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Warehousing and Logistic News – Highway Bill Draws Praise and Criticism

ACWI ADVANCE | Volume 3, Issue 24 | December 15, 2015

2015-12-16_15-31-59After nearly a decade Congress finally passed a multi-year transportation infrastructure program that has drawn both expressions of relieved approval along with bitter criticism.

Called the Fixing America’s Surface Transportation Act, the legislation commits to spending $305 billion through fiscal 2020, largely funded with federal fuel tax revenues and general revenues, with $70 billion supposedly raised by manipulating other areas of the federal budget.

This gimmick-laden funding mechanism has drawn criticism for being so much smoke and mirrors by critics who charge that in the end it means that the government will be forced to fall back again on using general funds to help pay for the program.

In recent months some legislators mounted an effort to fund the program by increasing fuel taxes, the traditional method. However, that was never seriously considered by House and Senate leaders, and President Obama threatened a veto of any bill including fuel tax hikes.

Other sources of controversy include non-highway provisions such as reauthorization of the Export-Import Bank through 2019, which conservative legislators thought they had killed, along with mass transit and farm insurance subsidies.

Also, some parts of the program are not part of the funding formula and thus will require annual appropriations by Congress. These include the more than $10 billion over five years for Amtrak and other rail programs, $12 billion for mass transit and $1 billion for vehicle safety programs.

The bill indexes customs fees to inflation, dedicating the increased revenue to pay for the program’s cost. It orders the sale of 66 million barrels of oil from the Strategic Petroleum Reserve to raise $6.5 billion. This assumes a price of $90 a barrel when the oil is sold in 2023 — three years after the FAST Act expires.

Dropped from the final bill were proposals to allow 33-foot twin trailers beyond the 11 states already permitting them, and allow truckers aged 18-21 to drive in interstate commerce.

These issues don’t seem to bother highway advocates like Jim Tymon, the director of policy and management at the American Association of State
Highway and Transportation Officials.

“From a state DOT perspective, we’re really excited about the prospects of having five years of predictability at the federal level. That’s something we haven’t had in 10 years, since 2005,” he said.

Advocates for making freight a national priority saw much to praise in the creation of a new program that contains provisions accomplishing that goal for the first time in the history of the highway program.

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Will Treasury OK Central States Cuts?

2015-12-16_17-51-49The U.S. Treasury Department is seeking public input on whether it should approve a Teamsters Central States Pension Fund proposal to slash benefits by up to 50% for 403,0000 retirees because the fund lacks the money needed to pay their benefits.

Although the source of outrage in its early days when it was the plaything of the Mafia, Jimmy Hoffa and his cronies, the fund had been cleaned up under government supervision some time ago and criminal activity has not been the issue.

However, as a defined benefit plan in a deregulated trucking industry, Central States became financially shaky once the number of retirees became larger than the trucking companies paying into the fund could cover.

The government says Central States is $17.5 billion short of its liabilities, and has been paying out $3.46 in benefits for every $1 it takes in, resulting in a loss of $2 billion a year more than it receives.

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NS Rebuffs CP $28 Bil Purchase Offer

Norfolk Southern’s board of directors rejected a $28.4 billion acquisition offer by Canadian Pacific.

The NS board said the offer was too low, and cited antitrust and other regulatory roadblocks that would most likely derail the merger of two of North America’s last remaining large freight railroads.

The board also rejected a revised offer from CP majority owner Bill Ackman which news reports said was greeted even less fravorably by investors.

“There is a high probability that, after years of disruption and expense, the proposed combination would be rejected by the Surface Transportation Board,” said NS CEO James A. Squires.

The NS public statement also was acid in its characterization of CP’s new management. “We believe that Canadian Pacific’s short-term, cut-to-the-bone strategy could cause Norfolk Southern to lose substantial revenues from our service-sensitive customer base,” Squires said.

“We also believe the proposed transaction risks harm to vital transportation infrastructure and the communities we serve,” he added. “Any strategy that hurts our customers and the broader community is highly unlikely to receive regulatory approval and is inconsistent with the delivery of shareholder value over the long-term.”

NS also said CP’s indication of interest was opportunistically timed to take advantage of an NS market valuation adversely affected by a drop in commodity prices, and fails to account for recent infrastructure investments.

An article in the Wall Street Journal said a Cowen & Co. survey found that 71% of rail shippers opposed the merger, and about half of those said they would express those objections to the STB.

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