Down the Road, the 117th Congress and Transportation

Scott Marks | Government Affairs Manager | TIA

The 2nd session of the 116th Congress has been a whirlwind, packed with a marathon markup of a $2 trillion infrastructure package, COVID-19 response packages, and a lot of pettifogging by both sides of the aisle. Coming up in a couple of weeks will be Infrastructure Week. This is a dedicated week focused on the shared transportation priorities between the Executive and Legislative Branches of the Federal Government to fix America’s crumbling roads, bridges, and other infrastructure needs.

This Infrastructure Week feels a lot like the past ones as once again, the United States Congress has yet to send to the President’s desk a new sweeping, comprehensive surface transportation reauthorization. Instead, it will most likely pass a continuing resolution which means carrying over the spending levels from the previous authorizing legislation. Our United States freight system is about four million miles of highways and roads; 140,000 miles of rail lines; 25,000 miles of inland and coastal waterways; 2.8 million miles of pipelines; and more than 5,000 public airports. We must pass into law a piece of legislation that is just as powerful as the system it looks to overhaul.

Next Congress needs to feel the urgency to pass a sweeping, up-to-date, surface transportation bill that takes into consideration all aspects of the supply chain, shippers, brokers, and carriers. The bill needs to be expansive, while at the same time, empowering states to fix their non-federal highways. Studies are conclusive and substantive on the issue of dollars lost because of the crumbling infrastructure, and as the Department of Transportation’s newly released National Freight Strategic Plan states, the issue will continue to worsen: 

“Freight shipments are expected to increase by 22.4 percent over the next 20 years. Investments in infrastructure capacity and operational improvements will be required to meet rising demand for freight. Yet, freight system performance can be hindered by regulatory, financial, and institutional barriers that raise the economic costs of freight movements.”

Our message to Congress: you must empower states with grants, fund federal programs to expedite construction while at the same, making regulatory changes, we know that pumping money into a problem does fix the underlying issue. Lay out a roadmap for brokers and 3PL’s to certify what a safe carrier is (this is especially crucial as trucks move 72% of Americas Freight), throw out the current audit safety rating system, overall the process to include data from states (that is fair to motor carriers and determines fault for crashes), and continue to allow the transportation industry to be fair, open and competitive without bogging it down with burdensome transparency regulations.

There is a lot to be done for the rest of the Congress and in the 117th Congress, TIA Government Affairs looks forward to working closely with our members, Members of Congress and their staff, the Department of Transportation, and other key players in the Executive Branch and private sector key stakeholders.


If you have any questions, concerns, or want to learn more about TIA’s Advocacy efforts, please contact TIA Government Affairs at Advocacy@tianet.org.

DOL Notice Of Increase Minimum Wage For Those Individuals Involved In Contracts With The Government

Scott Marks | Government Affairs Manager | TIA

February 12, 2014: President Barack Obama signs and issues Executive Order 13658. This order raises the wages of those individuals who are used to facilitate contracts with Government entities. This minimum wage was to be $10.10 at the time of the Executive order.

On September 19, 2019, the Department of Labor published an additional Notice in the Federal Register to announce that, the notice stated beginning January 1, 2020, the Executive Order 13658 minimum wage rate is increased to $10.80 per hour (84 FR 49345). This Executive Order minimum wage rate generally must be paid to workers performing work on or in connection with covered contracts.

In order to stay competitive, keeping up with inflation and deter constant turnover among employees, moving forward on, Jan 1, 2021 “workers performing work on or in connection with federal contracts covered by the aforementioned Executive Order 13658, Establishing a Minimum Wage for Contractors (the Executive Order or the Order), beginning January 1, 2021. Beginning on that date, the Executive Order minimum wage rate that generally must be paid to workers performing work on or in connection with covered contracts will increase to $10.95 per hour.”

For the TIA Members who handle government freight, if they have sales associates that they use to enter contracts with the Government, they would have to pay them the updated rate of $10.95. Please find the Department of Labor (DOL) poster that outlines the new regulations here or view the newly released rule here.

Blog 6 – GSA Drops Major National Security Rule, TIA Members Are Affected

Scott Marks | Government Affairs Manager | TIA

Starting August 13, 2020, members will no longer be able to both enter into contracts for service with the government and have in their operations what are called “covered telecommunications.” Member companies must begin now to certify that their internal processes do not contain any one of a multitude of malicious Chinese companies. This regulation comes from legislation that passed in 2018, H.R. 5515, the John S. McCain NDAA, specifically section 889 parts (A) and (B).

