1 AMERICAN LIGHTING ASSOCIATION CURRENT AND EMERGING ISSUES IN FREIGHT TRANSPORTATION FACING YOUR BUSINESS SEPTEMBER 2011 John M. Cutler, Jr. McCarthy, Sweeney & Harkaway, P.C K Street, N.W., Suite 700 Washington, DC (202)

2 OVERVIEW Companies that manufacture and distribute goods face new challenges in dealing with transportation service providers and intermediaries Trucking companies, railroads, air carriers, ocean shipping lines, forwarders and brokers also face new challenges Higher costs and potential reductions in capacity and service quality are likely As usual, Washington, DC isn’t helping

CARRIER-SHIPPER ISSUES All carriers – ground, air and water – want to charge more and reduce their own liability exposure These are givens, but the recession has increased the leverage of many motor, rail, air and water carriers in negotiations Capacity is tight, demand is rising and carrier costs for fuel, financing, personnel and compliance are rising It all adds up to increases approaching if not exceeding 10% in many shippers’ transportation budgets 3

DEALING WITH TRUCKING COMPANIES TL carriers are exercising more pricing power than LTL All motor carriers are looking for fuel cost recovery through surcharges Contract negotiations are more contentious – the ALA model contract can help Be prepared for more detention charges Be prepared for resistance to one-way indemnification clauses Protect against NMFC changes 4

DEALING WITH TRUCKING COMPANIES (continued) Good liability coverage is harder to get - Up to $100,000 per shipment is the best most shippers can expect - Trucking companies are looking to make that coverage the exception rather than the rule - Techniques include alternative coverages, e.g., lowest released value in NMFC - Waiver of subrogation - Avoid antiquated bills of lading 5

DEALING WITH TRUCKING COMPANIES Guard against being dragged into personal injury or wrongful death cases arising out of highway accidents Your motor carriers need insurance and a Satisfactory safety rating Your motor carrier must advise you immediately of any changes in safety rating or insurance coverage Established, financially secure trucking companies tend to be safer and should be preferred Consider using a service that monitors trucking company safety Agree in writing that trucking company compliance with safety requirements must supersede customer scheduling instructions 6

DEALING WITH BROKERS/FORWARDERS Many companies use them and they can be excellent Read their contracts carefully – what do they actually agree to do for you? Do they agree to deliver lower transportation costs? If so, how good are their carriers? Do they agree to arrange for your goods to move only via safe, experienced, financially sound carriers? 7

DEALING WITH BROKERS/FORWARDERS (continued) Do they agree to indemnify you if there is an accident/lawsuit? What cargo liability coverage will you get? Who pays claims? Care in negotiating your contract can pay off Incorporate into your broker contract a requirement for the broker to arrange for the service standards you want from carriers Use financially responsible brokers to avoid paying freight charges twice 8

DEALING WITH OCEAN SHIPPING LINES, AIR CARRIERS AND RAILROADS Negotiating better liability coverage with these carriers is difficult Domestic and international air cargo coverage Liability for connecting trucking companies may be governed by ocean or air industry norms Rail intermodal is growing due to improved service quality 9

DEALING WITH OCEAN SHIPPING LINES, AIR CARRIERS AND RAILROADS (continued) Contracting is possible but may not be worthwhile – too many take-it-or-leave-it provisions Contracting with ocean shipping lines and NVOCCs is subject to Federal Maritime Commission regulations at 46 C.F.R. Part 530 and 531 Watch out for surcharges and volume commitments Be prepared for cross-border security requirements Bills of lading used for trucking may not work for railroads in truck-rail intermodal 10

GOVERNMENT POLICIES ARE LIKELY TO MAKE THINGS WORSE Gridlock in Congress makes it difficult to do anything Deficit and debt concerns make it difficult to increase spending Programs to promote economic growth cannot get through Congress Executive branch regulatory agencies are subject to reduced Congressional oversight Health, safety, environmental and security regulations are growing for the transportation industry 11

12 INFRASTRUCTURE Everyone knows we need to spend more Fuel taxes not increased since 1993 and are not indexed for inflation Many bipartisan, expert studies urge higher fuel taxes, possible VMT, and a greater focus on freight House T&I produced draft Highway Bill that looked like the most comprehensive approach to the problem in history Funding was the insurmountable problem

13 WHITE HOUSE TRANSPORTATION BUDGET $556 billion total spending over 6 years $336 billion for roads and bridges, 48% more than SAFETEA-LU $119 billion for transit, 127% more than SAFETEA-LU $53 billion for high speed rail $30 billion for an Infrastructure Bank, which could provide leverage for far more spending

