March 1, 2005
enroute | Regulatory Update

When D.C. gets cookin', DCs should take notice

Deregulators may have won the election, but that doesn't mean Washington isn't cooking up lots of new rules that will have a direct effect on your business.

By Peter Bradley

The old saw is that the making of law, like the making of sausage, is something better off not observed.

Don't believe it. Much law and regulation on the front burners right now in Washington, D.C., will have a direct effect on the efficiency of the nation's domestic and international distribution logistics operations. Failure to keep watch could result in some unpleasant surprises. Even when the proposed regulations are aimed more at carriers than at shippers, it pays to take heed.

"I've felt for a long time that it is valuable for shippers to participate and remind regulators that when they over-regulate carriers, they over-regulate shippers, so they over-regulate the economy," says John Cutler, a Washington-based attorney who is general counsel for two shipper groups. Cutler, who represents both NASSTRAC and the Health and Personal Care Distribution Conference, emphasizes that he's not advocating that shippers oppose regulations aimed at, say, improving health and safety out of hand. But he points out that oftentimes, regulators aren't fully aware of the potential economic effects of their proposals and that shippers can many times help educate them.

And this year, as with most years, there's plenty to watch.Agencies ranging from the Federal Motor Carrier Safety Administration to the Department of Customs and Border Protection and Department of Homeland Security will act on rules governing issues from the length of drivers' workdays to border crossing rules.

In the meantime, Congress will try once again this spring to enact new highway funding legislation, which will have a significant influence on highway and intermodal capacity in the years to come. Further, with security remaining a hot topic, numerous proposals affecting freight security will come under consideration.

Should shippers worry about transportation regulation? Those close to the debate believe so.

"The two biggest issues facing transportation professionals, no matter what they do, are capacity and security," asserts John Ficker, president of the National Industrial Transportation League (NITL). "Both are important and both interact and face each other."

The regulatory and legislative proposals now pending in Washington that could affect distribution logistics are numerous, to be sure.What follows is a look at a few that promise to take center stage early in the new congressional term.

Voluntary, in a mandatory sort of way
A prime example of the juncture between logistics and security is the Customs-Trade Partnership Against Terrorism (C-TPAT). That program, created in 2002 and sponsored by the Department of Customs and Border Protection, was designed, at least in part, to identify importers with effective security procedures in place. Companies that participated and had their business processes validated by Customs could expect, in turn, that their shipments would move efficiently across borders. That is, the idea was to enhance security while limiting restrictions on commerce.

But some recent modifications to the program have NITL and some of its members worried. In a letter to Customs in December, NITL Executive Vice President Peter Gatti wrote that parts of the proposed revisions were "still unrealistic, unworkable and vague."

He charged in the letter that the proposals shifted the voluntary program toward imposing mandatory obligations and that the changes could create significant liability for importers. Gatti argued that the changes could discourage new companies from participating in the C-TPAT program and drive some existing participants to withdraw from it.

The league objects to several sections in the proposed revisions. It contends that proposed changes would require each importer to assess risks to its own supply chain without clear guidelines on how to do so. It argues that revisions would create confusion over what is mandatory and what is voluntary within the program and, at the same time, that importers who agree to the new standards could be liable for claims in the event of mishaps that cause property damage or personal injury.

The league calls "unworkable and unrealistic" standards in the C-TPAT regulations that require importers to ensure that upstream suppliers have security procedures in place consistent with the C-TPAT standards. And it complains that demanding that importers ensure procedures exist for inspecting containers before stuffing and for affixing highsecurity seals to containers after they are loaded is unrealistic, given most shippers' lack of control over carriers and vendors.

Subsequent to receiving Gatti's letter, Customs issued a revised proposal, but NITL's initial review of the plan indicated that the new draft did not address its major concerns.

Who's driving?
Though the proposed C-TPAT modifications are shaping up to be largely a problem for importers, carriers are hardly off the hook. There's at least one rule in place that threatens to create major headaches for carriers—and it could soon affect hazardous materials shippers as well. The federal Transportation Security Administration (TSA) is in the second phase of implementing rules requiring truck drivers who haul hazardous materials to go through a security background check in order to get a hazmat endorsement on their commercial drivers licenses (CDLs).

At the end of January, the TSA began fingerprinting drivers applying for the endorsements. The agency has already conducted a name-based assessment of security threats on some 2.7 million drivers, it says. Beginning in May, the agency will require any drivers seeking to renew or transfer their hazmat endorsements to undergo fingerprint-based background checks.

Some observers worry that the scope and cost of the screening may prove far greater than regulators may have expected.

