HEALTH AND PERSONAL CARE LOGISTICS CONFERENCE WASHINGTON UPDATE April 2011 John M. Cutler, Jr.

McCarthy, Sweeney & Harkaway, P.C.

1825 K Street, N.W., Suite 700 Washington, DC 20006 (202) 775-5560 [email protected]

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OVERVIEW

• November elections changed political dynamic • Gridlock is worse, as predicted, and may lead to Government Shutdown • Key personnel changes are John Boehner replacing Nancy Pelosi as House Speaker, and John Mica replacing Jim Oberstar as Chairman of House T&I • Tea Party and other Republican Freshmen are becoming a force on Capitol Hill 2

INFRASTRUCTURE

• Everyone knows we need to spend more • Fuel taxes not increased since 1993 and 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 3

INFRASTRUCTURE (continued)

• No action during lame duck session • Loss of former House T&I Chairman Oberstar is blow to effort to increase investment • New House T&I Chairman Mica is knowledgeable and concerned, but faces same funding problem that blocked action under Oberstar • White House proposal is ambitious and unrealistic 4

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 5

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 6

PROSPECTS FOR SUCCESS

• The White House budget sounds good but has little chance of success • The Mica approach is unlikely to meet needs almost $12 billion would need to be cut to match spending and projected fuel tax revenue, due to front-loaded obligations stimulus funding included less than $30 billion for highways and bridges, and most of that is spent or obligated 7

PROSPECTS FOR SUCCESS (continued)

• Gridlock in Washington makes it difficult to pass anything that is at all controversial • No earmarks pledges make it harder to attract votes • Private equity is unlikely to fill the gap and tolling remains unpopular 8

PROSPECTS FOR SUCCESS (continued)

• 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 • Will success even be achievable in 2013?

• Assuming funding is found, who will provide it?

• Assuming funding is found, where will it go?

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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 • Rockefeller bill stalled • STB rail competition proceeding unlikely to change anything anytime soon 10

RAILROADS ARE DOING GREAT (continued)

• DOT loves railroads, extending record funding and calling for more freight to move by trains, not trucks • Trucking productivity growth stalled • Rail intermodal service quality is improving • Watch rail fuel surcharge antitrust case • Watch S. 49, Railroad Antitrust Enforcement Act of 2011 11

AIRLINES

• FAA Reauthorization Bill passed by House • 2007 FAA Act, which has been extended 17 times, may finally be updated • Veto threat due to provision overturning NMB ruling facilitating unionization 12

AIRLINES (continued)

• No FedEx labor provision • Funding for NextGen Air Traffic Control system • More slots for Reagan National Airport in Washington 13

WATER CARRIERS

• FMC relieves NVOCCs from requirement of filing tariffs with the Commission if they make free copies of rules tariffs available to public enter written agreements before accepting covered shipments retain documents for 5 years • New Negotiated Rate Arrangements cannot be amended, so they are most likely to be used for short term or one-off deals • NVOs can still use NVOCC Service Arrangements (NSAs).

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WATER CARRIERS

• FMC Chairman urges shipping lines and shippers to provide in their service contracts for use of FMC’s Consumer Affairs and Dispute Resolution Services (CADRS) office in service contracts • DOT making a push to promote barge transportation of freight • DOT cites ability of “marine highway system” to save energy and reduce congestion 15

CAUSE FOR CONCERN OVER TRUCKING

• Fuel Costs • Lack of progress on Highway Bill • Hours of Service and Driver Shortage • CSA and Drive Shortage • DOT Policy • Truck Size and Weight Limits • Where is the good news for trucking?

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HOURS OF SERVICE

• Hours of Service rules in effect from 2003-2011 have worked well • Highway crash rates and fatalities have fallen, including 3% drop in 2010 • 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 17

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 • H&PCLC and many other carrier groups, shipper groups, and drivers filed comments opposing HOS rule changes • Prposed rules will exacerbate driver shortage • Court challenge certain; H&PCLC will support trucking industry 18

COMPLIANCE, SAFETY, ACCOUNTABILITY

• New FMCSA program to improve trucking company and safety accountability and performance is being implemented • Rulemaking proceeding not likely to begin till this summer • H&PCLC will participate • Safer highways likely to result, as bad apples (drivers and trucking companies) forced to improve or seek other employment 19

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 recommended 20

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 21

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 22

OTHER TRUCKING DEVELOPMENTS

• GAO Study says freight trucking costs not passed on to consumers are 6 times greater than rail costs and 9 times greater than water costs • 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, saying this will mean more trucks on roads, but gridlock is the main obstacle • FMCSA eliminates minimum insurance requirements for motor carriers 23

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 • Deal needed to end 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.

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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 25

SECURITY

• TSA wants to screen 100% of inbound air cargo by the end of 2011, two years sooner than expected • Attempt to ship explosives in printer cartridges from Yemen is cause • Puerto Rico Port Authority proposed an expensive ($70 per container) x-ray screening program on all inbound ocean containers 26

SECURITY (continued)

• Opposition from carriers and shippers, including H&PCLC, has led to revisions, including possible exemption for C-TPAT members • Crowley won court order halting program 27