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To Toll or Not to Toll

by Cliff Lynch
24. March 2014 12:51

As October 1 approaches, all supply chain eyes will be turned toward Washington to see what Congress does about the transportation funding bill scheduled to expire on that date. Most are aware of our deteriorating infrastructure and the billions of dollars it would take to bring highways and bridges up to acceptable standards. But no one seems to have the foggiest notion about where the necessary funds will come from. The Highway Trust Fund is expected to be depleted by August.

A number of industry experts feel that the federal gas tax of $.184 per gallon should be increased. This has not been done since 1993, primarily due to the fact that whenever it was considered, it fueled a political firestorm.

President Obama has spoken several times lately of "public - private" partnerships which can be translated into "tolling our interstates". Congress banned tolls on all interstates when the 46,000 mile system was created in 1956, although they have made some exceptions in the past several years. Generally speaking however, only those highways that had tolls at the time could keep them.

Many influential firms and organizations, such as the memberbership of the Alliance for Toll-Free Interstates that includes FedEx, ATA, UPS, and McDonald's, are opposed to tolling and this is surely to generate a contentious debate within Congressional walls when it comes up for consideration.

One of the most logical objections is that toll roads will result in "double taxation" as we would pay federal and state gasoline taxes, as well as tolls. Another argument is that tolling will simply create another major bureaucracy that must be financed. The Illinois Tollway Commission, for example, operates 286 miles of toll roads in 12 northern Illinois counties. Their annual operating budget is slightly over $583 million, and they have 1700 employees. In fairness, a major part of this goes toward maintaining the highways, but a whopping $93.6 million is spent on toll services. The system has 473 toll collectors.

Many industry watchers, including this writer, believe some reasonable increase in the fuel tax woule be a much more fair and equitable solution. Certainly, the resulting revenue would not be enough to completely solve the problem, but it would be a good start.

Are They Back?

by Cliff Lynch
10. March 2014 10:20

Many of us recall the Keystone Kops, the fictional, incompetent policemen who were featured in many silent films of the early 1900s. I am beginning to believe they may be back and involved in the aptly named Keystone XL oil pipeline project. This pipeline, proposed two years ago, would move Bakken crude oil from the upper U.S. and Canada to the Gulf Coast. Since it was suggested, it has been a political minefield; but last week, President Obama told the nation's governors in a meeting at the White House that he expects to make a decision in the "next couple of months". This prompted an outburst by Louisiana governor Bobby Jindal, saying that if Obama were really serious about improving the economy, he would approve the project.

Predictably, the project is trapped between Democrats, Republicans, environmentalists, and others who have strong feelings about digging a trench across the country. In the meantime, the oil is moving by rail at the rate of thousands of barrels a day and has been a tremendous shot in the arm for railroads, tank car manufacturers, and other related industries. The significant downside is that there have been some very serious accidents involving the oil trains. Train shipments of oil are expected to reach 2 million barrels a day this year. While the pipeline would not eliminate the need for rail transport, it would certainly help. A recent State Department environmental report overcame one hurdle when it indicated that the backers of the pipeline are right – it will not have a significant impact on carbon emissions.

Environmentalists are crying "foul", saying the report was a sham, and the proponents point to the project's $3.4 billion in increased economic activity suggested by the report. While the arguments are sure to continue, with the U.S. on a trajectory to be the world's largest oil producer by 2015, a decision is critical. Realistically speaking, the politics and polarized opinions surrounding the project could tie it up for years; but if we ever want to get out from under the oil hammer the Mideast continues to hang over our heads, something must be done – and soon.

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Show Me the Money

by Cliff Lynch
20. February 2014 08:55

With the current transportation funding legislation due to expire in October of this year, Congressional and industry leaders are beginning to mull over how it will be replaced. There is no disagreement that the country's infrastructure is in a serious state of deterioration. The big question is how improvements will be funded; and so far, Congress has not been able to reach a consensus on a viable answer. The American Society of Civil Engineers has estimated that an investment of $2.7 trillion will be needed by 2020 in order for the country to stay competitive. There is no way that any plan can generate that kind of funding; but at a minimum, $50 billion annually will be required to fund critical projects. The Highway Trust Fund is predicted to have a shortfall by August.

The most obvious answer is to increase the fuel tax. First levied in 1932, the fuel tax is the primary source of revenue for the Highway Trust Fund. These taxes of $.184 on gasoline and $.244 on diesel fuel, however, are woefully behind the rate of inflation and have not been increased since 1993.

On February 12, Tom Donohue, president of the U.S. Chamber of Commerce, recommended to Congress that the tax be increased by 15 cents per gallon over the next three years, chiding the Senate committee to, "For once let's do what is right, not what is politically expedient." The same day, Representative Earl Blumenauer (D-Ore.) introduced a bill that would increase the gasoline tax to $.334 on gasoline and $.428 on diesel fuel.

The whole issue of course, is a political minefield, with which Congress hasn't dealt for over twenty years. The House Transportation and Infrastructure Committee Chairman doesn't believe Congress will support such an increase again this year. The states also levy fuel taxes averaging $.335 on gasoline and $.243 on diesel, and as Congress continues to kick the can down the road, they are enacting their own increases to pay for infrastructure improvements the federal government won't fund. Congress is right about one thing – many voting drivers no doubt will push back.

Some members of Congress have suggested that they abdicate their responsibility and have the federal government just turn the whole thing over to the states. Whatever the solution – private funding, tolls, tax increases, etc. – it is absolutely critical that Congress does not let the can be kicked any further. It is past time to act responsibly in spite of the political pain.

Uncertainty in the LTL Industry

by Cliff Lynch
7. February 2014 09:15

Last month marked the fiftieth anniversary of the Teamsters' National Master Freight Agreement (NMFA) with the motor carrier industry. Often referred to as Jimmy Hoffa's greatest achievement, it covered 400,000 union members and 16,000 motor carriers. The NMFA has diminished in significance until now it applies to only a handful of carriers. While this is not necessarily a bad thing for the carriers and shipping public, it has produced some disconnect in the industry. With different agreements with individual carriers, it is difficult to predict how negotiations might go.

In October of last year, ABF Freight System and the Teamsters ratified a five year agreement that reduced wages by 7% and cut other benefits.

In January of this year, UPS Freight and the union agreed on a five year contract that will raise wages by $2.50 per hour over the life of the contract, as well as increase other benefits. By the end of the contract the base pay for a UPS Freight driver will be an impressive $70,000 annually, the highest in the industry.

Three weeks ago, Teamster members overwhelmingly rejected a proposed five year extension of the current YRC contract. The proposal would have extended to 2019, the 15% wage reduction agreed to in 2009, along with a 75% reduction in pension contributions. 61% of the members drew a line in the sand. However, last weekend, the union accepted a modified proposal which although still containing the extension of the 15% rollback, made some other concessions to the employees. Without this agreement, YRC would have been in serious trouble with their $1.4 billion debt load, a $69 million chunk of which is due to lenders on February 14. They now have begun to move ahead with refinancing.

Since labor and fuel are the two major expenses of any motor carrier, these agreements have a direct impact on the rates shippers will pay. And even for non-union carriers it would not be surprising to see some pressure for higher wages, particularly in view of the UPS agreement.

Even though the YRC issue seems to be resolved at least for the time being, it is difficult to predict what these agreements mean to the shipping public. Most industry experts are predicting increases in both TL and LTL of 2-3% this year; but as always, there will be some uncertainty surrounding fuel costs, capacity, and drivers.