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H.R. 4441, THE ''MOTOR CARRIER FUEL COST EQUITY ACT OF 2000''
Thursday, June 8, 2000
House of Representatives, Subcommittee on Ground Transportation, Committee on Transportation and Infrastructure, Washington, D.C.
The subcommittee met, pursuant to call, at 11:00 a.m., in room 2167, Rayburn House Office Building, Hon. Thomas E. Petri [chairman of the subcommittee] presiding.
Mr. PETRI. The subcommittee will come to order. We are meeting today to hear testimony on H.R. 4441, a bill to provide a mandatory fuel surcharge for transportation provided by certain motor carriers. This bill seeks to ease the effect of sudden and dramatic increases in the cost of fuel on the trucking industry by ensuring that these added costs can be recovered.
In March the subcommittee examined the impact that fuel price spikes have on transportation programs nationwide. Independent truck drivers and owners of small trucking companies testified these price surges hit their businesses disproportionately hard because they operated at low profit margins and lacked the leverage to negotiate price adjusted rates with their shippers. Some of these truckers were forced to cancel deliveries rather than drive nonprofitably.
Although diesel prices have stabilized—actually they have moved down and back up again—I welcome this chance to explore other ways of providing relief to those sectors of the industry that are vulnerable to future price spikes. Under the provisions of the bill, a spike in the price of diesel fuel would trigger a mandatory surcharge to be assessed to the party paying for the transportation costs by the motor carrier transporting the goods. This automatic surcharge is imposed when there is a 5-cent disparity between the latest week's national average and the previous year's national average for diesel fuel. This way, those businesses hit hardest by surges in the fuel market will be able to recoup additional costs by passing them along to the shipper as part of the total bill.
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Accordingly, today we will hear from representatives from both the trucking and the shipping industries on the bill before us. And with that, I yield to the ranking Democrat of the subcommittee and my colleague Nick Rahall.
Mr. RAHALL. Thank you, Mr. Chairman. I certainly want to express my deep appreciation to you for scheduling this hearing on the Motor Carrier Fuel Cost Equity Act of 2000. This legislation, which is cosponsored by our Republican colleagues Roy Blunt of Missouri and Bob Ney of Ohio and myself as a Democrat and bill sponsor, does represent a bipartisan approach to addressing a real impressive crisis facing an important segment of the trucking industry.
The problem is twofold. First, owner operators are being hit hard by high diesel fuel prices and simply do not have the market clout to negotiate the same sort of arrangements that the big boys in the industry can to offset these costs. Second, unable to cope with high diesel prices, many owner operators are unable to continue in business. Besides the obvious toll that this takes on the truckers and their families, this means less competition in the trucking industry and fewer transportation alternatives for shippers.
The pending legislation provides owner operators with a safety net. It affords them with the same type of leverage that the Yellows, the Roadways and the J. B. Hunts of the world have in assessing surcharges albeit through the force of Federal law. It also provides the shippers whether they recognize it or not with a safety net as well. This is an assurance that the consolidations they so fear in the railroad industry, the centralization of market power will not occur in trucking. I will say more on that in just a moment.
The relatively short list of witnesses today and the nature of the witness list reflects the fact that prior to introducing H.R. 4441, we managed to address most of the bona fide concerns expressed by interested parties over our initial proposal. The remaining concerns, largely from representatives of the shipper community from whom we will hear today, are primarily based on philosophical grounds. They claim that the specter of reregulation looms over this bill.
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The fact of the matter is, there is no Federal regulatory enforcement or involvement of any kind under the pending legislation. The bill does not end with this fact. It does not allude to it, but it states it outright and I quote, neither the Secretary of Transportation nor the Surface Transportation Board shall have regulatory or enforcement authority relating to provisions of this section. I think that makes it much clearer, but if we want to add that neither the United Nations or the World Trade Organization can't either, we will do that.
It is also passing strange, to me at least, that some of the very groups who claim this regulation—this bill represents some form of reregulation are in fact party to measures that would dramatically increase Federal regulation of the railroad industry. They take the position that because of their concerns that consolidations in that industry have left them captive with fewer transportation alternatives and subject to monopolistic pricing practices. If that be true, then avoiding a similar situation in the trucking industry should be all that important to them as well.
We can start the avoidance strategy by maintaining a viable independent owner-operator segment of the trucking industry, and that in my opinion is what H.R. 4441 is all about. Thank you, Mr. Chairman.
Mr. PETRI. Thank you, Mr. Rahall. Are there other opening statements? Mr. Clement?
Mr. CLEMENT. Thank you, Mr. Chairman. Great to have all of you here today. The first position I ever held of any significance was when I was elected to the Tennessee Public Service Commission in 1972 and I served on the Public Service Commission for 6 years. I feel like I know something about the trucking interests not only in Tennessee but across this country, and I sure feel for a lot of the people, small trucking companies and the independent operators and all and what they have experienced with these high fuel costs because it doesn't take much to turn things around and really put a small business operator in a very difficult situation, and that is one of the greatest experiences I had serving on the Public Service Commission in Tennessee.
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In Tennessee we elect the commission. Most commissions around the country are appointed. But we elect them, even though we do it a different way now.
Pleased to have you here and looking forward to hearing what you have to say. Thank you.
Mr. PETRI. Thank you, Mr. Clement. Since our colleague, Roy Blunt, is detained, we will go to Panel II, which consists of Mr. Todd Spencer, Executive Vice President, Owner-Operator Independent Drivers Association; Dorsey Musselman, Owner-Operator and Member of the Central Pennsylvania Truckers Association, Bedford, Pennsylvania; Debra Mordus, President, Black Ribbon Express, Shelby Township, Michigan; Kathy Luhn, Vice President of Public Affairs, the National Industrial Transportation League; Robert Pulley, President of Southland Logistics in Lawrenceburg, Tennessee, and Volunteer President of the Transportation Intermediaries Association; and Debra Philips, Executive Director of the National Small Shipments Traffic Conference. We might as well go in the published order starting with Mr. Spencer.
