down here to the front 3 row, and then we'll start with you and just work 4 across, back and forth, like this. 5 I'm Bert Farrish. I'm deputy administrator 6 of Commodity Operations, Farm Service Agency, USDA. 7 MR. KREITZBERG: I'm Lee Kreitzberg, General 8 Counsel's Office, USDA. 9 MR. ROUSE: Mark Rouse, Foreign Agricultural 10 Service, USDA. 11 MS. SCHERL: Denise Scherl, Chief 12 Transportation Division, USAID. 13 MR. MARTIN: Ken Martin, Kansas City 14 Commodity Office. 15 MR. RANDALL: Nelson Randall, USDA Kansas 16 City Commodity Office, chief of export operations. 17 MR. ROSEBURY: Ed Rosebury, FAS, export 18 credits. 19 MR. CHAVEZ: Rich Chavez, FSA. 20 MS. KING: I'm Sue King, from here in 21 Washington. 22 MS. TOSI: Gloria Tosi, with the American 23 Congress. For those of you who don't know us, we're 24 bulk liners with U.S. flags. 25 MS. GREEN: Bonnie Green, senior commodity 0004 1 advisor. 2 MR. HARRELSON: Tom Harrelson, Maritime 3 Administration. 4 MR. SHEA: Good afternoon, I'm Timothy Shea. 5 I'm here on behalf of Siglift. 6 MR. LAUTKEY: Tom Lautkey. 7 VOICE: John -- NextWave. 8 MR. SHIMP: Dave Shimp. 9 MR. HAGEL: Fred Hagel, with Potomac 10 Shipping. 11 MR. HUFF: Charlie Huff, representing Liberty 12 Maritime. 13 MR. GARDENER: Brian Gardener, from Winston & 14 Strong. 15 MS. FORD: Tracy Ford, Maritime 16 Administration. 17 MR. HARRINGTON: Mike Harrington, Maritime 18 Administration. 19 MR. BEGENDORF: Fred Begendorf -- Steamship 20 Corporation. 21 MR. TUNNEY: Kevin Tunney, Logistics. 22 MR. BOGGS: Tony Boggs, American President 23 Lines. 24 MR. REDMAN: James Redman, Pacific Cargo 25 International Services. 0005 1 MR. ENGERS: Pat Engers, CRS. 2 MR. YOUNG: Bob Young. 3 MS. CAMERON: Renata Cameron, USAID. 4 MS. KARPINSKI: Liz Karpinski, USAID. 5 MR. FISHER: Tony Fisher, USAID. 6 MR. BROWN: Skip Brown. I represent a number 7 of agricultural commodity and transportation groups. 8 And I represent myself also. 9 MR. POWELL: Steve Powell, Potomac Marine. 10 MR. HIRST: Fred Hirst, Stratego Ocean 11 Shipping. 12 MR. WEINBERG: Jamie Weinberg, representing 13 Tico. 14 MR. MENDENHALL: Greg Mendenhall, Tico. 15 MR. COMEAU: John Comeau. 16 MR. SINGH: Ravi Singh. 17 MR. DORRIAN: Jim Dorrian, Maersk. 18 MR. HENRY: Jared Henry. 19 MR. FERTH: Jim Ferth, same answer as Skip. 20 MR. CACCIATORE: Paul Cacciatore, Kansas City 21 Commodity Office, temporarily working in Washington. 22 MR. FARRISH: Okay, thanks to each of you. 23 I think we all know why we're here today, but 24 I thought I would open with maybe just a little 25 reminder, if that seems to be appropriate. 0006 1 We're here to obtain further public comment 2 on the proposed rule published December 16th, 2005, 3 dealing with the procurement of commodities for foreign 4 donation. On January 23rd, the comment period was 5 extended through March 9th of 2006, at the request of 6 several parties, some of you who are here in this room. 7 We appreciate the interest of all the parties and all 8 of the industry partners. And rest assured, we will 9 continue to communicate and work with all our partners 10 as we move forward implementing initiatives designed to 11 streamline and improve the procurement of commodities 12 in coordination with the maritime industry. 13 We look forward to hearing constructive input 14 to the process and moving forward so we can achieve a 15 goal we all share, and that is to assure a timely, 16 efficient, low-cost delivery of food-aid commodities 17 those who are in need around the world. We're not here 18 today to discuss specific software applications for 19 moving forward from a two-step to a one-step bid 20 evaluation, regardless of whichever implementation or 21 whatever implementation system may be used. 22 Just a little background on the issue. The 23 issue of moving from a two-step to a one-step bid 24 evaluation process is not new. It's been talked about 25 for a very long time -- I'm told since the late 1990s, 0007 1 which, of course, predates me being here in Washington 2 in this capacity. And we already use a one-step bid 3 evaluation system for bulk commodities, for bulk 4 commodities and for Title I purchases. The portion of 5 the proposed rule that we're discussing takes us up to 6 the point in the process of cargo preference, though it 7 does not delve into the actual application of cargo 8 preference. 9 We've been looking at new ways to procure 10 commodities for food-aid programs within the cargo 11 preference rules and discussing future rulemaking with 12 the Maritime Administration and industry partners in a 13 variety of venues since 1999, including our annual 14 International Food Aid Conference, in Kansas City. 15 Several discussions and meetings with our industry 16 partners and/or the Maritime Administration occurred 17 last year, and as late as June of 2005. These 18 discussions were primarily centered around software 19 application, but I believe, firmly believe, that 20 everyone involved in those discussions knew that we 21 would have to publish a proposed rule to move from a 22 two-step to a one-step process. 23 So, just to briefly summarize what the 24 proposed rule is intended to do, number one, the 25 proposed rule covers the process of moving from the 0008 1 cumbersome two-step process to a more efficient one- 2 step process for arriving at the lowest landed cost in 3 an effort to improve the bid evaluation processes for 4 commodities and freight. It allows us to implement new 5 procedures to be used in the evaluation of bids in 6 connection with the procurement of commodities and 7 freight for donation overseas. 8 The proposed change will require carriers to 9 submit firm, fixed ocean rates in their initial offer; 10 thus, allowing us to evaluate offers on the basis of 11 the lowest landed cost by comparison with alternate 12 freight freights. The proportion of the rule that deal 13 with alternate freight remain unchanged. We will 14 continue to respect an argo-cargo preference 15 obligations in past practices. 16 A little bit of our timeline. As I said 17 earlier, public comment is scheduled to end March 9th, 18 2006. We will review public comments from March 19 through July of 2006. We plan to complete the 20 integration testing of a bid evaluation system by April 21 of 2006, and complete acceptance testing with rate 22 commodity in the May through December period of 2006. 