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HEALTH AND PERSONAL CARE LOGISTICS CONFERENCE

WASHINGTON UPDATE

OCTOBER 2012

John M. Cutler, Jr.McCarthy, Sweeney & Harkaway, P.C.

1825 K Street, N.W., Suite 700Washington, DC 20006

(202) 775-2505jcutler@mshpc.com

CONGRESS ABOUT TO FACE PERFORMANCE REVIEW

• All members of the House of Representatives and one-third of Senators are up for election in a month

• Unlike normal people, members of Congress have decided to postpone worthwhile efforts until after the performance review is over

• The White House is also in play

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THE “GOOD” NEWS

• Congress (mainly the Senate) managed to pass a new Highway Bill, “Moving Ahead for Progress in the 21st Century”, or “MAP-21”

• The amount provided for is $104 billion for two years, roughly maintaining current spending levels

• Funding comes from highway fuel tax revenues, but the tax rates are still not increased or indexed for inflation

• Some money to come from general fund, i.e., other government revenues

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BUT

• Congress failed to enact any of the bills needed to fund federal government operations

• Congress did approve a Continuing Resolution to maintain current funding through March 27, 2013

• The CR reduces MAP-21 funding for the first half of FY 2013 by $278 million

• Since one half of one fiscal year is 25% of the MAP-21 total time frame, we are not off to a good start

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“FISCAL CLIFF” MAKES THINGS WORSE

• Ends Bush tax cuts and payroll tax reductions• “Sequestration” forces $1.2 trillion in deficit

reduction by end of 2021• Roughly $55 billion in defense cuts in 2013• Roughly $55 billion in non-defense cuts

(entitlements and other non-defense programs) in 2013

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“FISCAL CLIFF” MAKES THINGS WORSE (Continued)

• MAP-21 funding from highway fuel taxes should not be subject to Sequestration but general fund money would be

• Projected impact would be an 8% cut• Chances of Congress coming up with remedies

to avoid or ameliorate Sequestration are high• However, the point of Sequestration was to

produce compromise and rational alternatives before now

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INFRASTRUCTURE FUNDING IS A MESS

• MAP-21 funding is inadequate without these reductions• Two year time frame for MAP-21 is also inadequate• Infrastructure funding is one of the most basic

responsibilities of government, and is foundational, supporting jobs and economic activity

• Failure to fund additional infrastructure investment likely to impair the economic growth we need

• World Economic Forum ranks U.S. infrastructure 24th in the world, down from 5th in 2002

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INFRASTRUCTURE FUNDING IS A MESS (Continued)

•Inability of federal government to face infrastructure challenge prompts many to look to State governments•Most States face deficits and are reducing spending, and State action means no comprehensive national approach to infrastructure•For many States, infrastructure funding means raising existing tolls and imposing new tolls•ATA testified to Congress that PANYNJ is proposing 163% increase by 2015 for its interstate bridges and tunnels – to $105 per crossing

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INFRASTRUCTURE FUNDING ASIDE, MAP-21 HAS IMPORTANT PROVISIONS

• As to tolls at State borders, MAP-21 provides for DOT review of reasonableness (but there is no similar provision for non-border tolls)

• Calls for creation of a national strategic freight transportation plan, which is likely to support more intermodalism

• Faster environmental reviews, possibly cutting 15-year average for large highway projects in half

• Consolidation of programs, simplifying management

• Installation of truck EOBRs

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INFRASTRUCTURE FUNDING ASIDE, MAP-21 HAS IMPORTANT PROVISIONS (Continued)

• Requires an inventory of bridges and tunnels and standardized measures for evaluating safety and utility

• Increases penalties for hazardous materials violations. Non-payment of penalties means no further HM operations.

• Reform of broker registration and financial responsibility. Required bond to go from $10,000 to $75,000, which should help address problem of shippers paying brokers who go under without paying carriers.

• Civil penalties are increased, and can be levied against individual officers and directors, not just corporations

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INFRASTRUCTURE FUNDING ASIDE, MAP-21 HAS IMPORTANT PROVISIONS (Continued)

• Truck size and weight issues, including 97,000 lb. GVWs and longer combination vehicles, will be studied for 2 years by DOT

• Unfortunately, focus of study not limited to productivity, safety, capacity and efficiency

• Study must also consider whether heavier/longer trucks would divert freight from railroads to motor carriers

• DOT supports increasing rail and rail intermodal market share, raising questions about its objectivity in the study

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PROSPECTS FOR FUTURE ACTION

• MAP-21 is better than no new Highway Bill, but it expires September 30, 2014. Next Congress will need to decide about infrastructure funding thereafter.

• If Senate keeps Democratic majority, Barbara Boxer likely to chair Senate Environment & Public Works Committee and Jay Rockefeller likely to chair Senate Commerce

• If Senate has Republican majority, James Inhofe is ranking Republican on EPW and Jim DeMint may chair Senate Commerce. These are two of the most conservative Members of the Senate.

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PROSPECTS FOR FUTURE ACTION (Continued)

• If House stays Republican-controlled, John Mica should remain Chairman of House Transportation & Infrastructure Committee.

• Jimmy Duncan would remain Chairman of Highways and Transit Subcommittee.