As you know, the rules around here encourage people to summarize their written statements, which will, in their entirety, be made part of the record in this hearing. You have 5 minutes to speak. To assist you in keeping track, the amber light will go on when there are 30 seconds remaining. This light is an indication that you might want to summarize your remarks and finish when the red light goes on. Thank you very much.
TESTIMONY OF TODD SPENCER, EXECUTIVE VICE PRESIDENT, OWNER-OPERATOR INDEPENDENT DRIVERS ASSOCIATION (OOIDA); DORSEY MUSSELMAN, OWNER-OPERATOR AND MEMBER, CENTRAL PENNSYLVANIA TRUCKERS ASSOCIATION, BEDFORD, PENNSYLVANIA; DEBRA MORDUS, PRESIDENT, BLACK RIBBON EXPRESS, SHELBY TOWNSHIP, MICHIGAN; KATHY LUHN, VICE PRESIDENT OF PUBLIC AFFAIRS, THE NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE, ARLINGTON, VIRGINIA; ROBERT PULLEY, PRESIDENT, SOUTHLAND LOGISTICS, LAWRENCEBURG, TENNESSEE, AND PRESIDENT, TRANSPORTATION INTERMEDIARY ASSOCIATION (TIA), ALEXANDRIA, VIRGINIA; AND DEBRA PHILLIPS, EXECUTIVE DIRECTOR, NATIONAL SMALL SHIPMENTS TRAFFIC CONFERENCE (NASSTRAC), WASHINGTON, D.C.
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Mr. SPENCER. Thank you. Good morning, Chairman Petri and Representative Rahall and members of the committee. I am Todd Spencer, the Executive Vice President of the Owner-Operator Independent Drivers Association. I would first like to thank this committee and their staffs for the hard work they put in to crafting this legislation. This is a bipartisan bill that will provide temporary emergency relief from rapidly increasing fuel prices that historically the trucking industry has never been able to adjust to. On behalf of our 53,000 members nationwide, I ask for your support of this important legislation.
Small business truckers have been the hardest hit by this year's rapid increase in diesel fuel prices. Many have lost their trucks, and others are going out of business. These hard working men and women are seeing their livelihoods evaporate as OPEC manipulates the oil market and the inability of the trucking industry to recoup its basic costs of operation. As of today, small business truckers have received no relief from the current fuel crisis. Fuel prices remain high and could shoot higher at any time and we know they will within just the next few months.
We are not coming for a government handout, not asking for you to solve the problems of the world oil market, not asking for reregulation of the trucking industry, and not proposing any radical new idea. We are asking for a tried and tested response to the fuel crisis, a surcharge. When fuel prices rise quickly, H.R. 4441 will allow small business truckers to keep their heads above water without the threat of losing their savings or business equity or taking on additional debt to subsidize shippers' freight costs or an OPEC country's greed.
There is even precedent in Congress to pass legislation for a fuel surcharge. During the fuel crisis in 1974, Congress sought to address, I quote, a serious and pressing transportation problem by requiring carriers to reimburse their owner-operators for increased costs in the price of fuel. The 93rd Congress recognized that they were to act promptly, and again I quote, will cause substantial hardship to a significant portion of the motor carrier industry and the shipping public. These words from 26 years ago ring as true today as they ever have. This legislation I quoted was passed by Congress in a span of three days. Mr. Chairman, truckers have been facing high fuel prices for 6 months now and yet there is no relief in sight. The price of fuel is the largest expense in a trucker's operation and it is one cost that no amount of competition can change. In both eras, the problem was and remains the same, a failure in the market for truckers to recoup their costs of rapidly increasing fuel prices.
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Seventy percent of the trucking industry is made up of motor carriers with six or fewer trucks. It is very much a small business industry. Trucking is an intensely competitive business. Most motor carriers operate on the thinnest of profit margins and only a handful of the very largest motor carriers have the power to actually set their own freight rates. Most carriers have to take or leave the rate shippers offer. This has been the atmosphere in trucking for many years. Independent owner operators have even less of an opportunity to recoup their fuel costs.
If you would, I would point your attention to our chart over here that shows how the pecking order works in trucking. It is the motor carrier or broker who decides what rates to accept from shippers. The owner-operator has no say in this process. When fuel prices rise, the motor carrier or broker has no real incentive to bargain aggressively or even fairly on a cost that he does not incur. This is why it is so important that this legislation be made mandatory. Today a few motor carriers are able to obtain some level of the fuel surcharge. Not many truckers though start getting a surcharge until well after the price of fuel has gone up and few get a surcharge that adequately compensates for their increased costs. Some of our members who lease to carriers report that their carriers charging shippers a fuel surcharge are not passing any of it along to the owner-operator who pays the cost of fuel.
In conclusion, although some shippers have expressed opposition to this legislation, no shipper is complaining that being required to pay the fair cost of the service they receive is going to cause them to go out of business or go belly up, as many truckers have by the thousands this spring. And I want to note, however, that this bill would not make shippers who are already paying a surcharge pay any more than they do right now. This legislation would not supersede any ongoing contract that already provides for a surcharge. Neither would this bill cost the Federal Government a single penny, nor would this legislation involve the oversight or enforcement of any Federal agency.
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Mr. Chairman and members of the committee, we urge you to stand up for the small businessmen and women who have literally driven this economy to the heights our country has enjoyed and yet are drowning during this very period of prosperity.
Thank you very much.
Mr. PETRI. Thank you.
Mr. Musselman?
Mr. MUSSELMAN. Good morning, Mr. Chairman, Congressman Rahall. I want to thank you for having me here on this very important matter. I am Dorsey Musselman from Bedford, Pennsylvania, and a member of the Central Pennsylvania Truckers Association. I haul mostly bricks and mortar throughout Pennsylvania and Maryland.
I have been trucking for 40 years and can tell you that the price of fuel, the largest cost of operating a truck, is really hurting our businesses in many ways. When we are not paid the full amount it costs to haul a shipper's goods, then we pay for it out of our own pockets, and it makes it difficult, if not downright impossible, to make our truck payments, house payments, and support our families.