23 We will conduct user training in December of 2006 or 24 January 2007, and then publish the final rule in late 25 2006 or early 2007. And then the implementation of 0009 1 one-step bid evaluation system would occur 2 approximately 30 days after publishing the final rule 3 or with the next invitation. 4 Let's talk about the format for today's 5 meeting. We have about -- well, we're on schedule. We 6 have 1 hour and 45 minutes remaining. With the time 7 that we have this room for, we have seven primary 8 speakers who registered in advance and submitted 9 written statements regarding the nature of the 10 information they intended to present. Each of these 11 speakers will have 10 minutes. And we have a timer who 12 will flash you a card when you get down to the end of 13 your time so that you will know when it's time to take 14 a seat again. 15 We have some -- how many did we have 16 register? Did we have anybody register on site? 17 MS. KING: No. 18 MR. FARRISH: Okay, we had no one register 19 here on site requesting an opportunity to speak. So, 20 for anyone who is not -- has not e-mailed comments 21 prior to this meeting, please see Paul Cacciatore, 22 who's serving as our meeting coordinator. Paul's at 23 the back of the room, by the door. I guess he's the 24 bouncer, too, since he's back there by the door. 25 Anyway, he's in the back of the room if you need to be 0010 1 placed on the list of speakers, if time allows. 2 As I said, we will not be taking a formal 3 break. Feel free to leave anytime during this 2 hours 4 if you need to for any reason. And another reminder 5 about cell phone and BlackBerries. In fact, since I 6 got up here, I heard mine buzzing down there on the 7 floor. 8 Ground rules. We value everyone's input. We 9 want to have time to allow all speakers who have 10 registered in advance to have their turn. With the 11 limited time we have today, I will ask each speaker to 12 limit their comments only to the issues covered by the 13 proposed rule. These ground rules are designed to 14 allow all those who wish to comment on the proposed 15 rule to do so. 16 We have a court reporter today who's creating 17 a transcript of all comments received today. The 18 transcription, together with any written comments 19 received within the comment period, will be made a part 20 of the rulemaking record. Copies of all comments 21 received may be inspected in room 5755 south from 8:00 22 a.m. to 4:30 p.m., Monday through Friday. Time 23 permitting, we may have time at the conclusion of 24 today's time for question. However, we will not debate 25 issues which are outside of the proposed rule. 0011 1 As I said, we have a timekeeper here, Mr. 2 Chavez, who will hold up a green card signifying 1 3 minute remaining. A yellow card will signify 30 4 seconds remaining, and a red card when your time is up. 5 Just like a stoplight. 6 I would ask each speaker to announce your 7 name and spell it for the transcriber and indicate who 8 you represent when you begin your comments. 9 And we plan to take speakers in the order in 10 which they were registered, one through seven, and we 11 will allot each of you up to 10 minutes, if you need 12 that, and then we will have -- hopefully have some time 13 for questions when we're finished. 14 The first speaker will be David Shimp, of 15 Maybank Industries; number two, Tom Harrelson, Maritime 16 Administration; John Trestrail will be number three; 17 next will be -- number four will be Keith Powell, 18 Public Maritime International; number five, Charlie 19 Boggs, American President Lines; number six, Timothy 20 Shea, Nemirow; and number seven will be Kevin Tunney, 21 Transfer Logistics. 22 So, with that, we'll get started. I would 23 invite Mr. Shimp up to the podium to deliver his 24 remarks, and then move on in the order that they were 25 given to you. 0012 1 MR. SHIMP: Thanks, Bert. I'm the guy that 2 keeps us ahead of schedule. I just have a few comments 3 to make. 4 My name is David Shimp, S-h-i-m-p, like 5 "shrimp" without the "r," vice president Maybank 6 Industries representing Maybank Shipping. 7 Today, Maybank Shipping, as many of you may 8 know, is a small family company headquartered in 9 Charleston, operating out of Mobile. We're the largest 10 U.S. flag break-bulk carrier in the Caribbean. We have 11 four carriers, three of which are Jones Act. We have 12 covered-deck barges. And our primary concern on this 13 issue is the increased lead time. We're a small 14 company, as I said. We don't have a liner service. 15 So, therefore -- and we go where the business is. And 16 if we have to plan to bid on something 60 days, or 17 whatnot, ahead of time, that certainly impacts the way 18 we do business. 19 I've got basically two things I want to focus 20 on. One is the process, and the other is comments on 21 implementation. We view this absolutely for us as a 22 significant impact item from an economic and a policy 23 point of view. Definitely, for us, this will have a 24 major financial impact, and, depending upon when it's 25 implemented and how long it goes with -- the $100 0013 1 million threshold, we believe is certainly right out 2 there in neon lights ahead of us. On the policy side, 3 I would certainly defer to the legal folks in the room 4 on this issue, and Tom and other experts. But we see 5 the idea of lowest landed cost and cargo preference, 6 just not quite sure how they mix. 7 I think there's more investigation, because, as I 8 see it, with -- the lower-landed cost concept entails 9 -- is, it's not only the ocean-borne part of it on 10 transportation, but also the purchase of the 11 commodities. And I'm not quite sure how that fits 12 together in the truest implementation of the statute 13 for cargo preference. We do a lot of other U.S. 14 Government cargoes from MSESTDC Ex-Im Bank cargoes, and 15 that is just not a consideration. You've got cargo 16 preference -- is a cargo preference from taking all 17 lines. That's to get you where you're going. And the 18 fact that Bob orders pipes may cost X, and maybe made 19 at a certain place, doesn't enter into the whole deal. 20 Do they have to use U.S. flag, or don't they have to 21 use U.S. flag. Like I said, I'm not an expert on this, 22 but I just think those issues bear scrutiny and bear 23 some investigation on the implementation. 