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Business lines have different levels of appropriateness for variable cost pricing

• All three questions can be answered positively for the Air Mobility Command Channel Cargo and Channel Passenger and U.S. Military Surface Deployment and Distribution Command Liner Operations business lines.
• Answers are unclear and additional information would be required to assess the Special Assignment Airlift Mission/Contingency, Joint Exercise Training Program, and Port Operations business lines.
• Activity is driven by requirements that are not fully price sensitive for the Military Sealift Command's Army and Air Force Prepositioned Ships business line.

In Independent Evaluation of the Transportation Working Capital Fund, RAND researchers reviewed the Transportation Working Capital Fund (TWCF) to meet the requirements of Section 1716 of the National Defense Authorization Act for Fiscal Year 2020. They recommended that U.S. Transportation Command implement variable cost pricing for several business lines that are financed by the TWCF.

The business and economics literature emphasizes variable cost pricing as the best way to guide customer decisionmaking to support enterprise objectives. In the variable cost pricing model, customers pay for the costs to the defense transportation system associated with their requirements (variable costs); other costs should be recovered separately through appropriations or service-level bills.

In this companion report, researchers identify next steps toward implementing variable cost pricing for selected TWCF business lines. These business lines include Air Mobility Command's Channel Cargo, Channel Passenger, Special Assignment Airlift Mission/Contingency, and Joint Exercise Training Program business lines; U.S. Military Surface Deployment and Distribution Command's Liner Operations and Port Operations business lines; and Military Sealift Command's Army and Air Force Prepositioned Ships business lines.

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