Dark Clouds on the Horizon

Report
Welcome to Delta Nu Alpha
Dark Clouds on the Horizon –
Issues Involving Truck Transportation
Webinar - February 21, 2008
With Avery Vise, Editor, Commercial Carrier Journal
and Henry E. Seaton, Seaton & Husk, L.P.
Henry E. Seaton
Seaton & Husk, LP
2240 Gallows Rd.
Vienna, VA 22182
www.transportationlaw.net
Henry E. Seaton is a graduate of Duke University (A.B. ’70) and
Vanderbilt School of Law (J.D. ’73). He has practiced law for 30 years
in the Washington D.C. area representing motor carriers and brokers.
He is a member of the Vienna, VA based law firm of Seaton & Husk. The
firm specializes in freight claims, freight charge collection, contracting
issues, carrier representation before the FMCSA and bankruptcy issues.
.
Mr. Seaton writes a monthly column on transportation law for the
Commercial Carrier Journal (CCJ) and is the author of Protecting Motor
Carrier Interests in Contracts. He serves as commerce counsel for the
National Association of Small Trucking Companies. He was the Delta Nu
Alpha Transportation Professional of the Year in 2001 and is a frequent
speaker and lecturer regarding cargo claims, freight charges,
contracting and risk/insurance issues effecting carriers and brokers.
Mr. Seaton can be reached at [email protected] For articles and
other information, please see www.transportationlaw.net.
Thank You
Corporate Sponsors!
Kings Express
Landstar RMCS
Apex Capital LP
*USA Transportation Services, International
*Champagne Logistics
*Greatwide Truckload Management
About DNA
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Fraternity of transportation professionals
Open to all with interest in education
Interdisciplinary – shippers, carriers, third party
logisticians and students
Traditional chapter format – Milwaukee, Chicago,
Rockford, Nashville, Bowling Green, Grand
Rapids, Louisville, Le High Valley
Student chapters at Western IL University
Scholarship program
Syllabus of Future Webinars Contains
Chronic and Acute Industry Problems
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Format is issue presentation followed by open
question and answer.
Diverse opinions are encouraged.
Goal is to assess issues, impart information and
better prepare listeners as knowledgeable
professionals in any industry which too
frequently ignores day-to-day problems of
contracts, claims and operations in favor of
“supply chain management.”
CCPAC accreditation of 3 courses for cargo
claims specialists.
Upcoming Webinar Topics
3/18/2008
4/15/2008
5/13/ 2008
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6/17/2008
7/15/2008
8/19/2008
9/16/2008 
10/21/2008
11/18/2008
Accident Liability Travels Up The Supply Chain
Contract Waivers – 50 Reasons to Keep Bill of Lading
Terms and Conditions, and Federal Rules
Multimodal Cargo Claim Issues – A Prescription
for Confusion
Contracts of Carriage – A Study of Controversial
Provisions Which Divide Shippers, Brokers and Carriers
FMCSA Safety Regulations
The Scourge of Double Brokering
Cargo Claim Mitigation, Adjustment and Salvage Issues
INCOTERMS – The Language of the Global Economy
Supply Chain Security Issues – Alphabet Soup and
New Regulations
For more information and to register, go to www.deltanualpha.org
Approved for Certified Claims Professional
Accreditation Council (CCPAC) Credit (1.5 CEUs)
Dark Clouds
on the Horizon
Acute Problems Facing
Truck Transportation in 2008
The Economy
The Credit Crunch
Economic Downturn
Insolvency Issues
Economic Downturn
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The effect of economic downturn on
transportation:
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Unforeseen bankruptcies
Unforeseen credit risks
Effect on brokers/effect on carriers
Critical vendor status, effect on small vendors
(i.e. Quebecor World)
"It's only when the tide goes out that
you find who has been swimming
naked. The tide is going out and it
won't be a pretty sight."