Earlier this year, fuel jumped over 20 cents per gallon in two days, and then 40 cents per gallon in less than 10 days. If you burn 150 gallons of fuel a day, that is $60 in higher fuel costs every day and with no fuel surcharge, it just comes right out of our pocket and makes the job unprofitable.
I parked my truck for three weeks because I would have lost money if I went out on the road. You are damned if you do and damned if you don't. For most guys, they have to have some income to make payments on their loans on the truck and their house, and so they try to keep running even at a loss. I was lucky, though, because I get a little bit of retirement income and have paid for my truck and home. I didn't starve when I had to park my truck. But for most guys, by the time you get relief from lower fuel prices or a fuel surcharge it is too late.
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When fuel prices went up so fast we tried to tell shippers that our costs were up and that they needed to pay us more. All the shippers said in response is that your competitor did not ask for a surcharge so why should they give one to you? Then of course the shipper goes ahead and tells the other guy the same thing.
Bigger companies also have the power to buy fuel by bulk contract ahead of time. This gives them a clear advantage, especially if they happen to make the contract before diesel prices went up. Independent truckers don't have this power and must pay whatever the current pump price is.
How has this affected the small business trucker in Pennsylvania? Most have had to dig into their savings to stay in business. Many have worked out deals with their lenders to get extensions on their truck and house payments, and this will add to the interest they owe. With this increase in debt, the effects of high fuel prices will be felt by small business truckers long after prices go down or a fuel surcharge is put in place.
This bill, H.R. 4441, would have been useful as a temporary solution to help us in the first few weeks that fuel prices went way up. We are not asking for gravy here. We are asking that shippers pay us a little more to pay for the diesel fuel that moves their goods.
Paying a fuel surcharge is the answer to the problem and it is an idea that works for the industry. Some shippers did start to pay fuel surcharges after a few weeks, but it was usually too little, too late. You cannot look at the trucking industry and convince any of us that there is a booming economy out there. Prosperity had not reached the independent trucker.
Additionally, truckers are not buying trucks and replacing their equipment as much as they usually do because they can't save the capital to do it. There are not as many people coming into the business as there used to be. Fuel is the big factor in making this job unattractive and it is stopping people from becoming truckers.
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Mr. Chairman and members of the committee, I appreciate being able to speak to you today. Mandatory fuel surcharges are the only solution that has ever helped small business truckers deal with high fuel prices. Without them rates will never come up to meet high fuel prices. The need for H.R. 4441 is urgent, and we hope that you can pass it quickly before the small business trucker is hurt even more. Thank you very much.
Mr. PETRI. Thank you. We are going to deviate a little bit from this panel and, now that our colleague has arrived, hear testimony from the Honorable Roy Blunt of Missouri.
Mr. BLUNT. Mr. Chairman, thank you. It is nice to be back with you on the Transportation Committee again for a few moments and Mr. Rahall, I thank both of you for holding this hearing. I did have testimony actually in support of the bill and I will submit that in the form of a statement or testimony or whatever is appropriate for the committee but let me mention a few things that I think are important highlights of that testimony.
I see you have got a great panel here who knows firsthand from what they are doing every day how important this legislation is and they can certainly verify and are verifying some of the comments I would like to make. But you know my State in the middle of the country is—this is an important industry for us. Southwest Missouri, certainly trucking is one of our major industries because of our location. We are constantly involved in issues that relate to trucking and also I am more and more aware of just how important small business is in the trucking industry. Over 70 percent of the motor carriers in the country are small businesses that have six or fewer trucks. These men and women really haul every day the things that our society needs to continue to function, from livestock, produce to consumer goods to building supplies to raw materials. Every year we see more and more of that being transported by the trucking industry. They are an indispensable engine that runs this economy and has really helped to bring our economy to the incredible competitive heights we are seeing right now.
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In spite of the competitiveness of that economy, prosperity has been very elusive for the small business trucker. The average owner-operator makes about $35,000 a year. With fuel prices up almost 50 cents a gallon this year, the average trucker's cost goes up about $300 a week. That is about $15,000 a year, and if you are making on the average $35,000 and suddenly 15,000 more dollars are being spent in a situation you have no control of, that doesn't leave much room and of course it doesn't leave much incentive to keep on trucking.
We are not talking about businesses that are outmoded. We are not talking about businesses that make buggy whips or businesses that produce horseshoes. We are talking about businesses that are out there as an integral part of our economy. All truckers have been challenged by high fuel prices. The problem is not that truckers don't have bargaining power to set rates. The problem is that under normal circumstances, the market is much more predictable. During the fuel crisis created by any anticompetitive behavior, and most recently we saw that from OPEC, profit margins are quickly erased, the transportation marketplace is very slow to respond. It can take months, sometimes even years for truckers to see their rates rise to meet the fuel cost that nobody anticipated when they bid for that particular line of business. It is not good for our transportation industry. It is not good for our economy to have so many small businesses in so much trouble.
After 6 months now of calls and letters from our constituents, two truckers rallies here in Washington and numerable news stories, it should be clear that the small business truckers are unable to absorb solely the increase in fuel this year. This bill simply asks that the tens of millions of shippers who benefit from truckers' services share a small piece of that increased cost of fuel. Those shippers who already pay a fuel surcharge would not be required to pay any more than they do. This would allow surcharge to be a more common practice and more reflective of what is actually happening in the fuel marketplace on that day.
This isn't a request for a reregulation of the trucking industry. The truckers have asked that they be given this in a way that is very narrowly tailored. It is a specific tool to be used only during times of high fuel prices. The fuel surcharge would be enforced entirely by private citizens. H.R. 4441 would not cost the Federal Government a dime. The oversight and involvement of the Department of Transportation or the Surface Transportation Board is specifically prohibited.