24 Certainly when anything is automated, that 25 brings up some questions to follow the process, even a 0014 1 tried-and-true old process we're all familiar with. 2 When you automate that, there are challenges. We're 3 going to do two things at once. We're changing the 4 process, plus automating, so therein lies a double, 5 perhaps quadruple, challenge to make sure everything 6 works, and that is just a situation and concern that I 7 would like to highlight. And the other is in the 8 system development. I know John will probably speak on 9 the linear programming, which I don't know -- actually 10 know how to say those words. But when you design a 11 system with certain end-to-end testing and modular 12 testing, and a primary concern covers cargo preference. 13 And we're firmly of the opinion that from flow- 14 charting to design of the system to testing of that 15 module needs to be exclusively within the purview of 16 MARAD. And then the end-to-end testing, when that 17 cargo preference module is put into the whole system, 18 that -- not only do we need a full and transparent and 19 robust end-to-end test with whatever scenario we could 20 throw at it, but that testing process needs to be open 21 so we can see what's going on, so we can see how the 22 ones and zeros get pushed around in the system. Then, 23 once it's implemented, that also needs to be open, so 24 that, after the award is made, that whatever should be 25 in the public domain is able to be in the public domain 0015 1 from the way the system operates. 2 That's really all I had to say today. We'll 3 stay on schedule. And, Bert, I appreciate USDA having 4 this forum to have -- to give us the opportunity to 5 have our thoughts made public. 6 Thank you. 7 MR. HARRSELSON: Tom Harrelson, 8 H-a-r-r-e-l-s-o-n, Maritime Administration. Dave and I 9 just have a little bit. Who's going to be shortest? 10 But we had a very good meeting last week with 11 representatives from USDA and AID. And I was very 12 pleased at the outcome of that meeting. And there will 13 be consensus among the agencies before the final rule 14 is published. 15 And, on that basis, I have no other comments. 16 I appreciate, Bert, you getting together these people, 17 and look forward to further interactive meetings with 18 industry as you progress. 19 MR. TRESTRAIL: I'm John Trestrail, with 20 NextWave Agency, T-r-e-s-t-r-a-i-l. As I said before, 21 I represent a number of ocean carries. Each, I think, 22 would have a different perspective on the impact, 23 potentially, of this change. But I want to talk more 24 generally about how the proposed system would put more 25 into the LPUs by Kansas City. It's a complex, but, I 0016 1 think, a very logical system. And if you understand 2 some of the basics of linear programming, what they're 3 trying to do is minimize the total cost of valuing 4 commodity and moving it to the ports and getting it 5 overseas with respect to the constraints of capacity 6 constraints, cargo preference, small-business set- 7 asides, and the like. So, we're trying to minimize the 8 total cost while respecting these constraints at the 9 same time. I think USDA and USAID do a very good job 10 of sharing award information and other information 11 about what goes into the linear program in Kansas City, 12 in the first round, currently. 13 One thing I would like to stress is, as we 14 move forward toward using more linear programming in 15 the future and to evaluate ocean transportation. In 16 the second round, it would be very helpful for the 17 industry to see some kind of report that would also 18 come out, some kind of sensitivity analysis or 19 sensitivity report that talks about how the constraints 20 placed in the transportation part of the bids impacted 21 the solution. So, if somebody has a minimum 22 constraint, at least 10,000 tons, even though they 23 might not have been the low bidder in a certain area, 24 how that would all work together to affect who is 25 awarded cargo. Any linear program should be able to 0017 1 produce this kind of sensitivity analysis. If that was 2 made public, there would be a level of transparency to 3 the industry, so you could look at not only the lowest 4 rates that were awarded, but also how those constraints 5 played a part in the decision, as well. 6 That's all I have today. 7 MR. FARRISH: Keith Powell is next. 8 MR. POWELL: I'm Keith Powell, Potomac 9 Marine. I also want to echo some of the earlier 10 comments to thank USDA and AID for allowing the 11 industry to have an opportunity to discuss the 12 developments. And I have taken the opportunity 13 previously to get into some of the specifics of the 14 program. I don't think that's really appropriate now, 15 although I think that the mechanics of how this program 16 works are very, very important. And the public 17 rulemaking did not go into a lot of these mechanics. 18 And certainly, Tom, your comments about there being 19 intergovernment-agency approval before the final rule 20 comes out, I think, is most important, particularly as 21 it relates to cargo preference concerns, and also as it 22 relates to other issues, such as the lakes set-aside 23 program and others. There's been a discussion 24 regarding how the lakes would interact, because 25 currently the system is set up for two runs in the 0018 1 first round, where you have the lakes portion 2 purchased, absent cargo preference. So, I think, 3 certainly, the industry would like to know, with a one- 4 run system, how will the integration of the lake set- 5 aside program work? Will that be done still as two 6 runs, or will it be done in some sort of optimization 7 fashion? So, there are some details that we think need 8 to be spelled out along those lines. 9 Some of the other points, I would just like 10 to touch on the initial screens that we saw in our 11 earlier presentation from a broker's point of view. 12 And we look at the mechanics of taking an owner's 13 desire to express his cost in offer form and put it 14 into written form. And the current system allows sort 15 of a free-text format, if you will. And FBES will 16 demand a fixed format. So, some of these greens we 17 saw, we didn't feel allowed for sort of flexibility 18 that we felt carriers needed to address a lot of the 19 issues, and the freight forwarders and the PBOs 20 requested the owner's address. So, we certainly 21 appreciate the opportunity to have seen a lot of the 22 screens so far, and we would like to be able to 23 continue that discussion, going forward, as the program 24 is further refined. 