WASHINGTON, D.C. – Central Intelligence Agency Director George Tenet shocked a lot of folks when he told the 9/11 commission recently that it would take another five years to build a truly integrated intelligence operation. Five years sounds like an awfully long time. But if you need an example of why Tenet, sadly, probably has the timetable right, take a look at the U.S. Bureau of Customs and Border Protection and its efforts to modernize.

In April 2001, Customs awarded a projected $1.3 billion, five-year contract to bring its technology for processing imports into the Internet era. Today, the new system, known as the Automated Commercial Environment, is up and running–but only partly. ACE’s builders have yet to install a good chunk of its functionality; the project has suffered delays and now is supposed to be completed in 2007.

ACE also has money problems. Congress has appropriated $1.04 billion for the project since 2001, including $306 million for fiscal 2004. A source tells Forbes the latter sum fell about a quarter shy of what was needed.

What’s going on here? The short answer is that creating technology to integrate various government functions means walking into a technological, management and political minefield. No one expected ACE to be easy–the project is a bit like rebuilding a street in midtown Manhattan, a section at a time, without ever stopping the flow of traffic. Customs’ existing setup is a hodgepodge of various trade processing systems, each with its own acronym: the Automated Commercial System, the Automated Export System, the Border Release Advanced Screening and Selectivity, Customs Automated Forms Entry System, Free and Secure Trade and the Pre-Arrival Processing System.

Full story at Forbes.com

WASHINGTON, D.C. – No one promised David L. Gunn an easy ride when he took over as Amtrak’s chief executive two years ago. The government-owned passenger railroad, which last year lost $1.3 billion on sales of $2 billion, faced financial and organizational disarray, outspoken enemies on Capitol Hill, and at least a decade’s worth of deferred maintenance projects.

But Gunn–a Harvard Business School graduate who in his career has headed up transit systems in New York City, Philadelphia, Toronto and Washington D.C.–has on the whole earned high marks for his focus on fixing Amtrak’s bookkeeping, thinning its bureaucracy and coming clean with Congress about the railroad’s needs for staying viable. Gunn, 66, seems also to have won the admiration of one of Amtrak’s most important business partners: the freight railroads.

“He has certainly tried very hard to improve relations,” says Thomas White, spokesperson for the Association of American Railroads, the freight industry group. “I think we’re all appreciative of that.” H. Craig Lewis, vice president for corporate affairs with Norfolk Southern, adds that “a lot of people from Amtrak and Norfolk Southern have had a part in improving this relationship, but the single most significant catalyst to it all has been David Gunn.”

Says Gunn: “I would characterize our relationships as pretty good.”

“Pretty good” looks downright remarkable given the evolution of freight and passenger rail in the United States over the last few decades. Amtrak, or the National Railroad Passenger Corporation, was created in 1970 when Congress, looking to save America’s inter-city passenger rail network, gave the big railroads a chance to unload their money-losing passenger operations. To do so, however, the railroads agreed not only to let Amtrak operate anywhere it wanted, but also to give preference to Amtrak trains on their networks.

Full story at Forbes.com

WASHINGTON – Two of Congress’ most important items of business are the energy and surface transportation bills. At least one industry has a dog in both fights: the railroads.

Near the top of Big Rail’s wish list for both pieces of legislation is ridding itself of what’s known as the “deficit-reduction fuel tax.” Huh? That might sound a bit ambitious, given that Uncle Sam’s spending this year is expected to exceed revenue by some $477 billion. But industry lobbyists argue, with some justification, that it’s an unfair tax. Provisions to eliminate it are in both bills.

Repeal “has very strong support from both the House Ways & Means and Senate Finance committees,” says Jennifer Macdonald, director of government affairs for the Association of American Railroads (AAR).

The deficit-reduction fuel tax, 4.3 cents per gallon, was enacted in 1990 when the federal government’s accounts were $124 billion in the red. Railroads and trucking companies paid the tax initially, followed by inland barges in 1993 and commercial airlines in 1995.

Two years later, however, airlines and truckers managed to get their portion of the levy diverted into airport infrastructure and federal highway trust funds, respectively. In other words, the taxes they pay are used to benefit them. But barges and railroads, which have no such trust funds, continued to pay the deficit tax, even as the federal budget moved into the black in 1999.

Full story at Forbes.com

FedEx chief Frederick W. Smith testified before Congress last week about reforming the U.S. Postal Service. It was quite a balancing act.

On one hand, Smith praised “the professionalism of Postal Service managers and the scale of its operations.” Moments later, however, he berated the “inefficiencies and disincentives” accompanying monopolies such as the one the U.S. Postal Service (USPS) enjoys on the mailbox. “The biggest victim of the postal monopoly,” Smith intoned, “is the Postal Service.”

What gives? Private shippers such as United Parcel Service and FedEx compete with the Postal Service. Both companies have recently expanded their mail-related services and retail presence: UPS acquired Mail Boxes, Etc. in 2001, while FedEx completed its $2.4 billion purchase of Kinko’s last week.