Part (A), while important, is not directly germane to the TIA membership base. This part has to do with procurement and acquisition. The head of a government agency may not move forward with any acquisition of services or technology that has “covered technology.”

Part (B) directly impacts our members, it can’t be stressed enough, if you are a member of TIA starting August 13th if you have use a covered service in your operations you will not be able to move freight for the government.

A covered telecommunication technology means the following: Any service and equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of those entities) and certain video surveillance products or telecommunications equipment services produced or provided by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of those entities).

Members must take the time, review internal procedures, and ensure they do not use one of the technologies in their office. A contractor may certify that it does not use covered equipment or services if its “reasonable inquiry” does not identify such use. A “reasonable inquiry” is one “designed to uncover any information in the entity’s possession about the identity of the producer or provider” of covered equipment or services used by the entity.

It is important to note, reasonable inquiry does not require an internal or third-party audit, it just means you must be able to show affirmatively that you took steps to uncover if the entity is in possession of covered telecommunications technology. This will be a deciding factor for contracts starting August 13, 2020.

The government agencies implementing this regulation have asked for broad feedback as they fine-tune the rule to be more business-friendly while still posturing the regulation as a national security tool. If you’re interested in providing feedback as to how this will impact your business, do not hesitate to reach out.

Like all legislative action, TIA Government Affairs will monitor, track, and respond in real-time. We work directly with our conferences and committees and the organization at large to ensure our members are up to speed.

To view our resource on this rule, click here

To view the rule in its entirety, click here


If you have any questions, concerns, or want to learn more about TIA’s Advocacy efforts, please contact TIA Government Affairs at Advocacy@tianet.org.

AB5: Pending Compliance for Uber and Lyft could impact operations in the State

On Monday, August 10th, a Superior Court Judge in California ruled that drivers of Uber and Lyft must be classified as employees, essentially giving the companies ten days to make the necessary changes and abide with AB5. This was obviously a key blow to the company’s efforts to push back on the notorious AB5 Bill that become state law, a little over seven months ago, that attacks the independent contractor model. The companies have been arguing that they are technology companies rather than transportation companies and because of that, their drivers are not core to their platforms. The battle is far from over and will ultimately head to lengthy appeals process.

Because of the Superior Court Judge’s decision, Uber and Lyft have threatened to shut down their operations in the state of California completely. The main concern from the companies is the cost of doing business with their drivers and the impact to their business model that allows them to offer quick low-cost rides by maximizing the number of drivers on their platforms.

There was an unscientific survey done a few months ago that citied that 70% of the 734 respondents identifying themselves as drivers said they did not want to be classified as employees and enjoy the work of the “gig” business and working on their hours.

In the upcoming election in November there is a ballot measure Proposition 22 that will let the California people decide (at least for now) on the applicability of AB5 and if companies like Uber and Lyft should be required to classify their employees as employees rather than independent contractors. This could be a potential bailout for Uber and Lyft or another nail in their coffin, at least in California.

TIA Government Affairs will continue to monitor the AB5 issue and potential implications to our members who utilize independent sales agents in the state of California.

If you have any questions, please contact TIA Advocacy (advocacy@tianet.org).

Market Economics in Tough Times

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Market Economics in Tough Times

An In-Depth Look from TIA’s Chief Economist Noël Perry

 

Truck Rates Are Tumbling. Who’s to Blame?

Earlier today, the Federal Government released its initial estimate of 2020:1 economic growth.  That was an important event because 2020:1 is the first quarter to contain any of the effects of the economic shutdowns imposed by governments in their attempts to contain the COVID-19 virus.

The value of -4.8% is the worst U.S. quarterly economic performance since the Great Recession, and that negative figure is largely the result of only the last month of the quarter. I estimate that the March number was -13.8%. Unfortunately, that March number will probably be topped in April, and perhaps May. If so, the second quarter will come in at -15% or worse, making it the worst economic quarter in U.S. history.

Why is that important? When the economy tanks, so does trucking. When trucking tanks, so do rates.  That is what markets do. So, why are rates doing what the Truckstop.com numbers in the accompanying graph shows? It’s the economy stupid; or more specifically, it’s the shutdowns from COVID-19 control measures.

I write this piece, an update of something I wrote last fall, because being human, when something goes bad, we look for a scapegoat. As usual, in trucking, when something goes bad, people frequently point their fingers at my friends in the brokerage space. People are always suspicious of people that “arrange” things rather than “do” things, even if the “arranging” is a necessary part of the doing. After all, a broker’s work is basically work outsourced from shippers and carriers. The work must be done for every trucking transaction.

