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DOD's Foreign Currency Rate Adjustment Program

NSIAD-86-218: Published: Sep 30, 1986. Publicly Released: Sep 30, 1986.

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In response to a congressional request, GAO evaluated the Department of Defense's (DOD) rationale for discontinuing the foreign currency rate adjustment program.

GAO found that: (1) costs to DOD had not increased significantly since the end of the program, except in the first 6-month cycle following termination of the program and for shipment to and from Japan; (2) costs dropped on the routes to and from Germany, which encompassed more than half of all the tonnage in the program; and (3) tonnage to and from Japan represents only 7.5 percent of the foreign tonnage. GAO also found that there were many factors affecting forwarder rates, including: (1) underlying transportation contract rates, which were functions of fuel, labor, and interest rates, and the ability of forwarders to negotiate lower rates based on volume; (2) the level of exchange rate exposure, such as whether the forwarder actually needed to exchange dollars for services provided overseas; (3) profit margins; and (4) the costs, if any, of hedging against foreign currency fluctuations. Because of the many factors affecting forwarders' rates, GAO could not verify the specific reasons for the increases or decreases in DOD costs or conclude that the costs might have risen less or dropped further had the currency adjustment program been in effect.

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