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Again, this is an industry of small businessmen and women who are saying to the government we need this tool. We don't need you to regulate our industry. We don't need you to manage this particular asset for us, but we do need to have this ability in order to continue to function in the marketplace. We have placed a lot of requirements and regulations on truckers in recent years in the name of safety. I will tell you if the small business person is seeing their income cut from $35,000 to $25,000, one of the first things that they begin to back away from is the normal safety things they do, the normal things to repair and maintain their equipment, the normal things that provide for safety on the highways.
We have to keep this industry running safely and efficiently for our economy to continue to grow and be strong. I think this is something that will mean a lot to the men and women in trucking, particularly those who are owner-operators, and I am grateful to the committee for having this hearing.
I hope this legislation moves along quickly and what we found out 6 months ago was that the day we have a problem, we can't solve this problem that day. We need to be thinking not only about the problem over the last 6 months but what happens next time this problem is sprung on not only us but the men and women who make so much of our economy work and, Mr. Chairman, I thank you for letting me take my time in such a helpful way.
Mr. PETRI. Thank you, Roy. Ms. Mordus.
Ms. MORDUS. Good morning, Mr. Chairman, Congressman Rahall and members of the committee. My name is Debra Mordus. I am President and majority owner of Black Ribbon Express, a truckload motor carrier based in Toledo, Ohio, with offices in Shelby Township, Michigan. I have a degree in accounting and am a certified management accountant. I have been involved in the trucking business for over 20 years, the last four with Black Ribbon. Our trucks haul general freight throughout the continental United States. Never in my wildest dreams or even my worst nightmares did I imagine anything ever motivating me enough to volunteer to speak before such an elite group. Unfortunately, something has forced me to ask for help.
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In December of 1999 we owned 31 trucks. For the second time in 4 years, we made a profit. We were elated. By March of this year we realized that our current business plan was out the window. Fuel was hovering at an average of $1.50 per gallon in the areas we traveled most. Last year it averaged $1 a gallon. To illustrate what this means to someone like myself, we have expressed it in the chart over there.
If you have 20 trucks and each truck averages between 2,500 and 3,000 miles per week and each truck attains mileage of about 5 or 6 miles per gallon, on a weekly basis you use between 500 and 600 gallons of diesel. That means every day you are using between 100 and 120 gallons. A diesel price increase of 50 cents per gallon causes it to increase your cost per day of $1,100. Very simply, we do not make $1,100 a day on 20 trucks or on 31 trucks.
For the most part all we have been able to do this year is pay our employees and pay for fuel. Repair bills are delinquent. Additional loans have been acquired and we have not been able to give our drivers raises. The majority of our lenders have worked with us. They have granted two to three-month extensions. This was done for a fee of course, but even that grace period has been used up. Fuel is at or near all-time highs again. The lenders don't want to hear about any more extensions.
We knew going in that running a small business isn't always profitable and the financial rewards are not guaranteed, but at least you are building equity in the business. For us, however, after 4 years our equity is fast disappearing. I mentioned that in December we had 31 trucks. We currently have 17. This means we now employ 14 fewer drivers. In order to remove those trucks from our inventory, we had to literally give them away for what we owed on them. Some we had made payments on for 4 years. It was presumed that the aforementioned equity we were accumulating in those years would be the down payment on replacing equipment as well as funding new equipment.
What seems even sadder than the good people who are out of jobs or our personal loss potential for growth is the fact that we were so grateful to be able to get rid of the equipment at all. We know too many people who have not been so lucky. They are facing lawsuits and bankruptcy. Is there anything to be done to stop this horrendous trend?
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I read the proposed bill, H.R. 4441. I won't sit here and state I understood every word or think it will solve all the world's problems. I believe that it will help resolve some of the problems facing the small business trucker. This group makes up 80 percent of the licensed motor carriers on the road today. It is hard for me to believe that what my company is facing is any different from what the rest of this group is looking at.
It is a bleak picture not just for as a segment of the trucking industry but for the country us as a whole. Without help such as that proposed in H.R. 4441, we will continue to be unable to pass any of these fuel costs increases on to our customers. Why? Because we are too small. We don't have the leverage to insist. In addition, most often we are not dealing directly with the shipper but with a broker who may or may not be collecting some sort of fuel charge. Fuel charges are out there. This year so far we have collected $300. We operate on a 2 percent—2 to 4 percent profit margin in a good year. Fifty percent increases in fuel do nothing good for our bottom line. We don't mind putting in 15 to 18 hours per day. I have even gotten used to sleeping with the phone in the bed, but when you wake up and realize that no matter how hard you work or how many hours you put in you still won't be able to overcome this hurdle, it does nothing for your personal life except add stress.
The outlook for our future is not good. It is not good for the majority of the single owner-operators or the small trucking companies. Will we make it? I hope so. This country is dependent on the services provided by trucks and their drivers. We need them. Now is the time to help, not a couple of years from now but right now. I most respectfully ask that you consider H.R. 4441 as a starting point in helping not just me but so many others just like me.
I also want to say thank you so much for your testimony and your consideration. It has been an absolute honor to be allowed this opportunity. Thank you.
Mr. PETRI. Thank you for your statement. Without objection, we will pause for a statement by our chairman, Mr. Shuster.
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Mr. SHUSTER. Thank you, Mr. Chairman. I just want to briefly say how much I appreciate your being here today. I can certainly attest to the accuracy of what you are saying and I have read Mr. Musselman's testimony and I know in central Pennsylvania the many independent truckers I know have been very, very badly hurt and indeed it is a fact that most of the big trucking firms do have fuel clauses. Virtually all of the Class I railroads have fuel clauses. So it is the little guy who has been hurt the worst and I am very hopeful that we can find a solution to it, and I think this hearing is a step in the right direction.
Mr. PETRI. Thank you, Mr. Shuster.
Ms. Luhn.
Ms. LUHN. Thank you very much. I was told these have to be very close. Thank you very much. I appreciate being here, Chairman Petri, Chairman Shuster, Mr. Rahall.