25 Along those lines, I think one thing that is 0019 1 most important is, How is this system going to be 2 tested? There has been discussion regarding the USDA 3 running test. I believe that the timeline we had heard 4 some months ago was that the testing would be going on 5 during the first quarter of this year. So, I don't 6 know where the testing is, but as you look at the 7 testing of this system we would like to suggest that a 8 working group be established that consists of MARAD, 9 USDA, and AID, the shipowners, as well as the PVOs, to 10 establish what the protocol is going to be for the 11 resting of FBES. 12 And one may feel that you can just take data 13 that was previously submitted and test the system. We 14 don't believe so. You're taking static data after-the- 15 fact. And we feel there should be realtime testing 16 done side by side with the current procurement system. 17 And certainly, to do that will require, I think, a bit 18 of effort on the part of everyone. But in order to 19 work through many of the issues that have been raised, 20 we feel that a realtime testing system needs to be set 21 up. We do believe it should be a collaborative effort 22 to test this, and not one that excludes the industry 23 from the process. 24 That was all that I wanted to say. I think 25 that covers it. Thank you very much. 0020 1 MR. BOGGS: I seem to always have to follow 2 Keith. That's pretty tough for a little guy. 3 My name is Charlie Boggs, B-o-g-g-s. I'm 4 with American President Lines. We're a subsidiary of 5 Neptune Oriental Lines. We operate about 100 ships of 6 mixed registry throughout the world. We have about 7 300,000 pieces of equipment that are a part of our 8 intermodal system. We operate in over 60 countries, 9 and we run a -- 158-unit trains throughout North 10 America on any given week. 11 The USDA commodity proposed rule appears to 12 assume that the matter of a new automated system can be 13 considered in a vacuum. My statements certainly are 14 being made in conjunction with the information that I 15 had prior to coming in here, and it appears that 16 there's been some conciliatory moves between the 17 various agencies, and maybe there is some dialogue that 18 is occurring. But from my perspective, prior to coming 19 here, it didn't appear as if there was a heck of a lot 20 of dialogue that was occurring. In fact, it's related 21 with a host of other issues within the jurisdiction of 22 the Maritime Administration and the Department of 23 Transportation, USAID, and other organizations within 24 USDA administration. And the regulations of those 25 entities must be revised, as well as -- in order to 0021 1 permit the one-step automated commodity and freight 2 procurement system to function. 3 For an example, the impact of a proposed rule 4 depends heavily on such cargo preference issues as 5 MARAD's priority system, which is administered in one 6 manner with the package product programs of the 416(b), 7 the Food for Progress and the Food for Education 8 Program, and then utilizing another system in 9 conjunction with USAID's Title II program. As a matter 10 of fact, with USAID's Title II program, which basically 11 dwarfs the other food-aid programs, the administration 12 of that priority function most coincides with the 13 priority system used by DOD, as well as Ex-Im Bank and 14 other organizations which are required to combine with 15 flag preference. 16 In addition, and under the 1954 Act, there is 17 a significant need to update the vessel classification 18 system utilized by MARAD for scoring purposes in 19 conjunction with the CCC rulemaking. I understand 20 that. And this, of course, seems to have been bridged, 21 as well. It appeared that MARAD was not even consulted 22 prior to the proposed rule publication within the 23 Federal Register and that MARAD is seeking OMB 24 attention to the USDA view that the proposed rule is 25 not significant under executive order 12,866. In any 0022 1 event, the proposed rule could be significant in the 2 practical effect of, one, the ocean transportation of 3 humanitarian aid, unless it is addressed in conjunction 4 with the proposal from the other agencies and the 5 appropriate public comment. 6 You know, we have varying CFRs that deal with 7 food aid distribution and procurement distribution, and 8 we've got MARAD's, which deal with "fair and 9 reasonable," on the one hand, with the exception of 10 liner tonnages, which they suggest they don't have the 11 authority over. We've got the Commodity Credit 12 Corporation, which requires market surveys and market 13 research to be done in order to arrive at competitive 14 rate level. We've got the USAID CFRs, which also speak 15 to these issues. And we just can't permit this to move 16 forward and not have a commitment out of the various 17 agencies that would suggest that their CFRs of those 18 individual agencies need to be updated and handled in a 19 realtime manner, as well. 20 In any event, we consider this to be 21 significant. We understand, too, that there's been a 22 significant amount of money -- in rumor terms, $8- to 23 $12 million -- which has been committed to the 24 architecting of this program already. And we have 25 heard rumors which would suggest that there is no 0023 1 economic benefit that is going to be derived. And we 2 find that very hard, from private industry's 3 perspective, to understand, that we have expended that 4 amount -- those amounts of funds and are not 5 anticipating to realize any economics. You couldn't go 6 forward and ask any corporation to commit resources in 7 the magnitude of $8- to $12 million without having some 8 payback. We think -- if we truly can cooperate, we 9 think that there is a significant amount of payback, 10 whether it be in the automated process or whether it be 11 in the automated process when we, one, would combine 12 those processes with economies that can be realized, 13 and depending upon the contracting mode that is 14 implemented, in conjunction with the need to get the 15 product moving quickly from the point of procurement to 16 the point of need as rapidly as possible. 