In around a quarter of cases, people find it more efficient to pay a broker to do that work rather than take the time and money it takes to do it one’s self.  Nonetheless, during tough times it is common practice to badmouth the brokers. Somebody must be at fault here, right? Well, somebody may be at fault here, or maybe it is just the virus. But it sure isn’t the brokers. Here’s why:

  1. What Did Adam Smith Teach Us? The North American brokerage market is as freely open a market as any in the world, regardless of commodity or service. There are no pricing regulations and precious few barriers to entry. If a broker is regularly mistreating carriers (carriers that, in many cases, they have been working with for years), the carriers need simply to shift to another of the 16,000 licensed brokers – all of whom are hungry for business, especially now.
  2. What Goes Up Eventually Goes Down? People often cite the tendency of broker margins to increase in tough times as evidence of the broker’s greed. Indeed, broker margins do sometimes increase during times of low pricing, but not from greed – but rather from a long-standing and well-known fact of truckload pricing economics. In softening markets, carrier prices usually fall moderately faster than shipper prices, with broker margins rising. Of course, in rising markets, the reverse happens: carriers’ rates rise more rapidly than shippers’ rates and broker margins fall. Using the broker-bashers’ logic, brokers must have been scrimping on their profits to help the carriers in 2017 and the first half of 2018 when rates were rising. My broker friends value their carriers, but not that much!
  1. Accounting 101: The cycle in broker margins is primarily an accounting issue. Market economics tells us that scarcity or surplus of assets affects the pricing of assets and the cost of services provided by those assets. Intermediaries, like brokers, add a relatively fixed cost to facilitate the match of assets and demand and execute the accompanying transactions. It follows that such a fixed cost will occupy a smaller portion of a total rate, in a tight market with high rates than in a soft market with low rates. The numerator, the broker’s fee, doesn’t change while the denominator, the price of the load, does. The percent represented by the broker’s fixed fee does change. A simple calculation using average rates for the period 2018:2 to 2019:2 shows an increase in broker’s margin of 306 basis points using a fixed absolute value for the broker’s take. That example yields the same internal broker dollar return in both cases: same service, same absolute broker payment, same “profit.” Note importantly that, recently, broker margins have been falling in a falling market, indicating a significant reduction in broker profit. Brokers have been sharing the pain this time around and will continue to do so in these tough times until our governments reopen the economy.
  1. Volatile Markets Increase the Value of Broker Services: Finally, and perhaps more importantly, brokers exist because they can solve the tough problems of matching spot and other difficult freight to capacity. The regular freight that gets covered by contracts is the easy stuff. Do a deal in January, and the freight moves for a year with no additional transactional work. Not so with the spot market. In volatile times like these, when freight volumes and shipper and carriers’ strategies change radically, the number of tough problems wanting solutions skyrockets. Yes, the price of the move may fall (or rise when the economy recovers), but the difficulty of the work is greater when the market is changing. We need brokers more than ever – right now!

Here’s the Point:

Pointing fingers during a time of stress has little value. Carriers, and shippers, would be best served by focusing on the best ways to get their loads moved and trucks full. For at least a quarter of freight, that process benefits from, or more powerfully, “needs” brokers. Brokers exist and have a growing share of the market because they provide a useful service to shippers and carriers.

Those services retain their value throughout the business cycle, even if carriers are happy at the top and unhappy at the bottom, and shippers are unhappy at the top and happy at the bottom.  The notion that an entire group of market participants is operating to the market’s detriment is a preposterous claim that provides no insight to carriers, shippers, or any rational actor in this market.

 

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The Transportation Intermediaries Association (TIA) is the professional organization of the $214 billion third-party logistics industry. TIA is the only organization exclusively representing transportation intermediaries of all disciplines, doing business in domestic and international commerce. TIA is the voice of the 3PL industry to shippers, carriers, government officials, and international organizations. TIA is the United States member of the International Federation of Freight Forwarder Associations, FIATA.

A Time of Crisis: PPP Loans

Scott Marks | TIA Government Affairs Manager

 

The Paycheck Protection Program (PPP) has become the center of the U.S. business world in the past month, thrust into the limelight by the CARES Act – the sweeping bi-partisan, Phase III legislation used to jump-start the economy following a record-breaking slump as a result of the novel coronavirus (COVID-19) outbreak.

Contrary to popular belief here in Washington D.C., most individuals do not like interacting with the Federal government. This sentiment quickly changed from not liking to interact to needing to interact. The country finds itself waging a war against COVID-19 on two fronts – the health of the people and the health of the economy, each of which requires different strategies and approaches required to heal and rejuvenate.

