Washington Outlook:  How a Power Shift Could Jolt Logistics

Washington Outlook: How a Power Shift Could Jolt Logistics

November's mid-term elections could greatly impact the frequency of new rules and regulations that affect transportation and logistics professionals.  

There are 36 Senate seats up for grabs in November's mid-term elections. Current polls indicate the Republican Party could take control of the Senate, and therefore both houses of Congress.  With one party controlling both houses of Congress, new proposals and regulations could receive significantly more traction and new laws will be enacted quickly instead of dying in committees as they tend to do in a divided Congress. That could boost activity on bills affecting supply chain safety,  transportation and taxes.

Safety First

Not surprisingly, safety concerns are, and will continue to be, at the forefront of Congressional action which, in turn, spurs governmental agencies into promulgating new regulations pursuant to their statutory authority.  Although Transportation Secretary Anthony Foxx recently affirmed that "safety is our top priority," logistics industry groups, labor unions and concerned citizen advocates are skeptical of Mr. Foxx's platitudes given that the Transportation Department has not yet established long overdue rigorous commercial truck driver training requirements despite two different Congressional orders and a recently filed lawsuit against the Federal Motor Carrier Safety Administration (FMCSA) by the Teamsters Union and a group of safety advocates.

Despite the foregoing lack of resolution regarding driver training, the FMCSA has been very active on safety matters:

  • First, the FMCSA announced that it will begin a detailed study into whether the method of paying truck drivers has any relationship to safety.  
  • Second, as mentioned, the FMCSA is exploring the possibility of minimum behind-the-wheel and classroom training requirements for entry-level truck drivers.  
  • Third, the FMCSA is extending its operational testing to compare off-site new electronic motor carrier entrant audits with the traditional new entrant safety audits.  The FMCSA is also updating its technology so it can identify high-risk applicants who need an on-site safety review and to give low-risk applicants exemptions from such reviews and opportunities to file automatically.  
  • Fourth, the FMCSA has completed reviewing public comments regarding electronic onboard recorders (EOBR).  The agency plans to craft a final rule in January 2015 and allow transportation companies a two-year period to comply with the new EOBR rule which is intended, in large part, to monitor driver compliance with Hours of Service regulations and to prevent drivers from falsifying their log books.

Other governmental agencies are also concerned with safety. For example, the Food and Drug Administration (FDA) is proposing to overhaul its requirements for the transportation of food products.  Currently, FDA regulations are silent regarding vehicle requirements for the transportation of food grade ingredients.  However, the FDA has proposed a new regulation that will establish requirements for sanitary food transportation practices to ensure food safety and quality, and to combat the growing threat of food terrorism.  The new regulation specifically regulates vehicles and transportation equipment.  The impact of the FDA's new regulation will be felt by many touch points along the supply chain.  Thus:

  • food processors will need to revise their transportation contracts accordingly, 
  • 3PLs will need to selectively choose carriers based on equipment more than availability, 
  • trucking companies will need to replace aging, non-compliant fleets, and 
  • insurers will pay more reefer breakdown claims under cargo liability policies which will, in turn, drive up the costs of premiums. 

Time and Money  

Regarding Hours of Service rules, Senator Susan Collins (R-ME), proposed to: 

  • deny FMCSA funding for the new changes to the Hours of Service rules which limit driver workweeks, place limitations on minimum 34-hour restarts, and mandate certain rest periods, and 
  • suspend any rules changes until the rules' safety effects can be reviewed.  

While this proposal has been pulled from the Senate floor over procedural rules, one should expect this bill to make its way back to the Senate floor for debate. 

Another issue that is currently, and seemingly always, on Congress's plate is transportation and highway infrastructure funding. While the current short-term transportation-funding plan expires in May 2015, it is unlikely that we will see much momentum until closer to that date for several reasons. One such reason is that the primary way to increase transportation and highway funding is through increased fuel taxes. However, Republicans generally object to such increases. A potential Congressional power shift to the Republicans in November coupled with an upcoming presidential election in 2016 makes any substantial increase in fuel taxes rather unlikely.

Death and Taxes

High corporate taxes may increase further depending on the mid-term elections results.  The current White House Administration and Senator Charles Schumer (D-NY), a leading Senate Democrat, are trying to restrict various tax breaks relied upon by companies with a global footprint. The impact would be felt by small, national logistics companies in several ways:  

  • The act to capture and tax money earned abroad would likely be the first of many new restrictions proposed by one party and supported by the President;  
  • Sen. Schumer's proposals, if advanced, would also likely prohibit offshore intangible income shifting strategies such as assigning equipment or valuable intellectual property to overseas subsidiaries;  
  • Any addition to the complex U.S. tax code must be considered when filing corporate returns;  
  • Strategic cross-border acquisitions would become less attractive without certain tax breaks; and, 
  • Fewer international companies would relocate to the U.S.

The IRS and U.S. Department of Labor would also likely  aggressively enforce independent contractor misclassification cases. In fact, former Secretary of Labor Hilda Solis signed a Memorandum of Understanding with the IRS, pursuant to which the Department of Labor and IRS agreed to work together and share information to decrease the number of misclassifications.  

The Tax Reform Act of 2014, if passed, would provide additional clarity to businesses about what constitutes an independent contractor by adding two new sections to the IRS Code and providing a safe harbor.  In the interim, as states debate and advance related misclassification legislation, properly structuring contractor and service provider relationships along the supply chain becomes crucial.  Certain established work practices and arrangements may need to be eliminated, as federal and state governments are on the same page when it comes to redefining the independent contractor model.  After all, where there is smoke, there's fire.  

Enan E. Stillman, Esq., is a transportation, corporate and M&A attorney with the law firm of Graham & Jensen LLP. He is also a member of MH&L's Editorial Advisory Board.

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