17 Many of us in this room have been labeled by 18 the USAID administration of being a part of the Iron 19 Triangle, in that we have been impediments to progress, 20 as opposed to facilitators. And one thing that rather 21 resonates quite clearly to me as a national carrier is 22 the fact, or the statement, that was made that it 23 requires up to 4 months for the contracting process, 24 currently, to take hold and for product to move from 25 point A, the point of procurement, to point B, the 0024 1 point of need. 2 I take strong exception to that. There are 3 many, many contracting processes that have greater 4 efficiencies than that, processes that APL is a party 5 to today, not only within the government contracting 6 parlance, but within the commercial sector, as well. 7 And I can tell you that I could be activated tomorrow, 8 as I am with my DOD contracts, and I could move as 9 quickly as you want me to move product to a point of 10 need. 11 We're sitting here over the past -- and I 12 want to digress for just a moment -- we're sitting here 13 talking about the need to change. We really aren't 14 dealing, in my opinion, with all of the requirements to 15 change. And I would just like to challenge each of us 16 to go forward and be extremely comprehensive in this 17 undertaking. We have an opportunity here, because of 18 the discord that has been -- the discord that has been 19 displayed so far, to bring the four agencies with the 20 private sector together and do something that is 21 significantly meaningful to all of us. We can 22 automate, we can remove cost from the system, and we 23 can expedite the commodities from the procurement point 24 to the destination point, and we could all do this in 25 one fell swoop and not in independent modules, if we 0025 1 could just let our paradigms down. 2 Thank you. Have a nice day. 3 MR. FARRISH: Mr. Shea? 4 MR. SHEA: Good afternoon. I'm Timothy Shea. 5 I'm pleased and privileged to address this august 6 group. S-h-e-a. I'll be brief. Much of what I 7 propose to say has been articulated by some people 8 beforehand. 9 Stepping back a little bit, first of all, I 10 don't propose to deal with anything as abstract as 11 linear programming or sensitivity tests. In a way, it 12 would be nice if we could get to that level of detail, 13 but that is not my expertise. And I already know that 14 is not something I'm good at. But from a purely 15 practical level, it seems to me that, as I understand, 16 the structure that has been proffered is that it will 17 impose some measure of, I suppose, what might be 18 considered discipline, but it seems to me it is not as 19 flexible as the current sort of open-ended system. And 20 the result, I suspect, first of all, would be a certain 21 amount of administrative burden that would be borne by 22 somebody, presumably the carriers or their agents. 23 It strikes me, as well, that that may lead to 24 limitations in the way they structure their bids. 25 Adding on things like ports or combinations of various 0026 1 cargos and things like that, I think, will get more 2 difficult. It strikes me that that is probably -- I 3 can't imagine that that is an intended result of your 4 proposal, but I wonder whether someone needs to inquire 5 about whether that will be a consequence. 6 And the last thing that is reinforced by our 7 exchange here is that, to some extent, for me -- of 8 course, when I step back, I get information from 9 industry sources and clients, from some of you very 10 capable government employees here. From my 11 perspective, much of this has been a kind of moving 12 target. We've had some very -- I think, very 13 constructive comments heard today, but those only -- I 14 don't know how they happened. And I don't know -- it's 15 very difficult for us to frame comments on something 16 that is sort of moving as we speak. 17 Anyway, I would like to see -- from our point 18 of view, I would like to see what I call a side-by-side 19 test of the current system, versus a proposed system. 20 The simplest way to convince everybody that there 21 aren't issues, or what the genuine issues are, and if 22 there are effects that are foreseen, it seems to me, 23 fine, we should recognize those, and things that may be 24 unforeseen, all right, we should deal with those. 25 Maybe we don't care about those, at the end of the day. 0027 1 But it seems to me that's the simplest way to analyze 2 that. 3 And I might add -- I will echo the statement 4 by Keith that a side-by-side should be done with some 5 measurable -- measure of care so that all the affected 6 agencies and the industry makes sure that they're 7 really done independently, so we know the results 8 aren't really self-validating. They're not affecting 9 each other, but that the results are done in a way that 10 is independent. And I think that will help your 11 effort, as well as ours. 12 I might add that I noted, in that vein, with 13 great satisfaction, that the agencies have agreed to 14 confer with respect to this rule. I noted that, in the 15 Federal Register publication that was put out, for 16 instance, that the USDA cited, among other things, as 17 authority for the rule, the Cargo Preference Act of 18 1954. And very satisfying. I can't imagine that you 19 would rely on that without the concurrence of the 20 Maritime Administration. I'm pleased to hear that you 21 will be working together as a group as you go forward 22 to refine the proposal. 23 I think, ultimately, it seems to me, that the 24 proposal you have -- we don't resist a one-bid system, 25 by any means, but it seems to me this is a solution 0028 1 that may create all kinds of other collateral problems 2 and may defeat where you are. I don't think you want 3 to have a system that is so rigid that the burdens of 4 complexity and remoteness are such that they make it so 5 that you don't have an informed offer. You don't have 6 informed offerors who can figure out how the system 7 works so they can give you better rates. If it looks 8 like some sort of a lottery, you're not going to get 9 better rates. And I think things like the side-by-side 10 proposal, I submit, and closer industry cooperation, 11 would be the kinds of things that get you perhaps where 12 you want to go. 13 I think that's all I have. Thank you. 14 MR. TUNNEY: Hello. My name is Kevin Tunney. 