-- Warren Buffett
Credit Crunch Leading to Downturn
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New Housing Construction Down
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Forecast truckload cut backs
Little or no growth by major fleets
New truck sales down – cost/pre-buy
No “Red Iron” against the fence is aim
Growth in intermodal/rail and dedicated
“Alumni” are returning as sign of driver
shortage abating
Insolvency Threats
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Effect of shipper bankruptcy on carriers
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Critical vendor status for few
Carrier is general unsecured creditor which
loses pre-petition receivable and is hit with
preference
Carriers should be tightening credit terms
while strapped shippers seek greater days to
pay
Effect on small carriers of factoring and
recourse financing is significant
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Effect of shipper bankruptcy on brokers
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If broker is “at risk,” shipper insolvency will
have major adverse effect
TIA contract makes broker sole obligor for
payment
Sophisticated brokers follow different
approach – as the disclosed pay agent of
shipper, their obligation is to pay carrier only if
paid by the customer
Role of broker is major legal dispute between
broker and carrier community
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i.e. TIA and ATA broker/carrier contracts take
different position on this
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Effect of broker insolvency on carriers and
shippers:
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Venture capitalists and brokers unfamiliar with
industry have advanced 3PL large loans based
on “security interest,” entire receivable and
cash flow analysis
If lender gets nervous or over-extended it can
“flush the trade” – suck out cash and
escalating payables, prior to bankruptcy
In bankruptcy, carriers can organize to claim
priority – ACI, World Part
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Effect of broker insolvency on shipper
double payment:
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(1)
Pursue shippers under recourse
theory. See Hawkspere Shipping Company,
Ltd. v. Intamex, S.A., 330 F.3d 225 (4th Cir.
2003); National Shipping Co. Of Saudi Arabia
v. Omni Lines, 106 F.3d 1544 (11th Cir.
1997); Strachan Shipping Co. v. Dresser
Industries, Inc., 701 F.2d 483 (5th Cir. 1983);
and Oak Harbor v. Sears, 420 F. Supp 2d
1138,1148 (W.D. Wash. 2006)
(2)
Advance constructive trust (Blue
Thunder)
Productivity and Demand Down/Cost Up
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Equipment cost
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Pre-buy sticker shock ($120k Tractor; $22k Trailer)
Fuel cost
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Surcharge issues
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Pegs and formulas
Consistency
Labor Cost/Productivity
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HOS
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Flexibility and sleeper berth
Circadian straight jackets
Congestion
The future of HOS and EOBR
Hours-of-service rules
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Appeals court voided 11 hours of driving
and 34-hour restart on procedural grounds
FMCSA issued an interim rule retaining
those provisions
Public Citizen sued, but the court sided
with FMCSA
Comment period extended until March 17
Risk: Merits of rules not yet considered
EOBRs
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Appeals court in July 2004 faulted FMCSA
for failing to consider EOBRs
FMCSA in January 2007 proposed to
require EOBRs for carriers demonstrating a
pattern of noncompliance
Some enforcement relief for voluntary
installation
September 2008 targeted for final rule
Risk: FMCSA proposal just the first step
Mexican trucks
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Program began Sept. 6, 2007
Currently 15 Mexican and 5 U.S. carriers
Lawsuits by Public Citizen/Teamsters and
OOIDA argued Feb. 12
Congress blocked funds to establish
cross-border program; DOT says it can
continue an existing program
Risks: Cheaper competition and potential
enforcement implications for U.S. carriers
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Welfare Cost
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Worker’s Compensation rates
State overtime issues
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Washington State initiative
Infrastructure Cost
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Privatization of interstate highways
Brown fields v. Green fields debate
Foreign Interest/Eisenhower is dead
Secretary Peters supports privatization
Highway trust fund faces bankruptcy in 2009,
Congress has funding issues
How do you differentiate pricing?
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Dark Clouds
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Shipper auctions return
Cut rate pricing
 Effort to establish lane-by-lane fuel surcharge
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Extended credit terms
Increase insolvency risk
 Exacerbate factoring cost
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Double brokering – who is the carrier
Break One
Turbulent Winds
of Change
Identifying the opposition
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Organized labor
Safety advocate groups
Blue state labor relations boards and
legislatures
Plaintiff’s Bar
Pro Labor Senators and Representatives
Anti-Pollution advocates
Examples
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Environment
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Anti-idling ordinances
State fuel requirements
LA and Long Beach ports proposal
Union backed – tenuous tie to owner-operators
Safety Advocates
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James P. Hoffa states, “The FMCSA is showing it as being held
captive by the trucking industry" in response to the new HOS
decision.
Joan Claybrook states: “The FMCSA is continuing the sweatshop
conditions for truck drivers rolling down the highway which
endangers Americans all over the country.”
What’s really needed is a repeal of the Fair Labor Standards Act
exemption so truck drivers will be paid overtime and can have a
9 to 5, 40 hour a week job.
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The goals
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Repeal FLSA exemption
Make truck driving shift work
Kill flexibility in name of circadian rhythm
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Blue State Initiative
Washington has extended its state overtime
law to include both inter- and intrastate
trucking and the Supreme Court refused to
hear an opinion.