The current tool of choice for legislators in D.C. is the PPP, a forgivable loan program available to small businesses with fewer than 500 employees It stipulates the loan will be forgiven if 75% of the amount is used to keep employees on the payroll. The PPP is a big deal for companies and an absolute lifeline to owners reeling from this economic disaster. Many companies have had to furlough and layoff dozens – if not hundreds – of individuals who they count as not only employees but often a second family.

The PPP funding has been deleted and will remain so until Congress takes action to replenish the funds. The Senate passed a relief package that provides an additional $310 billion for the PPP loans on April 21, and the House is expected the pass this package on April 23, thus sending the package to the President’s desk for an expected signature.

TIA represents third-party logistics companies that in most cases do not own assets or vehicles, nor do they touch freight as it moves across the globe. They do, however, facilitate the global movement of freight. Our 1,800 member companies use extensive technological and knowledge-based assets to successfully move freight from Company A (a manufacturer,) using Company B (a trucker, airfreight, train, or ocean liner) to Company B (a storefront who needs freight from Company A). TIA’s member companies do this effectively, efficiently, and ethically.

As one can imagine, most of our members were hit hard by the slump and slowdown in freight which needs moving across the country, that being said some of our members thrived and rose to the occasion especially in the arena of “essential services,” a phrase which can mean something different in all 50 states and federally. Third-party logistic companies who were tasked with moving medical supplies, grocery store food, and government equipment might have a boost in numbers and activity. Contrary to essential needs, our members who run the logistics for non-essential manufacturers (such as furniture or any number of leisure items) are being decimated right now. These members are seeking assistance from the Small Business Administration (SBA), the government agency implementing the PPP.

Our members had a mixed experience when applying for the PPP, whose rollout has been deemed as flawed from the start. It should be noted, however, that this was a monumental undertaking for the federal government – taking $350 billion in funds authorized when President Trump signed the legislation March 27, to starting to move money into business accounts of companies in all 50 states and territories some 170 hours later. Once again, a monstrous undertaking for an organization that in FY2019 handled just over $20 billion in the same types of loans.

I applaud the effort behind the CARES Act, spearheaded by leadership in both chambers of Congress. This legislation was a great bipartisan response by Congress, answering the call to action. TIA Members all over the country thank them for their proportioned response in a time of crisis.

The next phase in the process of economic recovery was the implementation of the CARES Act, led by the executive branch headed by President Trump (but more narrowly by Secretary of the Treasury Steven Mnuchin and even more narrowly by SBA administrator Jovita Carranza). The feedback received from members regarding their experience working with banks and the PPP applications came in swiftly.

One of our members was unable to apply until April 10th due to his status as a 1099 contract worker and not an employee of a company. This member vented about how frustrated he was with the process, the formula for him is not sustainable as the amount is cripplingly low. He is from a rural part of Texas and struggled to get a bank to hear him out and accept and application, he was given misinformation from one of three banks (all which he had previous accounts with). Thankfully, TIA’s Government Affairs team was able to connect him with his member of Congress, whose constituent services team provided much-needed assistance.

Another member stated to me that she is stuck in limbo: the application has been approved at the bank level, but the fund has run out of money, and she’s now stuck between the application phase and the funding phase of the process. A third member noted, “This has been the most confusing process to get documentation to the correct lender” and “very disappointing.” One stated, “once everything was in place it went rather smoothly.”

Where We Stand Now: Republicans offered last week to quickly fund PPP alone and keep discussions moving on hospital and localities, but this was repeatedly blocked by Senate Democrats who insisted money for those hospitals and localities be included. At the time of this writing, the Senate has passed legislation which provides the PPP with an additional $310 billion in funding ($60 billion of which goes directly to rural and small lenders, $ 60 billion in Economic Injury Disaster Loans (EIDL) grants and loans, $75 billion for hospitals, and $25 billion for COVID-19 testing. I do believe the PPP will be funded this week, as the political pressure is mounting since the funds were fully depleted in less than two weeks.

As the process moves forward, the challenges of passing additional legislation increases. You will likely see an effort to fund every major industry, another personal check to taxpayers, multiple rounds of PPP funding, and more.

The United States and the entire global economy are reeling from this disaster. Jobless claims are up and mental health is down, but we all must do what we can to get through this. For our members, that task is simple in definition but complicated in action: we must keep freight moving – 24 hours a day, 7 days a week for the next couple months to stock shelves, support our medical community and get equipment to the most needed groups as quickly as possible.