15 That's T-u-n-n-e-y. I represent Transfer Logistics, 16 located in Chicago, Illinois, and Transfer Logistics 17 Virginia, located in Portsmouth, Virginia. 18 I would like to take the opportunity to thank 19 the Commodity Credit Corporation and the U.S. 20 Department of Agriculture for allowing our comments to 21 be heard on the proposed food-aid rule changes. 22 Transfer Logistics' two operations provides 23 transloading services and -- for P.L. 480 humanitarian 24 needs that are awarded out of Chicago, Bridge Chicago, 25 FAS Norfolk, or Bridge Norfolk, or bases. We accept 0029 1 deliveries of commodities primarily by rail and 2 transload primarily to ocean freight containers. These 3 services are provided for the commodity supplier, the 4 ocean carrier, or some combination of both, depending 5 upon how the location and the type of award. 6 Our Chicago operation is a higher volume, and 7 has handled up to 250,000 metric tons per year since 8 1997. Chicago has benefited from the passage of the -- 9 Section 17 of the Maritime Security Act of 1996 that 10 allows up to 25 percent of Title II cargo to be awarded 11 on a lowest-landed-cost- flying-blind basis to a Great 12 Lakes port. 13 This Act has worked as it was intended to, by 14 creating value for the food-aid program to lower 15 freight costs, as well as by increasing the award in 16 the Great Lakes ports range. The Great Lakes has 17 historically handled large volumes of P.L. 480 cargo 18 until the virtual total loss of U.S. flag ocean freight 19 service. 20 For Great Lakes in the 1980s, Transfer 21 Logistics was involved in the food-aid program in 22 Chicago. There has been extensive job creation both on 23 a direct and indirect basis. Transfer Logistics 24 currently employs between 55 and 65 people in the 25 handling, transloading, and administration of food-aid 0030 1 cargo. In addition to our direct employment, we have 2 had spinoff job creations, including special services 3 by SGS with employees -- AID employees, trucking jobs 4 that support up to 70 loads per day that move out of 5 the facility, and railroad jobs to support the awards 6 of -- support upwards of 4,000 rail cars per year at 7 our -- that our operation handles. There have been 8 additional jobs created with contractors, as well as 9 maintenance support for the operation equipment. 10 Transfer Logistics is very concerned about 11 the proposed rule changes related to how commodities 12 will be purchased in a one-step bid system versus the 13 current two-step system. While we are in full support 14 of the system that modernizes by lowering the manpower 15 requirements, speeding up the turnaround time on bids, 16 and lowering costs to the program, we are reluctant to 17 sit by and watch change -- changes in procedure without 18 a full and open disclosure of the process. Such a full 19 and open disclosure would need to provide a mechanism 20 such that all interested parties, including relevant 21 government agencies, commodity suppliers, ocean 22 carriers, and port facilities would have the 23 opportunity to weigh in on the concerns and then see 24 the exact procedures that will be used to determine bid 25 awards under the new system. These interested parties 0031 1 understand the complexities of the system and the 2 concern exists that procedural changes in a 3 computerized program to purchase commodities and 4 freight in one step may change the dynamics of how and 5 through which the best ports that food aid moves. With 6 massive amount of various inputs such as system -- such 7 a system requires discharge ports, ocean freights, 8 volume caps, and incentives, Section 17 rules, to name 9 but a few. 10 It is easy to see how one slight change may 11 cause major cargo shift, all parties needed to clearly 12 see the effects or noneffects of a new system to ensure 13 that no one party is discriminated against in the 14 process. 15 Due to the above issues and concerns, we feel 16 the Commodity Credit Corporation and the proposed 17 rulemaking is insignificant, thus not warranting a 18 significant impact label is an incorrect conclusion. 19 We have been made aware by the industry that, to date, 20 certain interested parties, including U.S. MARAD and 21 many interested nongovernment participants have been 22 left out of the proposed rulemaking change and 23 discussions. We feel that any proposed rulemaking 24 changes related to the procurement of commodities for 25 foreign donation is a very significant rulemaking 0032 1 change; thus, it deserves a full and open view prior to 2 any formal procurement change taking place. 3 Once again, Transfer Logistics appreciates 4 the opportunity to be part of this process and looks 5 forward to participating in further discussions 6 regarding any changes that may be made. 7 Thank you. 8 MR. FARRISH: Well, we have a lot of time 9 left. As I said in the beginning -- and, first of all, 10 I want to thank each of you, again, for taking time to 11 come out today and make your comments. We appreciate 12 those. We will listen to them and take them into full 13 account, because they will be part of the official 14 record of comments on the proposed rule. 15 As I said in the beginning, we would be 16 prepared to take a few questions, and would like to 17 confine those questions to the proposed rule, not 18 necessarily the implementation. Having said that, as I 19 said in the beginning, we are prepared, as we go 20 forward in developing software solutions, to continue 21 meeting with the Maritime Administration and the 22 industry, as we have in the past. I realize the last 23 meeting we had, I think, was April or May or June of 24 last year, with full industry participation, but we 25 have been working hard taking your comments into 0033 1 account during the intervening period to design an 2 implementation system that reflects those comments. 