 California under the guise of “pollution
control” proposes to eliminate owneroperators at port.
 Eliot Spitzer in New York passed legislation
requiring all truckers making pickups and
deliveries in New York to add New York
worker’s compensation to their certificate of
insurance.
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State Laws – the Patchwork Quilt
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Uniform Carrier Registration – intends to
simplify Bingo Card/ Single State
Registration but now must comply with
Secretary of State requirement (e.g. NJ,
PA, NJ et al)
Serious Impediment for Small Irregular
Route Carriers
Seizures and Major Fines
The THREAT of Unionization
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A strong political force
Targeting service industries which are not
exportable overseas
Advocates in HOS, Mexican trucks, LA ports
issues
Major goals are to defeat independent
contractor model and pass “Employee Free
Choice Act” (see www.teamsters.org – “Fed Up
with FedEx”)
Pending Federal Legislation
and the 2008 Election
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Employee Free Choice Act
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Supported by Democratic majority in both Houses
Would eliminate requirement of election, requiring
union certification based on card signing alone
Depriving management of opportunity to respond
Would require 30 mediation and could impose
contract if no agreement
Endorsed by both Democratic candidates
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Obama-Durden-Kennedy Bill
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Possible repeal of FLSA Exemption
Intended to eliminate safety harbor protection
for treatment of independent contractors as
1099 recipients
Sponsored by teamsters who claim
10.3 million workers in all industries are
misclassified as independent contractors; and
 Employers save upward of 30% in payroll costs
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The Perfect Storm
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Owner-operators play a significant part in the
truckload industry
Truth in Leasing Regulations (49 CFR 376)
applies to leases with drivers of commercial
motor vehicles (10,000 gwv)
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Imposes duty to “control” on carriers (insurance,
HOS, maintenance, safety, etc.)
Traditionally OOIDA class action suits under self-help
provisions, 49 USC 14704, have been major area of
litigation
Benefit from cheaper OCC/ACC insurance rates, no
withholding, itemizing deductions, differences in self
employment tax v. employee/employer match
Now the Classification of OwnerOperators as Independent
Contractors is Under Attack
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The issue of Federal tax law treatment was
thought settled in an IRS ruling found at
www.irs.gov/irs.cite/van.ops.pdf, permitting
carriers to sell equipment over time to
owner/operators and still keep independent
contractor status for withholding purposes.
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The retention of drivers with equipment under the
owner/operator model has been successfully
employed to encourage responsible drivers to own
and manage their own assets while taking advantage
of lower taxes. (i.e., No W-2 treatment, no FICA
match, greater deductions)
Safe harbor provisions allowed a challenged carrier to
rely on the custom and usage in the industry when
challenged or federal audit
State Law Treatment
(1)
(2)
Much of the economic incentive for the owner-operator
model is the freedom of choice afforded to the owneroperator to opt out of traditional workers
compensation coverage and obtain cheap but
comparable occupational accident occ/acc coverage.
Application of mandatory workers compensation
provisions on owner-operators is a state law issue
traditionally based on variations of a “controls test”
which has morphed over time into a complex web of
statutes and case law interpretations that vary by
state.
(3)
Until fairly recently, the advantages of a onesize-fits-all independent contractor agreement
complying with the truth-in-leasing regulations
outweighed the risk of state law
reclassification, especially when the
independent contractor was required to
purchase occ/acc insurance affording coverage
in case of injury on the job.
(4)
Yet pro labor industrial relations and
workers compensation boards at the
state level have upped the ante on the
reclassification issue inspiring retroactive
unemployment compensation tax
penalties and ever stricter control
guidelines on the classification issue
(e.g. IL, CO, CA, MA, et al).
(5)
(6)
Over 72 state law initiatives were introduced
last year. Organized trucking has met with
little success.
Although fact intensive in the absence of
statutory relevance it is difficult to meet the 20
point control test when the owner-operator
must be part of the carrier’s daily operations to
effectively serve the shipper.
FedEx Cases
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Precedent setting, distinguishable but
threatening. The Court found owner-operators
should be reclassified as employees because:
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Company had sole right to interpret Operating
Agreement
Routes could be refigured without driver say
Driver’s work was core to the company’s business
Company controls who drives vehicle
Company can effectively terminate contract “at will”
The Conundrum
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Truth-in-leasing and safety regulations
require exercise of control but control
destroys independence under 20 Part
Control Test
Shippers impose just in time / guarantee
service requirements but under control
test owner/operator must have right to
turn down loads
Political Response to Classification
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Increasingly states are interpreting the control
tests to require worker’s compensation for
owner-operators, the TCA has announced an
initiative to create state exemptions recognizing
the political atmosphere in Washington is not
conducive. Preemption not viable in pro labor
Congress.