"The hazmat issue is huge," says Tim Lynch, president of the Motor Freight Carriers Association, which represents unionized lessthan- truckload (LTL) carriers.He believes sponsors of the legislation requiring the background checks did not understand how far reaching it would be. "In LTL, we don't hire someone without the endorsement," he says, pointing out that as many as half the trucks on the road carry hazmat placards. Roughly one-third of the CDL holders in the United States have the endorsement and will have to undergo checks if they change jobs or need to renew. "We really have no structure in place [regarding] how to do the background checks," Lynch says. "Homeland security estimates it will cost $100 to do a background check, but they are not saying how it is going to happen."He also expects the actual cost will be significantly higher.

Lynch doesn't quarrel with the need to screen drivers, but he thinks the approach is wrong-headed. "[A]s a practical matter," he says, "it seems as if we're trying to put 9 million truck drivers through a tiny funnel to find out if there are 20 national security risks."

James Latta, vice president of A. Duie Pyle, a New Jersey based LTL carrier, foresees the rules creating headaches for both carriers and drivers. Early attempts at establishing processes will require drivers to take time off and go through several steps to comply with the rules, the implementation of which will vary from state to state. In New Jersey, for example, he estimates the cost at a minimum of $157 for each driver, not counting time off or administrative costs for carriers. "The concern that I have is that they're taking a relatively simple process and making it more complicated and more cumbersome. And we're already in a situation where quality hazmat drivers are in short supply." His company requires that all of its drivers have a hazmat certification, as one-third of all shipments handled by A. Duie Pyle fall under the hazmat regulations.

Other security regulations lie ahead: rules requiring that identification cards be issued to all transportation workers, rules governing air cargo and ocean container shipping, and more. The C-TPAT and hazmat rules are just two of many security measures now before Congress or regulators that could affect freight transportation."There are literally dozens of bills," says Joanne Casey, president of the Intermodal Association of North America.

For all that, Cutler credits regulators for showing some restraint. "The government by and large had not tried to over-regulate on security grounds," he says. "I have to give them some credit for not overdoing security regulations and throwing sand in the gears of supply chains and the economy."

Keep your eyes on the clock and hands upon the wheel
On another front, hours-of-service (HOS) rules for truck drivers are likely to undergo some change as a result of a court challenge mounted last year. Truckers and shippers thought they had a new set of rules in place at the beginning of 2004, but the challenge threw the regulations into a state of flux. Now the Department of Transportation's Federal Motor Carrier Safety Administration (FMCSA) is mulling changes to the rules to meet the court's demands.

The hours-of-service issue is crucial to truckers, and by extension, to their customers. "Clearly, the hours-of-service issue is at the top of the heap for the industry," says Tim Lynch.He describes it as the most important rule governing how truck drivers and trucking companies can operate, affecting scheduling, dispatching, routing and more.

It's not just truckers who are watching the issue; shippers are monitoring the latest developments too. "We're going to follow that very closely," says Ficker of NITL. "Shippers made significant adjustments for the rules promulgated last year. … I hope the rules are not taken to the point where we need additional capacity," he adds, noting that trucking capacity is already in short supply because of an ongoing driver shortage.

The FMCSA implemented new hoursof- service rules last January, the first major change to the rules in six decades. But those rules were challenged by several organizations that promote highway safety, led by Public Citizen. The rules were vacated by the U.S. Court of Appeals in Washington in the middle of last year, requiring the FMCSA to revisit several sections. The ruling created considerable confusion until Congress passed a temporary extension of the new rules at the end of September. That extension expires at the end of this coming September or when a revised rule takes effect.

The court called the HOS rules "arbitrary and capricious" for failure to consider their effects on driver health. Among their provisions, the rules allow an increase in driving time to 11 hours a day from 10, while at the same time limiting drivers to a 14-hour work day, down from 15 hours, followed by 10 hours off duty. Drivers resting in a sleeper cab can divide their 10-hour required rest in two. Drivers are limited to 60 hours on duty in a seven-day period or 70 hours in eight days, but can restart the clock after 34 hours off duty.

The court said that the agency had not sufficiently explained the effects the rules would have on driver health.

In late January this year, the FMCSA asked for comments on the current rule. Also, at the behest of the FMCSA, the Transportation Research Board of the National Academy of Sciences has been compiling literature on the relationship between health and fatigue. The results of that investigation were due early this year. In the meantime, shippers and carriers are worried about how further changes in the rules could affect operations.

While the rules have no direct effect on shippers that do not operate fleets, they do have a direct effect on carriers that serve the nation's DCs, so it is of significant concern to shippers.