3 So, at some appropriate time in the future, 4 we will call you all back together again and go through 5 where our progress has brought us to. So, having said 6 that, does anybody have any questions? I may not 7 answer your questions. I'm not going to pretend to be 8 the expert on every bit of this, but we have certainly 9 got a front row down here that I think we can find an 10 answer to. 11 Skip? 12 MR. BROWN: Skip Brown. There seems to be a 13 lot of lot legitimate concern by the carriers about the 14 fact that the proposed rule is deemed to be 15 insignificant. If it were reclassified as a 16 significant rule, would this require an economic 17 benefit analysis as a significant rule? Question one. 18 19 And the second part of that is, If it were 20 reclassified as significant and an economic benefit 21 analysis was required before you went to final rule, 22 would that, in turn, be made public before the final 23 rule was issued? 24 MR. FARRISH: Would the economic analysis be 25 made public? 0034 1 MR. BROWN: Correct. 2 MR. FARRISH: I will answer it this way. I'm 3 not sure of the answer of that. Someone down here will 4 know. When we submitted this rule to OMB, it came back 5 with the not-significant designation. And so, we went 6 forward with it on a nonsignificant basis. The numbers 7 we gave OMB did not approach the level of significance. 8 And someone can correct me if I'm wrong. That level 9 is $100 million. 10 Now, I think if it exceeded 100 million, then 11 some type of economic analysis would have to be 12 performed. I'm not sure if that would have to be made 13 public. Our general counsel over here says if we did 14 that economic analysis, it would have to be made 15 public. 16 Keith? 17 MR. POWELL: Can you give us a sense of where 18 you are now with this process, and what the timeline is 19 estimated to be, going forward through the testing 20 period and the implementation period, just to give us 21 -- granted, you can't sort of pinpoint it to an exact 22 time, but just some sort of general projection as to 23 how you see this playing out over the coming months? 24 MR. FARRISH: Well, we're still in -- 25 developing. And Nelson Randall could give us more on 0035 1 that. I left the timeline out of my remarks. We hope 2 to complete testing of the bid evaluation system at the 3 end of April of this year. So, that's another couple 4 of months of development. Then we will work on 5 acceptance testing for the balance of the year, May 6 through December, test running, and conducting training 7 at the end of that. 8 Nelson, would you have any other comment to 9 that? Work is being done in Kansas City, not here in 10 Washington. I'll depend on our staff out there to give 11 us a little more -- a little further depth to the 12 answer. 13 MR. RANDALL: That's pretty much accurate. 14 We've been programming since probably a full year now, 15 dealing with a lot of issues that you've discussed, but 16 the idea is that, as it's laid out, first the 17 integrated testing with our programmers to make sure 18 what they have programmed is working, and then, second 19 is taking these tests -- and David, I think, hit it 20 right on the head. This is a complicated system, 21 believe me, and it's going to be very difficult to do 22 the testing and make sure we have done things right. 23 But we're pretty much on track right now. 24 MR. FARRISH: A year or so ago, when we were 25 going through the funding battles here to get the final 0036 1 funding, we thought we would be at a point of 2 acceptance here at this point in 2006, and that was not 3 a matter of not having funding, it's just a matter of 4 working through the complications of the program, 5 listening to the input we've gotten from our industry 6 partners, taking that into account, and then going back 7 to the screen and the keyboard and going back to work. 8 Tom? 9 MR. HARRELSON: Just a follow-up for Ken or 10 Nelson. Several of the speakers, I thought, made a 11 very good suggestion, that it would be extremely 12 beneficial to run parallel systems using live data and 13 having it open for all the participants to see. Is 14 that in your testing plan? 15 MR. RANDALL: Yes and no. One is, the two 16 systems are so opposite each other -- as you know from 17 our various meetings, the new system has a lot of bells 18 and whistles, mid-maxes, constraints where our old 19 system doesn't. That's why we have the two-step 20 operation. And Ken and I talked about this. If we can 21 make it work, we will. We really haven't gotten to the 22 point of deciding live data or not. We would welcome 23 thoughts on that, of course, and how we can make that 24 happen. But to run the two parallel, it's very 25 difficult to make that happen, because they're two 0037 1 completely different systems that will have different 2 data. 3 MR. HARRELSON: Well, as Keith said, it would 4 certainly burden on both the input-ers and the folks in 5 Kansas City, which we all recognize, but it would also 6 seem that it would lay out for everyone to see what the 7 impact of the new system is and what glitches there 8 might be in it. And I think you would assuage a lot of 9 concern in the industry about it if you could figure 10 out how to do some kind of open-air adjustments. 11 MR. FARRISH: That will be one of the things 12 we'll be discussing, going forward, is our testing 13 protocols. 14 Any other questions? 15 Mr. Powell? 16 MR. POWELL: This question is for Denise. 17 There's been some discussion about how the cargo 18 preference priority system will be handled within FBES. 19 So, could you just give us -- there was very little in 20 the notice, so could you give us some idea as to how 21 you would envision cargo preference working within 22 FBES, and sort of -- to sort of frame that, I would say 23 the current system uses a head-to-head analysis. And I 24 don't believe that really works under a one-step 25 system. It works now, because it's two-step. So, 0038 1 there would be some change in how the cargo preference 2 technically is done. So, if you could just hit on that 3 for us today, I would appreciate it. 4 MS. SCHERL: Keith, I think you just about 5 answered the whole question, in that the head-to-head 6 comparisons that we're doing right now works under the 7 two-step process. When we move to a one-step process, 8 we will no longer have that capability. Whereas, we're 9 maybe flagging -- if it's a P-2 carrier in the first 10 round, and then have a P-1 carrier in the second round, 11 when we move to the one-step process, it's going to be 12 -- there won't be any more trumping, because we will 13 now flag against the P-1 carriers the first time 14 around. Okay? 15 MR. LOWNDES: Tom Lowndes. In the earlier 16 development of the program, I understood there were 17 some limitations on -- or constraints on the capacity 18 of the variables. Has that been addressed in 19 subsequent development? 