1 Hot Topics Which Can Affect Carrier Costs Henry E. Seaton, Esq. Seaton & Husk, LP CCJ Symposium - May 24-25, 2010 This PowerPoint presentation is available.

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Hot Topics Which Can Affect Carrier Costs

Henry E. Seaton, Esq.Seaton & Husk, LP

CCJ Symposium - May 24-25, 2010

This PowerPoint presentation is available at www.transportationlaw.net

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HOT TOPICS Equipment Drivers/Owner-operators Fuel Taxes and Tolls Compliance Cost Claims/Insurance Freight Charge Collection/Bankruptcy

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1. EQUIPMENT Cost of new versus used undermines sales to small

carriers Iron against the fence has put many carriers upside-

down in recession Value of flipping new equipment in 2 year leases is now

questioned Neat bells and whistles but mpg and cost of operation

has not improved with cost of new equipment Soft market for used equipment is short run plus Equipment leasing – Graves Amendment challenge Carb Emission/State Emission Standards/Ports Suits

• When dependence on foreign oil and “clean and green” are issues - internal combustion engine and those who drive them are “collateral damage” (See CCJ Webinar)

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2. DRIVERS/OWNER-OPERATORS

Traditional paradigm is at risk•Deregulation and competition lead to de-

unionization of industry

•Owner-operator encouraged as “entrepreneurship” and offered competitive counterpart to union shop and restrictive work rules

•Safe harbors protected carrier use of owner-operator, mileage pay encouraged productivity

•NTP and Small Business Rules encouraged the “American Dream” to generation of displaced farmers’ sons

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• Over the past 30 years, union membership in the American workforce has dropped like a rock. Migration of the workforce to the industrial north reversed as manufacturers went south to “Right to Work” states and subsequently overseas

• Labor’s net gains are government workers, teachers, service industries

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• Yet 30 years after deregulation, the requiem cannot be pronounced over organized labor or its influence– Change to Win– “Captains of Industry”/Wall Street versus

“middle class”

• Labor’s agenda– Employee Free Choice Act – Check Card– Administrative changes – NLRB ruling on

certificate requirements for rail and air– IRS/state cooperative on “misclassification”

issue

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• Misclassification:

The notion that independent contractors are an artificial construct to (1) deprive the working man of worker’s compensation, unemployment and other benefits; and (2) to deprive the Federal and State Government of revenue.

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• Battlefields– Congress

• Durbin, Obama, Kennedy Bill - The Independent Contractor Proper Classification Act of 2007

• New Bills in both Houses– State workman’s compensation audits/

unemployment compensation audits– California Ports Bill – “Clean and Green”

mask pro law agenda– DeFazio Committee challenge “Lease to

Own” in California ports– Efforts to repeal “preemption” have

frightening implications

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• The Administration’s position is clear. In supporting elimination of the Safe Harbor Provisions, former Senator Obama said:

“Every day, millions of Americans go to work and play by the rules, teaching our children the values of hard work and responsibility … And most employers treat their workers fairly, paying them a decent wage and providing the benefits they deserve. But we must fix the system to stop those few employers from breaking the rules and exploiting this tax loophole at the expense of taxpayers and our workers’ safety and security. I want to thank … the labor community and trade associations for their support of this bill.”

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• Use of Independent Contractor in Transportation– Long haul– FedEx– MCAA– Taxicabs– Should be “own or lease-to-own equipment and

truth-in-leasing

• Not just a blue state anomaly – AR, GA, TX• Fall elections are a key to Congress – State

level initiatives must be closely monitored

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3. FUEL Adequacy of FSC

•Shipper cram-down of new benchmarks and unrealistic mpg escalators

•Pass through issues/to one who pays the fuel remains issue on brokered freight

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4. TAXES AND TOLLS Federal Government is broke $810 billion stimulus/10% for transportation but

only 4% or $30 billion for highways No action on omnibus highway bill and now there

is no money left “Eisenhower is dead” – states cannot pay the cost

of interstate maintenance Enter the PPP (Private Public Partnership) Code

words for “Let’s Tollgate America” “Greenfields” vs. “Brownfields” Debate Guess who is behind “PPP”?

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Answer:

The Spanish and Australian Concessionaires and the

Railroads

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Expect more state taxes on out-of-

state motor carriers like New York,

Pennsylvania and New Jersey

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• Federal Estate Taxes– Most small carriers are closely held– Estate tax exemption of $6m has

expired– Unless Congress acts by year’s end,

estate over $1m will be taxed at 55%– Affect on small business could be

devastating

SET UP YOUR ESTATE PLANNING MEETING FOR YEAR’S END NOW AND MONITOR WHAT HAPPENS!