Cutler says he hopes a lot of shippers will file comments with the FMCSA on the issue. "While shippers may not have much contribution to make on questions like whether sleeper berth rest compares to bed rest, the statute, the FMCSA notice and the court also asked for cost benefit analyses," he says. "Here, shippers do have a contribution to make. They experienced significant cost increases adapting to the 2003 regulations. I think the concern that many shippers have is that if the 2003 hours-of-service rules are made more restrictive, shippers are looking at a double whammy—costs will go up and service quality may go down." He argues that the 2003 rules were a significant improvement over the previous rules and should be given a chance to be fully implemented before they are judged inadequate.

Lynch says the court ruling has thrown the industry into a state of uncertainty. He says he worries that if the judge overseeing the case rejects any modifications proposed by FMCSA, the uncertainty could continue for some time.

He adds that the issue of defining how work conditions affect driver health is particularly worrisome. "There's no guidance," he says. "The DOT is trying to do two things: get better substantiation for the rule change and [learn more from the industry about] the issue of driver health. That's tricky. Anything you do could be detrimental to your health.

"This issue is going to be front and center for quite a while," he adds.

Lynch says the Department of Transportation (DOT) expects to offer a revised version of the rule by mid-summer, which would then have to be approved by the court. Even then, the plaintiffs in the case could appeal further if they still objected to any of the rule's provisions.

Rough road to a highway bill
While the situation regarding truck drivers remains in flux, the outlook for the roads themselves (or to be precise, their maintenance and repair) also remains unresolved. At the end of September, Congress passed an extension to the existing highway funding legislation, TEA-21, for the fifth time, while continuing to struggle to find a compromise that would find enough support in both houses and pass muster with the White House. It has not been easy.

Two major obstacles have stood in the way of the highway funding bill's passage: Congress had sought a measure funded at $306 billion, which is some $22 billion higher than the $284 billion limit set by the White House in its 2006 budget request. Given the level of the federal deficit, that's one area where the administration may be unwilling to cede much ground.

And, within Congress, the so-called donor states—those that pay more into the highway trust fund than they receive in highway funding—are demanding a larger piece of the pie.

For anyone involved in freight transportation, the larger issue is when key projects affecting freight capacity can get under way. Casey of the Intermodal Association of North America says, "Reauthorization of TEA-21 is at the top of the list. It is even more imperative, given some of the congestion we're facing."

Near term resolution seems doubtful. "We're now on the second year of extensions," says Lynch. "The dynamics that stopped the bill last year haven't changed a whole heck of a lot." The current extension expires at the end of May, and by early February, no new legislation had made its way into Congress.

Lynch and Casey are not optimistic that Congress could approve a bill by May. Casey says, "There's a lot of [skepticism] about whether a bill will be filed, let alone passed, by then."

Lynch fears that failure to act could erode support for the highway funding bill. "The states are getting a little frustrated," he says. With the lengthy cycle required to execute highway construction projects, delays in the new bill push projects well into the future.

One concern among motor carriers is that a proposal called the Safe Highways and Infrastructure Preservation Act (SHIPA), which would extend a freeze on longer combination vehicles (LCVs) to the entire National Highway System, was included in the Senate version of the highway bill last year. The American Trucking Associations and the Association of American Railroads had agreed to a truce on the LCV issue, with each side promising to seek no changes in current law, but the SHIPA bill would add further restrictions.

"It was unclear what would happen in conference," Lynch says, referring to the process by which differences in bills adopted by the House and Senate are ironed out. But his concern is that the chief sponsor of the bill, Democrat Sen. Frank Lautenberg of New Jersey, has a seat on both major committees that have responsibility for the highway bill.

The best truckers can hope for is a continuation of the status quo, Lynch says. "Our members are the key operators of triple trailers," he notes. "We don't back away from a defense of the safety of that equipment. I think the freeze is bad transportation policy and bad economic policy. But as a practical matter, we recognize there's little chance Congress is going to approve any extension [of allowable truck sizes and weights], nor have we asked."

Casey says that for her constituency, mainly maritime, rail and third-party interests, the prime concern is the level of funding for intermodal connectors— projects that link major nodes in the nation's transportation network. She is also hoping for streamlining of the environmental reviews for proposed projects. She calls the current process "arduous and rigorous." A streamlined process, she says, would get projects under way more quickly once they're funded.

In the meantime, there are abundant other issues that could affect shippers: bond levels for brokers, antitrust immunity for tariff setting agencies, roadability rules for intermodal equipment, electronic seals on maritime containers, and more. How they'll develop is unclear, but one thing is certain: with spring approaching, the debate, like the climate, is sure to heat up.

About the Author

Peter Bradley
Editor Emeritus
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.

More articles by Peter Bradley

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