Press & Media

Priority Issues

September 2002 · WMC Transportation Committee

Staff Contact: Kim Bautz, Government Relations Assistant

Report of Committee Counsel

John Duncan Varda, DeWitt, Ross & Stevens S.C.

For more information, please contact Counsel at 608-252-9311 or jdvarda@dewittross.com

WMC Transportation Committee

Milwaukee River Hilton, Milwaukee - September 12, 2002

November Meeting, with Motor Carriers Assoc. & Truck Expo

The Transportation Committee’s Annual Meeting will be held Thursday, November 14, 2002, at the Alliant Energy Center, Madison, in coordination with the Annual Meeting of the Wisconsin Motor Carriers Association ("WMCA") and Wisconsin Truck Expo.

WMC TransCom will meet from 9:00 to 11:30 a.m. At that point, we will join members of WMCA and Truck Expo exhibitors for WMCA’s annual luncheon and keynote address. The luncheon ends promptly at 1:00 p.m. permitting members to visit the Truck Expo for the remainder of the afternoon.

WMC TransCom members are also invited to attend the VIP opening session of the Truck Expo, Wednesday, November 13, 2002, beginning at 3:00 p.m. and continuing through the evening. Both days’ events provide excellent educational and networking opportunities.

Big 4 No More; Bigger Challenges for Unionized LTL Ahead

More than a little ironic? Over Labor Day weekend, CF announced its Chapter 11 filing and closing of its operations. Some 15,000 employees were told to not come to work Tuesday. Some learned the news when they arrived at work and found the doors locked. CF’s demise is the result of rising losses ($104 million last year and $137 in the last four quarters) and plunging stock value, which left it unable to come to terms with lenders and insurers to support continued operations.

The remaining large unionized LTL carriers - Yellow, Roadway, and ABF - face expiration of the current National Master Freight Agreement, covering some 90,000 Teamsters, on March 31, 2003. Following the UPS pattern, which has been the pattern over the last 30 years, seems unlikely. The cost to Roadway and Yellow, about $60 million per year each, would be between double and triple their total earnings for last year.

Under the current LTL NMFA, dockworkers are at $19.45 and city drivers at $19.51 per hour; road drivers at 47.87 cents per mile on a base of 100,000 per year. Under the six-year UPS agreement, full-time UPS Teamster drivers’ increases in wages and benefits will be 22%. The gap between full-time and part-time pay will be narrowed. UPS will create some 20,000 additional Teamster jobs over the life of the contract. The average full-time wage will rise from $23.11 to $28.11 per hour or $58,470 per year. Health coverage will be maintained without co-payments. UPS, however, at 58% part-time workers, has a much more favorable wage structure than do the LTL carriers.

Some analysts say the LTLs must be prepared to match UPS. Others argue the LTLs and UPS simply are not comparable and that the LTLs must have relief. Or else, what? Another CF?

A sobering milestone - with the passing of CF, only three of the 1980 Top 50 motor carriers survive.

Truck-Auto Accident Causation, Some Vindication for Truckers

Traditionally available accident statistics (year-to-year fatality and injury comparisons, involvement rates, rates per million miles) reveal essentially nothing about relative responsibility of auto and truck operators in causing accidents. This is largely the product of shortcomings and inconsistencies in accident investigation and reporting among the thousands of involved agencies and jurisdictions.

AAA recently released a study, conducted by the Michigan Transportation Research Institute, of police reports on some 46,000 fatal crashes, 1995-1998, including 10,732 auto-truck accidents. The results: 80% of the auto drivers, but only 27% of the truck drivers, were guilty of at least one unsafe driving act; and, of all driver errors, 75% were attributed to the auto drivers and only 25% to the truck drivers.

Reportedly, the study has led to AAA tempering criticism of truckers and giving greater priority to the AAA "Share with Care" program, accident avoidance advice for both auto and truck drivers.

Early data from FMCSA’s "Large Truck Crash Causation Study" appear to confirm the conclusion of the AAA study that auto drivers are more likely to be at fault in most auto-truck crashes. The FMCSA study, begun in 2001, will involve in-depth analysis of 1,000 CMV accidents, based on information gathered by study-sponsored investigators working with local police in 24 towns and cities who are dispatched to the actual accident scene along with other emergency responders.