My name is Kathy Luhn. I represent the National Industrial Transportation League. Again, I am Kathy Luhn. I represent the National Industrial Transportation League. Very simply we are the customers of the trucking companies and all the other modes of transportation. We are very sympathetic to the issues that are brought before this committee this morning for several reasons. At some point in the transportation industry, every shipper will have to avail themselves of the use of trucks. There is a tremendous shortage right now in truck drivers so we are not proposing or wanting anything that would cause more truck drivers to be removed from the road.
Like I said, there is a shortage now and we need all the truck drivers we can get. However, we are opposing this legislation this morning because we don't see that this is really the way to resolve the current issue, and that being an increase in the cost of diesel fuel. We feel like this is better taken care of in the marketplace. There are marketplace provisions for this and it goes against positions that the Congress has taken in the past.
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Since I have been with the League, we have passed numerous pieces of legislation to deregulate the industry and now have a trucking industry that is the envy of the world. It is safe. If is efficient and provides a service that is unequaled. One of the bills that I remember working on most closely with this committee was one which deregulated intrastate trucking and prohibited the States from economic regulation of those trucking industries—trucking companies within the States. To me, this seems like we are trying to go back now and reregulate just that segment of the industry when it comes to pricing. And I noted in Congressman Rahall's opening comments he was particularly looking at my organization in terms of reregulation.
I would like to comment on a couple of things before I get to specifics and one was mentioned here earlier, which is market clout. Yes, these are small independent businesses. However, because of the current stature of the market and the driver shortage issue right now, these people have more market clout now than they have ever had before. There are ways to address these issues through leases, through contracts themselves, and they can go through and work in fuel surcharges through market avenues which are available. I know in many cases my shippers have contracts that have flexibility in the contracts for fuel fluctuation, fuel price fluctuation. It may be that some of the independent owner-operators need to look at contracts with whether it is brokers, whether it is with trucking companies, whether it is with shippers that provide this type of flexibility. These provisions are there now. They don't need to be legislated.
Like I said, most shippers now realize the increase of cost of fuel to the trucks companies and are paying these surcharges. I know that your bill isn't designed to double hit some of the shippers that are paying fuel surcharges, but what we are saying is that there are ways to pass on these fuel surcharges to the people who really need it without additional legislation. These things can be addressed, and I think you will find most shippers or at least the shippers that I represent that are willing to do that, they have in the past. My phone has not been ringing off the wall from shippers who are complaining about the various companies asking for higher fuel charges. The issue comes down to whether or not we need legislation for this when the marketplace seems to be taking care of it.
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Specifically, we feel like the legislation suffers from some additional flaws. One, that it doesn't take into consideration seasonal fluctuations of fuel cost. It doesn't really line out the level of the surcharge. It applies only to truckload transportation and many of my shippers are saying with the additional paperwork and the additional burdensome government oversight there and the fact that it could open up shippers to some lawsuits, that they might try to find other alternative modes of transportation.
I see my light has gone off. That is my statement. I will answer questions.
Mr. PETRI. Thank you.
Mr. Pulley.
Mr. PULLEY. Thank you, Mr. Chairman, Congressman Rahall, and subcommittee members. This is my first experience at a hearing so you will have to kind of bear with me a little bit. My name is Robert Pulley and I am President of Southland Express Group out of Lawrenceburg, Tennessee. Southland Express Group has three companies: Southland Express, which is a truckload driver and carrier; Southland Logistics, which is a transportation broker; and Southland Fleet Services, which is our trucking operation that leases trucks to the express corporation.
I also have the honor of being President of the Transportation Intermediary Association, TIA. The Transportation Intermediary Association is made up of over 700 members of transportation brokers, of freight forwarders, of intermodal marketers, of NBOCCs, of air freight forwarders, and other domestic intermediaries.
What I would like to say to you is this: We totally understand this problem. I am in the trucking business and during our meetings in March, the major, major topic of our conversation was this fuel crisis and the crippling effect that it has had on our industry. As a matter of fact, our board of directors had made it a top priority to suggest highly to all transportation brokers to go back to their shippers and beg, plead, renegotiate, do whatever they needed to to get these fuel surcharges so that we could pass it on to our carriers who in turn would pass it on to our owner-operators or their trucks or whatever. We have been successful in doing those things.
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I must tell you I am extremely sympathetic with Ms. Mordus because I have too—I can relate extremely well with what she is doing because of our truckload division, the same way with our logistics and brokerage. We have had those same problems and it has hurt us tremendously. And I want to tell you I also would like to say how much I appreciate Mr. Rahall's introduction of the bill and his good intent in trying to help us during this crisis, but I also want to say to you that trucking is the lifeblood of our whole economy.
We do understand that diesel is what drives those trucks and that over 80 percent of all of our trucking—all goods move through trucking but we fought so hard for deregulation in 1980, and I realize, Congressmen, that deregulation is not what this is all about and that we are not trying to reregulate, but when you say mandatory fuel charge or fuel service charge, sometimes even though you say that it may not be enforced by any type of government area, then if it is a mandatory fuel surcharge, then who regulates it if the shippers or if someone does not pass it along. So what I think is that we need to in some way continue to allow our trucking industry to work together more closely and allow the economy itself to move through this.
Now, while we still have a lot of difficulties, the free market is the best way for this to be worked through. Another way that I think we can really work hard on this is we need to sit down and think about the OPEC and how they have us as hostage at the present time. Right now we have over 600 million barrels of fuel within our reserves. We could somehow pressure OPEC if we just released maybe 2 to 3 percent over a four-week period. That would be 2 to 3 million barrels a day. That would give us a decrease in this diesel and give us some additional relief, and the same way look at the reserves that we have in Alaska and some other areas. The problem is the fact that we are being held hostage with our diesel. The fuel surcharge, while I understand it is a wonderful thing and if we are able to be able to pass it along the way we think it would be, I would love to see that happen but I just don't believe that that is going to have the impact that has been suggested within this bill. And I so much appreciate again the fact that you do think about trucking and you do understand the importance of trucking. This is my livelihood. This is the way I have been going for 34 years, and I certainly don't like the way it is at the present time either but there has got to be a better way and we need to be working on it.
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Again, if TIA in any way can help, please let us know. Thank you.