• If Republicans lose House majority, Nick Rahall, a strong supporter of trucking, is ranking Democrat on House T&I

• Peter DeFazio is ranking Democrat on Highways and Transit Subcommittee

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RAIL ISSUES

• MAP-21 came out of Senate with important rail provisions

- A deadline extension for Positive Train Control

- Funding for PTC implementation

- Captive rail shipper provisions• As enacted, MAP-21 did not include these provisions.

The railroads apparently were willing to give up on their PTC provisions rather than see Congress help shippers

• Railroads will continue to pursue action on PTC

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RAIL ISSUES (Continued)

• STB has proposed significant changes as to rail regulation

- In Ex Parte 715, the Board is proposing to raise or eliminate relief caps on its simpler, cheaper unreasonable rate challenge procedures

- In Ex Parte 711, comments are due on the pros and cons of access remedies to increase rail-to-rail competition

- The Board has also proposed a new approach to defining when railroads have market dominance. Since 1980, the law has allow rate challenges only where shippers are captive.

- New mediation and arbitration procedures for disputes between shippers and railroads are also being considered

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RAIL ISSUES (Continued)

• Railroads are doing very well, with revenues up despite flat volumes

• Economic revival will help even more• Cloud on horizon is court decision certifying fuel

surcharge antitrust case as a class action• Railroads have appealed class certification

decision

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PORT ISSUES

• Possible strike by ILA closing East Coast and Gulf Coast ports was a top concern last month

• ILA and USMX agreed to resume negotiations with Federal Mediation and Conciliation Service until the end of this year. Port of NYNJ local pay and rules are also being negotiated.

• Elections may have contributed to continuation of talks

• H&PCLC was one of many industry groups monitoring developments

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PORT ISSUES (Continued)

• DOT officials met with shipper groups to hear our concerns. DOT was asked to urge continued negotiations, to be backed up by prompt invocation of Taft-Hartley if necessary.

• Many H&PCLC members contacted DOT and Members of Congress, and we have an H&PCLC letter ready to go if a strike looks likely in early 2013

• Surcharges likely if a strike occurs. FMC filing required.

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TRUCK DRIVER HOURS OF SERVICE NEWS

• H&PCLC has fought for years for Hours of Service rules that promote safety without harming supply chains

• Under the rules adopted in 2003, large truck crash and fatality rates dropped to record lows

• Public Citizen and other interest groups have argued for a decade for shorter hours, the shorter the better

• In 2011, FMCSA issued latest rules, which take effect July 1, 2013

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TRUCK DRIVER HOURS OF SERVICE NEWS (Continued)

• Truckers’ and shippers’ efforts before FMCSA paid off, in that 11th hour of driving time was kept

• FMCSA also kept 34 hour “restart” between workweeks, but mandated two 1am-5am rest periods, which can mean 34 hours becomes 50-60 hours

• The fight is now in the court of appeals, where truckers and shippers, including H&PCLC, are defending 11th hour and challenging restart revisions. MAP-21 requires 2 year study of effects of revised restart rules.

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TRUCK DRIVER HOURS OF SERVICE NEWS (Continued)

• Public Citizen wants at least one hour less per day and an even longer restart. FMCSA is defending all aspects of its decision.

• I have read all the briefs to date and have worked on several. There is reason for optimism that at worst, current rules will be upheld.

• Oral argument in the case is likely before end of this year, with court decision prior to July 2013 effective date of new rules

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CSA DEVELOPMENTS

• FMCSA’s Compliance, Safety, Accountability (“CSA”) program continues to generate controversy

• FMCSA head Anne Ferro defended the program at a hearing before the House Transportation & Infrastructure Committee on September 13, 2012

• Carriers and shippers, including H&PCLC, support goals of CSA – getting bad carriers and drivers to shape up or find other work

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CSA DEVELOPMENTS (Continued)

• ATA’s witness, VP of Safety for FedEx Ground, testified that CSA makes his company look questionable due to Driver Fitness BASIC score

• There are also data problems. Trucking companies are blamed for unpreventable accidents, States vary in how well they report data, and safer carriers serving congested areas can look less safe than worse carriers serving rural areas

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CSA DEVELOPMENTS (Continued)

• The witness for Transportation Intermediaries Association was from CH Robinson

• CH Robinson expressed concern about exposure to tort liability resulting from use of carriers with high BASIC scores

• CH Robinson has reportedly paid tens of millions of dollars to settle truck crash cases involving motor carriers it selected

• CH Robinson and other intermediaries want to be able to rely on DOT Safety Ratings under 49 C.F.R. Part 385

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CSA DEVELOPMENTS (Continued)

• There was a recent decision in Connecticut, Cloutier v. Four Seasons, 2012 WL 233435 (Conn. Super. 2012), granting broker’s motion to dismiss and finding that trucker was an independent contractor

• Brokers also want Congress and/or FMCSA to help rein in lawsuits claiming “negligent hiring” liability or that carriers are agents of broker

• Shippers could also benefit from such measures• FMCSA has not yet issued its Notice of Proposed

Rulemaking on CSA. This is expected in 2013. H&PCLC will file comments.

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