The results have led to some discussion that FMCSA will de-emphasize equipment inspections to focus more resources on checking drivers. Others suggest such a shift may be counter productive, arguing that the prevalence of driver error as the cause of accidents may be the result of increased inspection and enforcement of equipment safety in recent years.

Tightening CDL Rules & Hazmat Certifications - Shortages Likely?

New, final CDL rules require states to enter all driving violations by CDL holders, regardless of the type of vehicle involved, truck or auto, into the federal CDL database. States have up to three years to come into compliance. That may be optimistic considering local courts are expected to update the database within 10 days of new convictions and, in many, if not most cases, are ill-prepared and unlikely to have the resources to do so. Flaws in the system include FMCSA’s relying on drivers to report all jurisdictions from which they have a license and to report disqualifications to their employers. FMCSA estimates an additional 25,000 CMV drivers will be disqualified each year, approximately 15,000 for one year and 10,000 for 90 days to three years.

FMCSA will soon issue rules mandated by the USA Patriot Act requiring background checking for CDL hazmat certification. Drivers will wait for up to six weeks for the background check. The procedure will require states to send fingerprints to the FBI, which will determine if the driver is a security risk. The FBI will send the results to USDOT, which, in turn, will send the results to the states. The criteria for determining who is a safety risk will be similar to the criteria for airline pilots - commission of any of 13 serious crimes. FMCSA estimates approximately one million such background checks per year; however, the number may be much higher because many carriers will require all drivers to be hazmat certified.

Is this a prescription for exacerbating driver shortages, especially shortages of those with hazmat endorsed CDLs? Add hazmat endorsement complications, costs and waiting time and security-related operational safeguards. Will drivers be discouraged from hauling hazmats, in favor of relatively hassle free general freight? Each and all of these items, along with insurance costs, may set the stage for hazmat surcharges to cover such costs and provide wage incentives to drivers. Does this suggest real potential value of shipper-carrier collaboration to promote the most productive use of hazmat endorsed drivers?

Log Book "Supporting Documents" - Yes, They Can

The answer seems to be, yes, FMCSA can require retention and production of supporting documents that are not actually used by the motor carrier (private or for-hire) for log verification and that such documents be maintained in a way that allows matching to the driver logs. So says the D.C. Circuit. That would include time and date stamped toll tickets, fuel and other receipts, and, apparently, whatever else FMCSA may choose to label as "supporting documents." Under prior interpretations, FMCSA only required documents that were actually used by the carrier for log checking.

The D.C. Circuit remanded to FMCSA, however, to determine the validity of the carrier’s claim that toll records are inaccurate as to time of issue (batches made up in advance) and, therefore, not reliable for log verification purposes. The Court’s reasoning is that it may be arbitrary and capricious for FMCSA to treat inaccurate or misleading records as "supporting documents" in connection with downgrading the carrier’s safety rating.

Diesel NOx - Deadline Stands, Markets Disrupted as Predicted

In July, we said we hoped industry leaders and ATA would be able to obtain relief from the deadline to avoid predicted negative impacts to the economy. Regardless of the near-term outcome, we will continue to cite EPA’s diesel NOx rule, along with recent efforts of FMCSA on hours-of-service and OSHA on ergonomics, as examples of catastrophic defects in our processes for transportation policy and rule making.

Unfortunately, relief from the deadline has not come. Speaker Hastert’s plea for delay was rejected by the White House, as were pleas to EPA by a group of over 70 members of Congress. No court decisions have emerged, yet, in suits to set aside the deadline prosecuted by Caterpillar and Detroit Diesel and by a group of truckers, Schneider, Swift, Werner, U.S. Express and Crete Carrier.