20 MR. FARRISH: Well, go ahead and answer that 21 question, but, again, we're wandering off from where I 22 said we were going to go. We only wanted to answer 23 questions on the proposed rule. Nearly every question 24 we've had so far has been related to the implementation 25 of future software, and that's really not the purpose 0039 1 of the meeting. I don't want to get us into answering 2 hypotheticals. We don't need to go there today, 3 because that's the worst thing we could do, is answer a 4 hypothetical and have people leave here thinking that's 5 gospel, and then we come back and tell you there was 6 something wrong in the assumption of the hypotheticals 7 and now we're going to reexplain ourselves again. 8 So, we'll attempt to answer your question, 9 but I think from here on, we're going to confine the 10 questions to the proposed rule. And if there are no 11 more questions about the proposed rule, then we will 12 conclude the meeting. 13 Nelson, do you want to attempt that? 14 MR. RANDALL: Bert's exactly right, we are 15 addressing that, and I'm not going to stand here and 16 tell you we found that answer, but what we've been 17 dealing with from previous meetings over this last 18 year, it's looking very positive. Of all the things 19 that we have discussed, if I tell you right now, it's 20 exactly true what Bert has said, you're going to hold 21 me to that, and we haven't gone through integration 22 testing. So, what we have developed, we don't know if 23 it works yet. We've done some preliminary tests that 24 are very positive. 25 MR. FARRISH: Yes, sir? 0040 1 MR. SINGH: Ravi Singh. In asking a 2 question, when will the forum be open for the 3 implementation questions? 4 MR. FARRISH: I'm sorry? 5 MR. SINGH: When will you allow us to ask 6 questions on the implementation, or will there be such 7 a forum? 8 MR. FARRISH: Will there be an educational 9 forum as to how this will be implemented? I would 10 envision we would have one. I don't think we can just 11 launch a piece of software this different from a manual 12 system, launch software that goes from two-step to one- 13 step, without some kind of forum with the industry to 14 explain how it works and what you have to do to 15 integrate your business into it. I can't give you a 16 date. I mean, within the broad guidelines of dates 17 that I outlined earlier, that would not occur until 18 later this year, as well as the publishing of the final 19 rule, as I said earlier, that will be timed to coincide 20 with the implementation of a one-step solution. So, 21 what I'm saying is, we're not going to publish a final 22 rule in August, for example, and then implement in 23 January or February of '07. 24 Yes, sir? 25 MR. TRESTRAIL: One aspect of the proposed 0041 1 rule change is incremental pricing differentials so you 2 can bid different pricing premiums or presumably 3 discounts as your bandwidths change. I would just like 4 to know how this is envisioned. Is it going to be in 5 three different increments? And can you do a positive 6 or a negative pricing differential? For example, 7 container carriers, as the line goes up they might hit 8 a certain point where they have -- where they reach 9 capacity, whereas the break-bulk carriers might look at 10 the tonnage differently. 11 MR. FARRISH: You said this was in the 12 language of the proposed rule? I'm not as familiar 13 with that. 14 MR. ROUSE: That's not in the rule. 15 MR. FARRISH: That's why I deferred from the 16 question. I mean, if you would like to point that out 17 to us -- 18 MR. ROUSE: I think that goes to 19 implementation. 20 MR. HARRELSON: Bert, what you're hearing 21 from a lot of the questions here that are addressing 22 the electronics side of it, that there's a great 23 concern, because it's the actual implementation of a 24 rule that is really going to impact the people. And 25 that is why, if you could these open, interactive 0042 1 forums with our supply-chain partners and parallel 2 testing, that would really, I think, make people a lot 3 more comfortable with this. 4 MR. FARRISH: Well, thank you for that 5 comment, Tom. As I said, USDA is prepared to work with 6 everyone. I'm sure we will have more meetings in the 7 future. You have to get through a certain level of 8 development in the program to make such a meeting 9 appropriate and timely. And I feel confident -- at 10 least our staff from AID and USDA are certainly 11 attempting to give me the confidence that we will be 12 able to resolve those issues. 13 Now, having said that, does that mean 14 everyone will be happy at the end of the day? I've 15 never done anything in government where everybody was 16 happy at the end of the day. 17 I was reminded this morning of a famous quote 18 from Herbert Hoover. One he said, "If you want to make 19 enemies, just change things." So, not that anybody's 20 an enemy in this room, certainly not, but it does 21 remind me that everything we touch, not everybody is 22 100 percent happy. There are varying degrees of 23 happiness. Let's put it that way. 24 And, as Tom said, we'll reach consensus, and 25 there are probably varying degrees of consensus which 0043 1 equal happiness in government. 2 Anyone else? 3 [No response.] 4 MR. FARRISH: Okay. If not, then we can 5 conclude. Again, I want to thank each of you for 6 coming out. On our side, USDA and USAID are committed 7 to working toward a timely, efficient, and effective 8 implementation of our commodities procurement process. 9 And, as I said, we'll continue to work with all of our 10 industry partners, and we'll be back to you at -- when 11 the appropriate time comes for another industry meeting 12 to discuss where we are in our process. 13 Thank you. 14 [Whereupon, at 2:10 p.m., the hearing was 15 adjourned.] 16 17 18 19 20 21 22 23 24 25