But they–and other big companies–don’t want to cause too much grief for the Postal Service. FedEx, in particular, has a history of working with the USPS. Last fall, for example, reports emerged that FedEx had struck an arrangement with the Postal Service to create a “postal hybrid service.” Under the arrangement, the USPS will deliver FedEx packages the last mile to homes, giving the company a foothold in low-density, single-parcel transactions that its business model would otherwise prevent.

As the long-simmering issue of postal reform heats up, other corporations that rely on the postal service, from Pitney Bowes to big magazine shipper Time Warner, are watching warily and are also trooping to the Hill to testify.

Full story at Forbes.com

WASHINGTON, D.C. – When the federal government deregulated the airlines in 1978, it eased concerns that smaller communities would get stranded with a program called Essential Air Service. The program guaranteed that towns with air service as of October 1978–provided they were further than 70 miles from a bigger airport–would be eligible for subsidies keeping some measure of that service in place.

In fiscal 1995, EAS’s cost stood at $37 million per year. Following the Sept. 11, 2001, attacks, Congress bumped up funding for EAS from $50 million to $113 million. A month ago, the program was reauthorized. Price tag: $127 million for each of the next four fiscal years.

If that subsidy creep looks worrying, research from transportation think tank Reconnecting America suggests things will only get worse without changes in transportation policy.

In 2002, the group released “Missed Connections,” a survey quantifying the drop in air service at various categories of airports during that year. That report argued, however, that the declines were more than just a result the Sept. 11 attacks and the economy’s downturn; instead, they reflected fundamental structural changes sweeping the airline industry.

Last month, the organization published “Missed Connections II,” a follow-up study that largely reinforced the earlier findings. At large-hub airports, for example, the number of weekly flights declined 1.7% from 2002 to 2003, on top of the 9.5% drop shown from 2001 to 2002. Medium and smaller hubs had a slight 0.1% gain in weekly flights but still showed a 9.6% reduction from 2001 to 2003. Smaller communities were some of the biggest losers–just 20% of those surveyed showed gains in weekly flights, while 80% either stayed flat or declined.

Full story at Forbes.com

WASHINGTON – If a nation’s preeminence is measured by the size of its maritime shipping industry, then the United States is in decline. Consider: Since 1991, America’s merchant fleet has dropped to 260 ships from 536, according to the American Maritime Congress, the industry group representing ocean carriers. Just 4% of U.S. trade is carried on U.S.-flagged vessels.

For Charles G. Raymond, chief executive of Charlotte, N.C.-based ocean shipper Horizon Lines, that’s evidence that the government needs to do more for the industry. “Clearly, there’s a need for a government focus on this,” he says, adding that “there should be a high-level, blue ribbon committee that looks into what can be done and the key drivers to make it happen in a socially and fiscally responsible way.”

And in a way, of course, that helps Raymond’s company. Horizon Lines, which CSX sold in February to Washington buyout firm The Carlyle Group for $300 million, is one of America’s biggest ocean haulers, moving freight on 17 ships between the continental U.S. and Alaska, Guam, Hawaii and Puerto Rico.

But Raymond and others in maritime transportation insist the matter goes well beyond their own self interest. On its Web site, the American Maritime Congress points out that 95% of military cargo must travel by sea during wartime. Raymond, who started his career as a deck officer for Sea-Land in 1965, recalls scrambling to retrofit two Sea-Land ships to haul ammunition when Japanese and Danish sailors suddenly refused to carry America’s military supplies during the first Gulf War.

“When you have to sustain the surge of material going into a war zone,” he says, “you find guys have gotten hurt, or they’ve been out at sea for 75 days and they’ve got family issues and need to be replaced. That’s where we run into trouble as a nation, coming up with enough mariners to keep those vessels manned on a sustained basis.”

Full story at Forbes.com

WASHINGTON – It’s not buggy whip time yet, but America’s railroad supply industry has sure seen better days. Thomas D. Simpson, executive director of the Railway Supply Institute’s Washington office, reports that only 17,700 freight railcars were ordered last year, down from 70,000 to 80,000 in the late 1990s. Meanwhile, locomotive sales have dropped to just 400 per year from 1,200. “It’s been a tough slog,” he sighs.

But happily for rail suppliers, Congress still loves trains. Several proposals for revamping the nation’s rail infrastructure are now chugging around the House and Senate. And RSI, whose members range from industrial giants like General Electric and ITT Industries to smaller rail equipment manufacturers such as Greenbrier and Wabtec, is trying to make sure one of those proposals becomes law.

“There’s some hard work in front of us,” says Simpson, “but we can get something, and getting something is key.”

Atop the RSI’s legislative wish list is to have Congress establish a “Rail Finance and Development Corporation,” modeled on government-sponsored enterprises such as Fannie Mae and Freddie Mac. With a chief executive and a presidentially appointed board of directors, the entity would be authorized to issue $50 billion in federal tax credit bonds to states and private/public partnerships to finance rail projects. (Holders of these bonds get a tax credit, which provides an indirect federal subsidy for rail.)

Full story at Forbes.com