Unfortunately, disruptions to jobs and the economy appear to be coming as predicted. An ATA survey of 815 carriers indicates 90% will not buy trucks with October 1, 2002, new engines and only 22.8% plan to buy during 2003. ATA suggests that it will be two years before the downturn abates. Detroit Diesel will lay off 700 this fall. Peterbilt and Kenworth will lay off 700 to 800 due to a sharp drop in fall sales orders. Navistar will layoff 400 at Chatham, Ontario, while Freightliner expects layoffs first quarter 2003 and is avoiding layoffs fall 2002 by cutting overtime and working down a backlog of orders. In one legal brief defending against one of the challenges to the deadline, EPA predicted that engine and truck sales will recover in the first half of 2003.

EPA has relented somewhat on penalties for not meeting the October 1, 2002, deadline: over three grams, $3,640 down from the proposed $4,680; over four grams, $7,999 down from the proposed $10,193. Caterpillar and possibly other manufacturers plan to absorb the penalties. The penalties remain on the high side and, of course, do not resolve other concerns like diminished fuel efficiency, increased maintenance (e.g., effect on other engine components of running 20 degrees hotter under the hood), untested and questionable reliability, and potentially reduced residual value of the trucks.

ATA has vowed that the issue will not go away with the October 1, 2002, deadline. While that deadline has been the immediate focus, criticisms of the 2004 and 2007 deadlines are woven into the current challenges and will undoubtedly take center stage beyond October 1, 2002.

Another Freight Payments Bankruptcy, Fair Warning, Take Care

Before entering Chapter 11, Strategic Technologies, Inc. handled $2.5 billion in freight payments annually, between 25 and 30 million freight bills, with 200 plus clients, many in the Fortune 1000. Some 30% of STI’s clients used trust accounts for their payments. A competitor noted that STI had recently been undercutting industry rates, apparently, to build volume in the short term. STI claimed that bouncing checks on carriers, which precipitated legal action that led to the Chapter 11 filing, was the result of glitches during a change in its banking relationships.

In an aftershock to the previously reported bankruptcy of Computrex International, the freight payments firm, Computrex Logistics has followed its sister company into bankruptcy owing carriers and freight forwarders some $7 million in unpaid freight bills. A motion is pending to venue both cases in the Western District of Kentucky.

Mike Regan of Tranzact Technologies suggests that this run of bankruptcies in the freight payments industry is the product of shippers’ long term emphasis on price. He argues that lack of profit has led capable players in the industry to move on to other ventures (e.g., in 2000, Regan sold Tranzact Systems, the largest privately held freight payments firm in the country, to Schneider Logistics) leaving the industry in the hands of several dominant players plus a number of marginal competitors. Current negative factors facing the industry are low pricing, low interest rates (decreasing the value of the "float" which had helped payments firms endure the low pricing), and changing shipper expectations. The last is described as a trend in which shippers who have downsized their logistics operations expect to shift more former in-house responsibilities to the freight payments provider without additional compensation.

Contrast this view to that of Richard Langer of U.S. Bank’s PowerTrack unit who sees, in the context of global supply chains, huge potential for optimizing the flow of money in relation to the flow of goods. In this view, banks need to move from traditional lines, such as letter of credit and documentary collections, toward simpler payments solutions, becoming integrators creating service packages to meet customer needs in settlements, financing, risk mitigation, and information.

Perhaps the current shakeout among freight payments providers will accelerate change in the packaging of payments with related services, developing better profitability through adding value.

Wherever it leads, in the meantime, the watchword for shippers is to take great care with due diligence in selecting and monitoring freight payments. For the appropriate circumstances, consider trust accounting or otherwise retaining more control by retaining payment funds for disbursement only upon review of the payment providers’ pre-audit confirmation.

Adequacy of Truck Parking Spaces?

FMCSA released a study, which finds overall, across the nation, some 315,850 available public and commercial truck parking spaces for peak demand of approximately 287,000. The problem, say truckers, is that the spaces are not where they are needed. Truckers say the shortage is acute along major trucking corridors and adjacent to cities where more truckers than can be accommodated seek to layover close to early morning delivery locations. The surplus of parking available in Vermont and North Dakota is not going to help this problem.

