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
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Equipment
Drivers/Owner-operators
Fuel
Taxes and Tolls
Compliance Cost
Claims/Insurance
Freight Charge Collection/Bankruptcy
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1. EQUIPMENT
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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
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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
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Traditional paradigm is at risk
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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
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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
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Adequacy of FSC
• Shipper cram-down of new benchmarks and
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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
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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
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HOS revisited
• The 34 hour restart is under attack
• Inability to log “Off Duty” while waiting to
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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
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Accident liability
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When $1m is not enough
• Push to increase minimum at FMCSA
• Would require Congressional Act
• Long way off
Vicarious liability
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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/BMC34 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
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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
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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?
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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…
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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
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