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5. COMPLIANCE COST/PRODUCTIVITY

HOS revisited•The 34 hour restart is under attack

•Inability to log “Off Duty” while waiting to unload is problem

•“Reasonable dispatch” has lost meaning – spotted trailer cost/small carrier cannot afford to wait or to spot

•GAO study pending to look at detention abuses

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• CSA 2010– Potential for driver blackballing– Citations and warnings, not convictions– Old hands are safest drivers– Frustration factor– Truck count is denominator for collision

ratio, not miles run (i.e. more productive carriers have statistical disadvantage)

– Progressive intervention/compliance cost – “At risk” status and website affect

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• EOBR– Technology cost down but mandatory one

strike application has costly affect on owner-operator fleet

– Clearly more to come from Agency– ATA support documents challenge may

hasten

• New Entrants

• New Driver Training

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6. CLAIMS/LIABILITY & INSURANCE

Accident liability•When $1m is not enough

•Push to increase minimum at FMCSA•Would require Congressional Act

•Long way off

Vicarious liability•Plaintiff’s bar sues shipper, broker and truck

lessor

•Shipper – often requires more than BMC-91 demanding $2m or more

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• Brokers

– String of bad CHR cases (Schramm, Jones, et al.) leads to shippers requiring brokers to have “contingent cargo insurance” with excess limits and strict indemnification

– If you BROKER – DO NOT ACCEPT CARRIER DUTIES

– Assuming carrier duties CAN RESULT IN CATASTROPHIC LOSS

– Fortunately larger brokers are now pushing back on over promising indemnity beyond responsibility for selecting “licensed, authorized and insured carriers”

• Leasing Company

– Graves Amendment– Limited protection for leasing company– Under attack on preemption by New York

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• Cargo claims/undermined in three ways:– Defective cargo insurance– Insurance sold on price, not coverage– Acord certificate does not

disclose/BMC-34 to be eliminated– Requires your agent to address each

of these and READ YOUR POLICY

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– Typical loopholes:• Wetness, flatbed, tarp endorsement doesn’t

fix• Temperature damage, refrigerated foodstuffs,

reefer breakdown doesn’t fix • Theft - Unattended vehicle; Unguarded lot; Not

“in transit” argument; Unattached trailer not covered

• Co-insurance• No claim made by insured• Replacement value / not file actual value• Shipment not on specified vehicle• Undisclosed deductible • Failure to mitigate• No duty to defend / double suit required

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• Reject it, crush it, and dump it– Shipper requires waiver of statutory

liability (Carmack) and replacement with• Indemnity language• “sole discretion” to mitigate• Then destroys good product – especially

foodstuff if seal is broken

– Your insurance does not cover this– FDA, TSA does not require

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• Offset– Spiral of death for small broker or carrier– Factors will close carrier down– Broker loses ability to pay uninvolved carriers

• Value of Release Rate– How to enforce and why

• Know what you haul• Limit to insurance• Manage by exception• E.g. machinery/missile launchers• Truckload is only unlimited liability by default regime

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7. COLLECTION OF FREIGHT CHARGES/BANKRUPTCY

Credit terms Recourse Bankruptcy

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• Credit Terms– Shipper insists on 90 days!

• Interest free loans• Know your carrying cost

– Insert interest and attorney’s fees/no offset– Liens

• Recourse– Broker should fulfill regulatory obligation to

establish trust accounting– FIFO does not work when a major shipper

defaults– The value of preserving recourse

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• Bankruptcy– Carrier as “unsecured creditor loses receivables and

works in progress– “Preferred Vendor” status is a key

• Get payment and “release for preference if possible”– Preferences

• DIP or trustee sues for “all” payments “outside ordinary course of business” within 90 days

• Inequitable and unfair– Requires carriers to give back “slow pays”

• Defense– Ordinary course of business– New value

• Good guys finish last• Banks and deadbeats engage in equitable

subrogation (e.g. Quebecor, where 435 motor carriers, brokers and factors were sued for over $63m)

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• Broker bankruptcy– Whose money is it?– Special committee– Stake claim on bankruptcy receivables– Establish a “Special Victims” Committee

to fight the “Secured” Creditor

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SO WHY ARE YOU IN IT? Equipment costs are up The owner-operator model is under attack and the

unions want to organize The highways are deteriorating and nobody will fix

them Foreigners want to take highways and sell them at

a profit one mile at a time Re-regulation threatens production Risk of liability and cargo losses are up and you

may not be insured Shipper wants interest from loans and if they go

under you may have to give back even more If you die your equity (55% of what you have) may

go to pay down the national debt

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BUT…

Capacity is down/rates are up It is honest work It is in your blood Trucking is one thing that cannot be

exported to China or Mexico As long as you DO NOT get rear-

ended or blindsided by the risk