14 CHAIRMAN MICA’S CURRENT THINKING Do more with less Three-pronged approach -Use existing fuel tax revenue (NO TAX INCREASE) -Add unspent stimulus bill money -Stretch funding by making highway projects cheaper and faster Get next Highway Bill enacted into law by the end of current fiscal year (9/30/11), two years after SAFETEA-LU expired

15 PROSPECTS FOR SUCCESS The White House budget sounds good but has little chance of success. The House Bill cuts spending which need to be increased. ATA President Bill Graves and Senate Finance Committee Chairman Max Baucus predict no new Highway Bill in 2011 or 2012, when Presidential elections will make everything harder Assuming funding is found, who will provide it? Assuming funding is found, where will it go?

16 RAILROADS ARE DOING GREAT Raising rates and fuel surcharges and making record revenues and profits Warren Buffett couldn’t be happier with Berkshire Hathaway’s purchase of BNSF Wall Street loves the railroads DOT loves railroads, extending record funding and calling for more freight to move by trains, not trucks

17 AIRLINES FAA Reauthorization Bill passed by House Can 2007 FAA Act, which has been extended 21 times, finally be updated? No FedEx labor provision Veto threat due to provision overturning NMB ruling facilitating unionization Next Gen air traffic control system Shutdown over subsidies to rural airports

18 CAUSE FOR CONCERN OVER TRUCKING Fuel Costs Lack of progress on Highway Bill Hours of Service, CSA and Driver Shortage DOT Policy Truck Size and Weight Limits Where is the good news for trucking?

19 HOURS OF SERVICE Hours of Service rules in effect from have worked well Highway crash rates and fatalities have fallen, including 3% drop in 2010, to lowest levels ever FMCSA nevertheless wants to reduce daily driving time by 1 hour (plus mandatory ½ hour break or two) FMCSA also wants to regulate weekend sleep time (the “restart”) that could mean the required 34 hours off is actually as much as 48 hours off Result could also force drivers coming off restart to drive during morning rush hour

20 HOURS OF SERVICE (continued) Trucker and shipper requests for more flexibility for team drivers with sleeper berths were brushed aside FMCSA support for these changes is skimpy and flawed Carrier groups, shipper groups, drivers and over 100 members of Congress filed comments opposing HOS rule changes Proposed rules will exacerbate driver shortage

21 COMPLIANCE, SAFETY, ACCOUNTABILITY New FMCSA program to improve trucking company and safety accountability and performance is being implemented Rulemaking proceeding soon Safer highways likely to result, as bad apples (drivers and trucking companies) are forced to improve or seek other employment

22 COMPLIANCE, SAFETY, ACCOUNTABILITY (continued) Greater complexity; danger of lost business due to misleading appearance of problems Will not help driver shortage Danger of exposure to personal injury lawsuits Contract updates are recommended

23 DOT POLICIES For decades, DOT has supported all modes of transportation Today, DOT favors rail, giving rail projects more funding DOT needs major freight railroads to cooperate with High Speed Rail program DOT may also be responding to environmental and congestion concerns

24 DOT POLICIES (continued) DOT may also be defining the need for highway spending down, in light of deficit concerns and gridlock DOT is also very interested in bike trails and “livability” Bottom line: DOT Secretary LaHood is calling for shifting freight from trucks to trains

25 OTHER TRANSPORTATION DEVELOPMENTS FMCSA proposes to seek expanded authority so it can regulate “shippers, receivers, brokers and forwarders” FMCSA expresses concern about truck drivers forced to wait to load or unload FMCSA says it wants to regulate the entire commercial motor vehicle “transportation life-cycle” Congress is unlikely to go along, but ALA may want to monitor this proposal

26 OTHER TRANSPORTATION DEVELOPMENTS (continued) FMCSA wants EOBRs on 500,000 carriers, subject to penalties of up to $11,000 Tentative new deal announced to resolve NAFTA debate over Mexican truckers serving U.S. destinations, ending punitive Mexican tariffs on U.S. Goods Safety and union concerns and gridlock make progress doubtful. FMCSA plan to provide EOBRs for Mexican trucks doesn’t help. Congress is considering efforts to increase GVW from 80,000 lbs. to 97,000 lbs. HR 763 and HR 801, and S 747. Railroads oppose and want more trucking subject to 80,000 lb. maximum.

PORT DRAYAGE UNIONIZATION Efforts continue to require independent truckers in port drayage service to become employees Port of Long Beach showed that this is not necessary to reduce pollution Goal is to facilitate efforts by Teamsters to organize drayage companies ATA is in court fighting Port of Los Angeles on issue 27