Mr. PETRI. Thank you.
Ms. Phillips.
Ms. PHILLIPS. Thank you. The National Small Shipments Traffic Conference, NASSTRAC, appreciates the opportunity to appear before this group at today's hearing on the Motor Carrier Fuel Cost Equity Act of 2000. My name is Debra Phillips and I am Executive Director of NASSTRAC.
NASSTRAC's regular members are shippers of freight, including manufacturers and distributors of a broad range of products. Our associate members are carriers, package carriers, motor carriers, third party logistics providers and in some instances truckload carriers. While NASSTRAC's memberships primarily use LTL and package carriers, we also use truckload carrier services.
NASSTRAC shares this committee's concern with fairness to owner-operators and we applaud Congressman Rahall for his efforts to help this group of small business owners. Most of our shipper members are paying fuel surcharges at this time and agree that fairness requires trucking companies to compensate the actual purchasers of fuel for the fuel expenses they incur. However, NASSTRAC does not think that mandatory fuel surcharge legislation is the appropriate mechanism to achieve this goal.
We have heard a lot of discussion about deregulation, reregulation and for my first appearance before this group, I do not plan to get into a debate about that issue. I will say that my group believes that the free market and competition is the best way to handle these issues. Put another way, our members feel that the price of goods and services in all industries should be set by the marketplace, not Congress.
Beyond this fundamental philosophical objection we have some practical concerns about implementation of the bill. Today's transportation industry cannot be easily divided into LTL, truckload, or package carriers. Many companies provide all three services. A number of third party logistics companies manage transportation functions for our shippers. In doing so, they consolidate LTL shipments from multiple shippers to create truckload freight. Do these shippers of LTL freight then become liable for fuel surcharges?
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NASSTRAC also believes that this bill would be difficult to enforce. Owner-operators would be forced to go to court if they were not properly compensated, which would be an additional burden and drain on their finances.
Finally, NASSTRAC thinks that the trigger point for enacting a mandatory fuel surcharge is too small. Fuel prices can fluctuate more than 5 cents per gallon between Warrenton, Virginia and Alexandria, Virginia, on any given day.
In closing, NASSTRAC encourages this committee to examine a number of current issues that are threatening not only these owner-operators but the trucking industry as a whole. The Federal Motor Carrier Safety Administration has recently provided new hours of service that would cost by the lowest estimate $1.7 billion. These same rules could cut driver pay by as much as 20 percent. At the same time carriers may soon be faced with costly ergonomics programs and the EPA is proposing measures that would severely limit the ability of trucks to operate in our cities.
Since deregulation of the trucking industry there have been significant improvements in the way that we transport goods and the way that we support the economy. So we encourage you to continue to support the transportation industry in this way and if we can be of any assistance to you or your group, please contact us. Thank you.
Mr. PETRI. Thank you. I would like to thank all of the panelists for your well-organized and well-timed testimony. Your full statements will be made part of the record. Mr. Rahall, are there any questions you would like to ask?
Mr. RAHALL. Thank you, Mr. Chairman. Let me say first to Ms. Mordus, you referred to this panel as an elite panel. You may be thinking of another body. We refer to ourselves as the House of the people, so you are at home. Also, your Congressman, Representative Bonior has spoken very highly of you and we discussed your testimony last night at a function, and he of course relates his best wishes to you.
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Let me start my questions with Ms. Phillips. Aside from your philosophical objections, you noted that your members are not convinced that the bill adequately protects shippers who are already paying surcharges from an additional surcharge imposed under this legislation. Again as I did in my opening statement with regard to the regulatory aspect, I quote from the bill itself: Nothing in this act shall be deemed to aggregate provisions relating to fuel surcharges in any transportation contract or agreement in effect on the date of enactment of this act and any renewal of such a contract or agreement thereafter, end quote.
Again I think that is pretty clear. So I cannot imagine why your members would express concern over this language, and I ask you what is insufficient with that language? What needs to be added?
Ms. PHILLIPS. That is a question that is better suited for our attorney and I will be happy to get back with you with any recommendations on his part. I think the concern by our members relates to past experience, with fuel charges being implemented and never going away. That is one concern. Again, it was after the review of our attorney that he felt it was not concrete enough.
Mr. RAHALL. I understand you have been involved in the staff discussions and efforts to revolve problems on this bill. To me it gets down to a philosophical argument that you have. In a perfect world, you know, your philosophical argument I am sure we all could agree with, but Lord knows we don't live in a perfect world and I don't care what type of deregulation we have. I am not saying—I said earlier this does not address any of the deregulatory aspects, but there is some type of effort that government must make to give the private sector the tools with which to cope with deregulation, and we have a provision in this bill that allows—and I am going to respond later to Mr. Pulley—but allows the private sector, as we already have precedent for, to respond when it is not being adequately enforced, the fuel surcharge. I am just trying to find out specifically what your arguments are against this bill besides the basic philosophical argument.
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Let me turn to Kathy Luhn and ask you a question. You also argue the bill is unnecessary because there is privately negotiated fuel surcharges. That is true but it is not a universal truth. Even though, where there are fuel surcharges in place, that does not mean that the person actually providing the transportation receives the payment. As you know, many owner-operators are under contract to a motor carrier. The motor carrier collects a fuel surcharge from your members and then may or may not pass it on to the owner-operator. So out of fairness, should not the owner-operator actually receive the payment?
Ms. LUHN. When a shipper pays a fuel surcharge, and I am assuming you are referring to the contractual agreements that we have that provide for this flexibility, it is a shipper's assumption that it eventually goes to whoever is paying for the fuel. If it is not being passed through, then that again is an issue with the independent owner-operator's arrangement with the trucking company or whoever they have it with. There are ways that they can negotiate that with whoever they are contracting with. Again, there are marketplace elements that would allow for that. They can negotiate with the people that they are working for the same way we do to begin with. We don't think that it requires legislation to do that.
Mr. RAHALL. I know my time is running out and I will come back on a second round of questions. Just very quickly if we can allow Mr. Spencer to respond to that, Mr. Chairman.