Trial lawyer adversaries make process difficult.
A coalition of large trucking interests, small
trucking interests and owner-operators has not
yet been formed. OOIDA has not lobbied in!
Conflict among carriers/ATA
Alternative Excess Capacity Models
Core carriers using “outside” carriers
Owner-operators urged to “take the last step” and
become their own independently authorized FMCSA
Carrier
Benefits:
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Liability becomes vicarious or contingent
Avoid cut-through liability on workers compensation,
withholding, overtime, etc. if buck stops with the name on the
door
Problem areas:
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Loss of economics of scale
Vicarious liability
Policing of small carriers safety record / negligent hiring issue
“Controlling speed” – how to retain subcontractor?
Broker/carrier conversion interline?
Cargo liability issues
Shipper and Broker Resistance to
New Model Based on Scourge of
“Double Brokerage”
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Use of spot market/internet by
unscrupulous middlemen;
The ease of identity theft;
Confusion over “who is carrier” on bill of
lading and broker resistance to identifying
service provider on bill of lading.
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What can be done?
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Asset based carrier clearly disclose its brokered
affiliate is arranging transportation to shipper
Match carrier hired to name on door at the time of
pickup
Contingent cargo insurance and better understanding
of Accord and insurance
Separate carrier and broker operations:
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Confusion when carrier and broker wear the same “hat”
Violates 498 CFR 371
Places “man in the middle” in liability loop (e.g. California,
son of Schramm)
Vicarious liability – how much “checking out” is
enough – join us next month!!
Preemption
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What is it?
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How does it apply to WIC, state overtime, “clean and
green initiatives?
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The doctrine that under the Commerce Clause of the
Constitution, Federal Law can trump state laws in the name of
uniformity and achieving an overriding Federal purpose. Safety
enforcement, F4A Act preempting intrastate authority
requirements are examples
Answer - So far it does not
The patchwork quilt
Conflicting requirements and laws
Current Congress is not favorable alternative because of
labor constituencies
Rowe v. N.H. Motor Transp. Ass'n, 522 U.S. ___ (2008).
Segment Analysis of Effects of
“Winds of Change”
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Irregular Route TL
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Productivity reduction
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Sleeper berth
New equipment cost
PU and PD scheduling/inflexibility
Price pressure – fuel surcharge
One man-one truck model in jeopardy
I/C Model-small business cost advantages – 30% at peril
Intermodal
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Port access problems
L.A. ports bill – union efforts
Credentialing – port cards and TWIC
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Dedicated and core carriers
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Long term contract cost assumptions at risk –
not accounting for:
HOS charges
 Overtime charges
 Restrictive week rules
 Cost of unionization
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Easier to unionize
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The patchwork quilt
Conflicting requirements and laws
Current Congress is not favorable
alternative because of labor constituencies
Future enforcement
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Comprehensive Safety Analysis 2010
Wireless roadside inspections
Risk: Carriers’ – and drivers’ – safety
records could be far more volatile and
sensitive to flawed data.
CSA 2010
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Concept: Intervene early to correct safety
problems without a compliance review
SEAs to be replaced by targeted BASICS
Each carrier reviewed every 30 days
Operational model testing in Colorado,
Georgia, Missouri and New Jersey
FMCSA plans rulemaking by this summer
See www.fmcsa.dot.gov/csa2010
Wireless roadside inspections
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Concept: Replace physical inspection with
data uploads on driver and vehicle status
FMCSA issued a report in July 2007 and
conducted an initial test in August 2007
Agency met with technology vendors in
January to discuss concept and options
Likely model based on weigh station or
roadside inspection, but FMCSA also has
discussed “ubiquitous screening.”
Wireless roadside inspections
Enhanced screening concept
Federal
databases
State
databases
Source: FMCSA
Enhanced
screening
station
Virtual inspection data points
• Hours of service
• CDL number
• Other driver info, such as
LDWS, collision warning
• VIN
• US DOT number
Source: FMCSA
Other fault code info
• Fuel system
• Transmission
• Air system
• Electrical/electronic systems
Brake system
performance
Lighting
system
performance
Tire condition

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