TL Carriers’ Model Contract, Good and Bad

Early this year, we lauded the call for a "standardized transportation contract." We had in mind a well-balanced set of model terms for motor carrier transportation contracts, to minimize costs of negotiation and legal work and promote having in place a balanced set of ground rules in motor transportation contract relationships, standardized and well understood by all parties.

Promoted by a group of truckload carriers, a draft model contract is reportedly in the process of circulation among the sponsoring carriers and others for comment. Following is a summary of some of the principal elements of the proposed model as reported in Transport Topics of July 15, 2002:

Allocation of Capacity - Unless shipper commits to maintain an agreed volume, carrier may terminate the contract or adjust rates on 30 days notice.

Payment Terms - Require payment 30 days after delivery or 14 days after invoice. Rely on electronic. Extra charge for paper.

Insurance - Require shippers to pay for cargo insurance above $100,000 per trailer.

Indemnification and Limitation of Liability - Cap cargo liability at the insurance limit, and limit indemnification by the carrier related to other specific circumstances such as accidents at shipper docks.

Fuel Surcharge - Impose standard surcharge of one-half cent for each 2.5 cent per gallon increase in the long term average fuel price as set by the carrier, with adjustment for large regional variations.

Mileage Calculation - Base all mileage on "practical" miles.

Loading and Unloading - Pass through entire lumper cost plus 20% arrangement fee.

In-Transit Stop and Drop Charges - Increase charges as the number of drops and time increase.

Detention - Impose compensatory fees after the first day for trailers and after two hours for tractor-trailers.

Salvage - Set shipper costs as the cargo value (i.e., exclude profit from the measure of damages). If sale of salvage is not allowed, subtract salvage value from the claim amount.

Given the economic slant of the proposed model terms, perhaps the sponsors next stop might be a chat with antitrust counsel.

More to the point, we have suggested that a better target of model terms would be the legal boiler plate terms which can be modeled to be standard, to reflect sound practices, but to be economically neutral.

Indemnification terms, for example, are not well understood and are frequently pasted into transportation contracts without reference to insurance coverages and potential consequences in the event of actual defense of a claim. Carriers and shippers alike would be well served by model terms which avoid third-party liability arising at points of interface between their respective employees such as dock locations and wherever carrier employees work on shipper premises. Both parties and their employees would be better served by having clear ground rules and consistent application of workers compensation coverage without exposure to third party claims. Model language designed to avoid shipper and carrier duplication of insurance on other risks may provide savings in premiums and in claims settlement costs.

The process of developing model terms should not be the zero sum game that the carriers’ efforts to date appear to be. What is needed, we think, is a process akin to those used in the development of uniform laws (e.g., Uniform Commercial Code) in which the full range of relevant perspectives are brought to bear - shippers, carriers, insurers, and so on.

Rail Competition - More Talk, No Action

Nearing the end of her term, STB Chair Linda Morgan had a last joust with Senator Jay Rockefeller, in the third round of rail related hearings before the Senate Transportation Committee in the last year. Morgan’s position remains that mandatory competitive access may favor shippers in the short run but financial levels necessary to support the rail system would not be met. Her position exactly matched the position of the railroads, that absent demand-based or differential pricing, the industry would not be able to recover the costs of providing service across their systems.

Shippers complained of high rates and poor service. They also complained bitterly of railroad retaliation against shippers for speaking out and for exercising the limited competitive options where available. Witnesses cited examples of railroad use of differential pricing at captive locations to recoup loss and retaliate for shipper exercise of competitive alternatives at non-captive locations. Shippers argued that when both railroads in a duopolistic market behave in this same retaliatory manner, competition is nullified.

A highlight of arguments before STB on continued oversight of the Conrail merger (shippers, for; CSX and NS, against) were shipper concerns about moves by CSX and NS that will impair the ability of Conrail to act as an independent and neutral switching carrier. CSX and NS were both cited for efforts to increase their respective spheres of control in shared asset areas. No sooner did the record close than came announcement of a plan for a $10 million public-partnership that will result in breaking apart the shared asset intermodal facility in Detroit in order to "improve operations". The merger was sold in large part based on two-carrier competition in the Shared Asset Areas. Will removing Conrail as a switching carrier be done in a way that maintains competition? Stay tuned.