Mr. SPENCER. Clearly it is a matter of who has the ability, who has the market force when it comes to surcharges. I am sitting here listening to every speaker saying yes, every shipper should be paying this in a time of crisis and I do hear some objections but I note since 1974 this is the only mechanism that ever has provided for a fuel surcharge going to the person who buys the fuel. Clearly I would think that if a shipper is in fact paying a surcharge and that money for the increased cost of fuel—and that money is being diverted to any other entity other than the one that pays the fuel, that is simply fraud and overcharge. I think shippers would be outraged at the prospect of that.
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Mr. PETRI. Mr. Bateman.
Mr. BATEMAN. Thank you, Mr. Chairman. I am glad I was able to be here and to hear the testimony of the witnesses. From that testimony I am convinced that there is a problem. It is a problem which would be appropriate for this committee and the Congress to address. I have some concerns as to whether or not the bill, as I presently understand it, is the best way to address the problem and look forward to working with Mr. Rahall and others to see if we can indeed confront the problem and do something that is constructive, but I have some reservations as to the practicality, the enforceability and how you would administer precisely what we have before us. But the problem is real and I hope that the problem will be addressed.
With that, Mr. Chairman, I now have to run off to another committee, and so I will be happy to work with you and anyone else on the committee to find the best solution that can be found.
Mr. PETRI. Thank you, Mr. Bateman.
Mr. Mascara.
Mr. MASCARA. Thank you, Mr. Chairman. Thank you for calling this meeting, and I thank Mr. Rahall, my ranking member, for providing this piece of legislation for discussion.
I want to refer to Congressman Rahall's comment about not a perfect world. Truer words were never spoken and if I might paraphrase President Madison, who said there would be no need for a government or regulations if men—I am sure he wasn't concerned about gender correctness in those days but I will say men and women—were angels. It appears to me after listening to some of the people who are giving testimony here this morning, that we might be going in the direction that I think we can ill afford to go in. And if the trucking industry is going in a direction of the way of banks and airlines, this shoring the very foundation what is good for America, and that is competition, that sooner or later you are going to go the way of the banks, the mega mergers, the airlines.
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So I am concerned about the direction and I have listened to all of the testimony, and there are some concerns on the other side of the ledger about fairness inequity but I can't see how you can justify having the small independent trucker having to bear the greed that is out there. And somebody mentioned OPEC in the Middle East, but there is some of that in this country also. I was just wondering whether any of you would like to comment about zone pricing, if you know what that term means, how that affects some of you who live in different parts of the country. I see the rates here vary considerably in the United States, national averages from the East Coast, to New England, Central Atlantic, and I think in our parts of the country probably the highest, around $1.53 the last look we had.
Mr. SPENCER. I can take a crack at that, in that I am assuming the reference you make to zone pricing as it relates to difference between fuel suppliers. From the standpoint of truckers, zone pricing doesn't make a lot of sense to us in that our members report seeing fluctuations of 15 cents per gallon from one particular fuel stop that is of the same chain and there might not be more than 150 miles separating them. We scratch our heads, but we don't think we are experts and we are going to resolve the intricacies of the oil market.
What is significant from our standpoint about this legislation is it takes into account those fluctuations from stop to stop and from state to state. The surcharge this legislation is based on is an average from the Department of Energy based on the 52-week previous rolling average, and it is only going to address rapidly increasing prices that can be attributed to OPEC and others when they rise significantly, not just bumped from state to state or from day to day.
Mr. MASCARA. When I started to recognize that these prices were getting to be ridiculous, I wrote a letter to the Attorney General, United States Attorney General Janet Reno. They referred me to the Federal Trade Commission, and I felt more comfortable talking to the Attorney General in Pennsylvania, who I know well, and he brought up the subject of pricing and in fact his office was looking into the effects of zone pricing on the trucking industry generally.
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Thank you, Mr. Chairman.
Mr. PETRI. Thank you, Mr. Mascara.
Mr. Rahall, second round—I am sorry, Mr. Moran.
Mr. MORAN. No questions.
Mr. PETRI. Mr. Rahall.
Mr. RAHALL. Thank you, Mr. Chairman. Let me turn to Ms. Phillips for my concluding questions. You noted that the industry cannot easily be divided into truckload, LTL or package carriers. In fact for the most part they can. Certainly some LTLs on occasion move a truckload, and it was for that reason we included in the bill that the legislation only applies to an entity which regularly provides truckload transportation. This is another example where the draft bill was modified, as I mentioned in my opening comments, prior to its introduction based on comments of many meetings at the staff level, including this provision at a meeting you yourself attended. The LTLs apparently no longer have a concern and neither do the package carriers. They seem satisfied by the bill language. So I would like to have your elaboration on why you still have a concern in this particular area.
Ms. PHILLIPS. The primary area relates to the analogy or the example I drew about third party logistics, where a number of our shippers use third-party logistics providers to manage their transportation. This 3PL manages all of the transportation and the shipper may not have any idea whether their freight is moving truckload, LTL or by a barge, and these companies will consolidate shipments by multiple shippers, which would be LTL, put it in a truckload fashion.
My question is, is this truckload freight or is it LTL freight and are they required to pay the charges? And I worked for a company who did this very thing, Penns Fuel Logistics, before I came to NASSTRAC, so that is where I gained the understanding of the practice.
Mr. RAHALL. It is still my understanding that we did work this out with the intermediaries prior to the introduction of the bill. As far as what I have seen they have not been raised as an issue since.
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Your testimony alleged that the bill would be difficult to enforce because owner-operators would have to go to court if they were not properly compensated. First, this is a misplaced concern since the owner-operators themselves suggested this enforcement mechanism. Second, and my question is, are you aware that this is the exact same enforcement mechanism in current law for the lumping provisions?
Ms. PHILLIPS. I was not aware of that.
Mr. RAHALL. It is in current law in—we have got it here in front of us. It is being used very effectively through the private sector. That does prevent any type of enforcement that somebody referred to earlier as to who is going to enforce this if the government is not, which the government is not.