New Labor Decision Makes it Easier to Classify Workers as Contractors

By Will Sehestedt, Vice President of Government Affairs

Independent contractor relationships are critically important to 3PLs of all sizes and specializations, so TIA closely monitors all regulatory developments related to this issue. TIA works to maintain up-to-date frameworks and guidance on labor issues on the Members Only side of the TIA website. TIA will also report on any efforts by Congress or the Department of Labor to make changes to the independent contractor tests laid out by the National Labor Relations Act (which governs activities related to union organization) and the Fair Labor Standards Act (which regulates employment relationships for contractors and employees, as well as minimum wage and overtime requirements).On January 25, the National Labor Relations Board (NLRB) issued a decision in the case of SuperShuttle DFW, Inc.This decision (viewable here) revised a test for determining whether workers are independent contractors or employees, which will provide clarity for companies that seek to classify those workers as contractors.  The court decision reversed a 2014 NLRB decision and emphasized the importance of “entrepreneurial opportunity” as part of the independent contractor test.The case under consideration is related to an effort to unionize drivers for SuperShuttle, a shared-ride service, in Dallas. Prior to 2005, SuperShuttle classified workers as employees, including regular hourly wages and other benefits. In 2005, the company changed its business model and required all drivers to sign 1-year Unit Franchise Agreements (UFAs) that expressly characterize the drivers as non-employee franchisees operating independent businesses. These franchisees are required to supply their own vans and to pay SuperShuttle DFW a franchise fee and a flat fee for the right to utilize the brand and dispatch/payment processing software. Franchisees work no set schedule or number of hours per week. These franchisees then operate under the terms of a shared-ride contract signed between the Dallas-Fort Worth International Airport Board and SuperShuttle DFW.In its ruling the NLRB determined that the workers were independent contractors, and thus could not join in union organization efforts, because:

  1. The drivers were free from control by SuperShuttle for most aspects of their work (such as scheduling or setting up dedicated routes with hotels and customers);
  2. The drivers retained all fares and tips earned from customers, and only compensate SuperShuttle DFW for their work by paying the flat fees specified in the UFA;
  3. The drivers made significant investments in their respective businesses by providing the shuttle vans;
  4. SuperShuttle did not perform meaningful general oversight as to how the drivers conducted their daily work; and
  5. The UFA agreement was clear and explicit about the expectation that the drivers and SuperShuttle DFW were entering into an independent contractor relationship.

For more information on this decision or issues related to labor law compliance, please contact TIA’s government affairs staff at advocacy@tianet.org or 703-299-5700.

Trump Nominees Join Federal Maritime Commission

By Will Sehestedt, Vice President of Government Affairs

On Jan. 23, the Federal Maritime Commission (FMC) welcomed two commissioners following their confirmation by the U.S. Senate. Daniel Maffei of New York was sworn into a term expiring in 2022, and Louis Sola of Florida was sworn into a term expiring in 2023.Commissioner Maffei previously served on the FMC from 2016 to 2018, after taking over the seat of Richard Lidinsky in 2016. The FMC holds jurisdiction over the international ocean transportation system for the U.S., and regulates ocean transportation intermediaries as well as shipping lines, marine terminal operators, cruise lines, and related operators at U.S. ports.Prior to his reappointment to the FMC, Commissioner Maffei served as a professor at The George Washington University’s Graduate School of Political Management. He represented upstate New York in Congress from 2009-2011 and 2013-2015, during which time he was a member of the Armed Services, Science and Technology, Financial Services, and Judiciary Committees. His academic background includes teaching stints at the State University of New York College of Environmental Science and Forestry, and he holds degrees from Brown University, Columbia University and Harvard University.Commissioner Sola previously served on the Florida Board of Pilots Commissioners where he presided over a probable-cause panel for maritime accidents. His background in the private sector includes time with Campers & Nicholson International as an International Ship Broker, and he also served as a consultant with Arden & Price advising and reporting on the handover of the Panama Canal. Commissioner Sola holds a bachelor’s degree in Management from Nova Southeastern University and a master’s degree in International Finance from the University of Illinois. He is tri-lingual and has served as a strategic debriefer for the U.S. Army Intelligence and Security Command and the U.S. Southern Command. The FMC will be Commissioner Sola’s first civil service for a non-defense agency.TIA includes many members who work FMC-licensed ocean transportation intermediaries, or who partner with those intermediaries to move freight to and from U.S. ports. TIA government affairs staff closely monitors news and regulatory developments from that agency to ensure that the voices of 3PLs are represented in any proceeding. For more information, please contact Will Sehestedt at sehestedt@tianet.org.

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