GAO’s update of its 1990-1996 rail rate study shows a continuation of the general pattern of decreasing rail rates for the 1997-2000 period. Coal, grain, chemical, auto parts, and finished vehicle rates declined during the period. Reports do not indicate that GAO has addressed previous criticism that its methodology fails to measure the impact of rail cost shifting.

Intermodal on the Rise - Set Aside Outdated Perceptions

Brian Bowers, VP Intermodal and Brokerage Services at Schneider National, wants shippers to cast off their preconceptions and to recognize the new reality. Intermodal is not just backup capacity to highway service anymore. It is a competitive capacity option that is on the rise. On-time service numbers are reaching all-time highs, 95% in many corridors. The key, he says, is delivering 95-98% on-time service with flexible 53-foot capacity and a variety of service and price options.

Midwest Regional Freight Infrastructure Coordination Initiatives

On September 9, 2002, following up the two-day, April 4-5, 2002, "1st Upper Midwest Regional Freight Transportation Workshop," counsel participated in the "Upper Midwest Freight Corridor Study Workshop." The term "study" may be misleading in that the focus of the workshop seemed to be on forming and moving forward with a coalition to coordinate addressing freight bottlenecks, choke points, and other barriers to efficiency along freight corridors critical to mobility within and through the Upper Midwest.

DOTs of all seven states in the region (MN, IA, WI, IL, MI, IN, and OH) were represented. The emphasis shifted from conducting a two-year study or inventory of issues to emphasize documenting known and suspected issues and providing an organizational structure for an ongoing collaborative effort to address them. Participants explored geographic scope and focus of the effort (e.g., critical relationships to adjacent geographic areas such as Ontario, St. Louis and Kansas City; and critical importance of through movement of freight). The group suggested a time frame for the initial agenda of the coalition, which may afford the opportunity for facilitating some multistate coordinated input to the reauthorization process during 2003.

MRUTC has played a critical role in this initiative. Public and academic perspectives were well represented. A small contingent, including counsel, undertook to convey the "private sector" perspective of shippers, carriers and third parties. We will be promoting further spadework through the fall in support of efforts to have the coalition up and running by January 1, 2003.

WisDOT State Rail Plan, Moving on to All Move Planning 2030

Outstanding issues addressed on the agenda of the State Rail Plan Advisory Committee on July 31, 2002, included hazmats, intermodal facilities, corridor preservation, and rail tax and regulatory issues. We have taken issue with the traditional view of rail "contestable" freight in draft projections, particularly for the future of intermodal. We urged that the Plan address a number of emerging factors which could dramatically change the character of "contestable freight," (e.g.: changing patterns of purchasing freight transportation due to implementation of IT and rise of logistic providers; impact of projected increases in VMT and potential congestion constraints on timeliness and cost of all-highway freight lanes.) Accordingly, we suggested adoption of the following option:

Intermodal coordination and connectivity is strongly encouraged. WisDOT facilitates contacts among freight shippers, 3rd and 4th party providers, carriers, facility developers and MPOs and local communities, inter alia.: (a) to identify opportunities for aggregation of freight flows to provide critical volumes necessary to optimize access to intermodal; (b) to identify and facilitate removal of barriers to implementation, physical and paper, within and beyond Wisconsin; and (c) to promote collaborative efforts to coordinate private, public, and public-private investments in technology and other physical infrastructure necessary to support optimized access to intermodal for Wisconsin freight.

WisDOT now appears to be moving to expedite conclusion of the State Rail Plan process. Focus sessions are being held simultaneously with finalizing the draft for public review and comment. Because members of the Advisory Committee have commented on the draft segment by segment, we do not have a clear picture of what the document will look like as a whole.

Because of delay in the development of the State Rail Plan, the process will end and, perhaps, overlap commencement of WisDOT’s all mode planning review targeted to 2030. We have indicated WMC’s interest in active participation in this next planning process and believe the process should be coordinated with the "regional freight infrastructure coordination initiative" described above.