Ms. PHILLIPS. This is in regard to lumping?
Mr. RAHALL. Yes. Just a second and I will give you the exact provisions of current law to which you can refer. Section 4—14704(a), title 49.
Mr. PETRI. Thank you. I have a few questions following up on what Mr. Rahall was talking about. This is for the owner-operator representatives. Maybe Mr. Spencer or one of the others would care to respond. My question has to do with the mandatory surcharge that would be enforced through a private right of action as was just being discussed. Do you anticipate exorbitant costs associated with lawsuits and court battles to collect what is owed making this an ineffective remedy for an owner-operator, or do you think the associations would take care of the problem for them?
Mr. SPENCER. Clearly we do not anticipate problems with enforcement or court actions or things like that because to assume that means that shippers and others and brokers that are covered in this legislation aren't going to obey the law. I believe most of them will, and I believe the spokespeople for these organizations will believe that they will as well. We don't see this being an issue that occasions itself to come up very often at all. The specific statute that this legislation is covered under allows individuals to bring actions in the court. Our organization could take those actions on behalf of members. We don't see any benefits being eaten up by litigation costs simply because that particular statute in the law does provide for attorneys' fees assuming you prevail.
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Again, we are—in the balance of schemes, we are talking about a very small percentage of a freight bill that would be covered under the fuel surcharge mechanism anyway, because we would only be talking about increased costs in fuel that would be covered under a surcharge. We anticipate shippers will willingly comply as other spokesmen have said they are doing.
Mr. PETRI. Those bells indicate that there is a vote on adopting a rule on the House floor, so we will have to wrap this up. I do have two more questions that hopefully you and the other panelists can respond to briefly. It has been suggested that what is fair for the goose is fair for the gander. Would you support or could you comment on whether we should include in the bill language that would mandate a discount to be passed from the carrier to the shipper if the price of fuel drops 5 cents below the 52-week average? Do you have any recollection of that, so that if the price goes down there would be a pass-through provision as well as if the price goes up ?
Mr. SPENCER. This legislation is based on a 52-week rolling average. It is not a forever thing. It is a temporary emergency thing that addresses fuel hikes that rise rapidly. Now, historically fuel prices have come down but they never come down fast and of course, as has been mentioned several times today, this legislation is not regulation. It does not do away with any other negotiated rates that shippers and carriers and truckers enter into. So those issues would be addressed in the normal rate making mechanism.
Mr. PETRI. Any other comments? Mr. Musselman?
Mr. MUSSELMAN. Yes, sir. I would like to compliment our competition here today. And I rarely do that, but I think if you listen to what our opposition is, they may have made a better case for what they are asking for than we did ourself. I understand some of their fears and on the LTL deal. The only way—they are going to get caught in that. I have had this happen to me earlier. If a guy brings a bunch of LTLs—you got a load of LTLs, you have got a lot of money in the truck because those small shipments, once you get a full truckload of them, comes out to a lot of money because you have a lot of stops and pickups, a lot of time involved. These guys will gather in a whole truckload of this stuff and then get me to come in and load it up and take it from here to there and want to pay me a truckload rate. They collect maybe three times what they paid me. Well, if they are going to bill me out of the truckload rates instead of LTL, sure. And they bill us out with the paperwork. If it is a truckload rate, absolutely there should be a surcharge on the truckload rate. We don't know what they got for picking the LTLs up. But I guarantee you nobody picks up LTL cheap when you pick up truckload freight because he wouldn't be around too long. I cannot see a problem there from the practical thing that I have done over the years.
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Mr. PETRI. Just one quick question for the shipper community, customer community. That is that all three of you in your testimony have pointed out that many of your constituents, shippers and brokers, are already paying a fuel surcharge to help drivers compensate for higher fuel costs. What we are here today worrying about are those drivers who have not been able to negotiate these surcharges themselves for one reason or another. And do you have any ideas either here or that you can submit later to the committee for how we can help them without requiring some sort of mandatory cost pass-throughs?
Ms. LUHN. I would just like to refer back to something Mr. Spencer said a few minutes ago when he said if a shipper is paying a fuel surcharge and it is not being passed through, then that would be a case of fraud or overcharge. And if that is the situation, then there are laws on the books now that provide for recovery in a case of fraud. He is shaking his head no, but he is the one who referred to it as fraud.
Mr. PETRI. He said it would be but he didn't necessarily say there were laws—specific laws in the industry as opposed—.
Mr. SPENCER. That is an issue that currently is being handled and negotiated the way that some have described everything should work in trucking. Of course, we are here because it doesn't work like that in our unperfect world.
Mr. PETRI. Mr. Rahall, one more question.
Mr. RAHALL. Thank you, Mr. Chairman. I appreciate it. I did forget. I didn't mean for Mr. Pulley to get off completely free. I do have one last question for him. I have some material from the Alliance for Rail Competition in front of me that includes among its supporters the Transportation Intermediaries Association. This association, and apparently by reference yours, urges Congressional support for several bills that would reimpose and strengthen Federal regulation of the railroads. I quote from the last sentence of the cover letter—last paragraph, returning some semblance of competition to the rail industry will require the kind of comprehensive policy reforms that—and even the bold face is underlined—can only be accomplished through Congressional action.
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How do you reconcile your industry, the TIA association support for these reregulation measures involving the railroad industry with your opposition to legislation that you state, even though it wouldn't, would impose Federal regulations in trucking—impose Federal requirements?
Mr. PULLEY. Sir, I would believe that our position as members of TIA is that we do not support the regulation with these alliances.
Mr. RAHALL. I am sorry, you don't support the Alliance for Rail Competition?
Mr. PULLEY. We do support the alliance, but we do not support the provisions within that. I am confused. I must have to—we will submit a statement to you, sir.
Mr. RAHALL. We will allow that. Thank you.
Mr. PETRI. Thank you all very much and with that this hearing is adjourned.
[Whereupon, at 12:13 p.m., the subcommittee was adjourned.]