HEALTH AND PERSONAL CARE LOGISTICS CONFERENCE WASHINGTON UPDATE October 2010

1. HEALTH AND PERSONAL CARE LOGISTICS CONFERENCEWASHINGTON UPDATEOctober 2010 John M. Cutler, Jr. McCarthy, Sweeney & Harkaway, P.C. 1825 K Street, N.W., Suite 700 Washington, DC 20006 (202) 775-5560 jcutler@mshpc.com

2. OVERVIEW • November elections are main focus of discussion in Washington • Republican gains in both Houses of Congress are likely • One or both Houses might shift from Democratic to Republican majorities • Current gridlock likely to get worse • Slim possibility of action by “lame duck” Congress

3. LEGISLATIVE GRIDLOCK ISN’T ALL BAD • Many controversial bills are dead for now • EFCA/Card Check • Climate Change/Cap and Trade • However, all bills not enacted by the end of this Congressional session will have to be reintroduced in 2011, and start over. Some popular bills may move forward quickly next year, but many will be harder to pass.

4. THE LAME DUCK CONGRESS • After the November elections, current Members of Congress will return to Washington and may enact legislation even if not reelected • Members who lost their seats may be able to cast votes on needed bills even if those votes are unpopular • “Must-Pass” bills, like bills to fund the federal government and extension of Bush tax cuts, will become vehicles for amendments addressing unrelated issues • However, real cooperation between Republicans and Democrats is not likely during lame duck session • Leaders of both parties admit that dysfunctional Congress is failing to do its job, but improved performance next year is unlikely

5. INFRASTRUCTURE INVESTMENT MAY BE A CASUALTY OF GRIDLOCK • The last Highway Bill, SAFETEA-LU, expired September 30, 2009 • Stopgap funding since then, but little progress on a successor • Chairman Oberstar of the House Transportation & Infrastructure Committee has pushed for, and drafted, a new bill • The Senate and White House wanted to wait till after the November 2010 elections • Hopes for strong economic recovery, which might have eased funding concerns, have not panned out

6. NO LACK OF EFFORT TO PUSH INVESTMENT • On September 23, U.S. Chamber of Commerce released its Transportation Infrastructure Index as part of its Let’s Rebuild America initiative • Index is designed to show the importance of transportation infrastructure to business • Bottom Line: “Our nation's deteriorating infrastructure is placing a major drag on our economic growth. There can be no more business as usual.” • Chamber plans to follow up with indexes for energy, broadband and water

7. NO LACK OF EFFORT TO PUSH INVESTMENT (continued) • On October 4, a National Transportation Policy Conference chaired by former DOT Secretaries Norm Mineta and Sam Skinner issued “Well Within Reach: America's New Transportation Agenda” • Many participants in the Conference were also involved in producing the 2008 and 2009 Reports of the Policy & Revenue Study Commission and the Infrastructure Financing Commission, both set up by Congress • Report calls for increased funding, with a Vehicle Miles Traveled (VMT) tax the preferred long-term solution • Collecting one penny per mile would equal current revenues from the Highway Fuel Tax. Two cents per mile is projected to provide the long term funding needed.

8. INFRASTRUCTURE BANK • The White House has proposed a $50 billion Infrastructure Bank to support infrastructure investment • Idea is to provide seed money that would attract other capital and fund needed investment - Where would money come from? - What would it be used for? - Would $50 billion infrastructure bank replace $450 billion Highway Bill? - Will Congress support infrastructure investment?

9. WILL CONGRESS SUPPORT INFRASTRUCTURE INVESTMENT? • Piling up studies and conference reports by present and former public officials is no substitute for action on Capitol Hill • This is the $450 billion question • The answer is probably No - Governor Bill Graves, President of American Trucking Associations, and Senator Max Baucus, Chairman of Senate Finance Committee, both predict no action by Congress (other than stopgap funding) between now and 2113) - Not clear whether funding will be possible in 2014

10. WHAT’S THE PROBLEM? • Bills in Congress must pass Senate and House • Senate passage used to require majority but often requires 60 votes today • Single Senator can block action through an anonymous “Hold” • Both parties have fewer centrist members willing to support other party’s initiatives • Compromise has become a dirty word

11. WHAT’S THE PROBLEM?(continued) • There is too much partisanship on Capitol Hill and in Politics • Republicans won’t vote to raise taxes prior to the November elections • After the elections, Members elected with Tea Party support will be even less willing to raise taxes, and the goals of reducing the deficit and shrinking the federal government will supersede other goals • Democrats also won’t vote to raise taxes prior to the November elections, and will almost certainly be less effective in 2011, even if still in the majority

12. WHAT’S THE PROBLEM?(continued) • Too many Democrats support high speed rail, transit, bike lanes and other elements of the transportation infrastructure that do not move freight • Too many Democrats care more about health, safety, the environment and security than about the efficient movement of goods and people • Infrastructure investment and Highway Bills used to enjoy bipartisan support, but the rules have changed

13. WHAT WE CAN DO TO HELP • Infrastructure investment is supported by Carriers and Shippers, Business (which needs goods moved) and Labor (which needs the jobs infrastructure investment offers) • Senator Baucus said that constituents of Members of Congress need to press for action. Carriers, Shippers, Business and Labor are constituents. • The Chamber of Commerce, NAM, H&PCLC, NASSTRAC, NITL, American Trucking Associations, Association of American Railroads, NRF, RILA, etc., need to keep pushing for action

14. INACTION MEANS MORE WASTE • The deteriorating U.S. infrastructure leads to waste - Shippers may need to add unnecessary inventory – just-in-case supply chains replacing just-in-time supply chains. - Carriers need additional equipment and personnel due to congestion - Commuters waste time in traffic due to congestion - Government wastes time and money because construction approvals involve too much red tape and delay • Fortunately, politicians, whether they are Democrats or Republicans, love to run on a platform of eliminating waste

15. ANTITRUST BILLS AND NEWS • Shipping Act of 2010, H.R. 6167, introduced by Chairman Oberstar of House Transportation & Infrastructure Committee, eliminates antitrust immunity for ocean shipping lines, provides for arbitration of disputes, prohibits unreasonable surcharges and allows FMC to impose civil penalties. Supported by shippers; opposed by carriers. • Railroad Antitrust Enforcement Act, S. 146, introduced by Senator Herb Kohl (D-WI), would eliminate antitrust immunity for railroads. Supported by shippers; opposed by carriers.

16. ANTITRUST BILLS AND NEWS(continued) • Senator Kohl has also called on the Department of Justice to investigate LTL pricing, and particularly, rate increases based on changes in commodity classifications by the Commodity Classification Standards Board • Major forwarders agreed to pay $50 million in fines for air cargo price fixing • Class action status for rail fuel surcharge price fixing cases to be decided soon

17. OTHER LEGISLATION RELATEDTO TRANSPORTATION • FAA Reauthorization Act, H.R. 915, introduced by Rep. James Oberstar (D-MN), would modernize FAA. Held up in Senate, due in part to dispute over whether FedEx should be subject to Railway Labor Act, which requires labor organizing at the national level, or the National Labor Relations Act, which permits labor organizing at the local level. • Surface Transportation Board Reauthorization Act, S. 2889, introduced by Senator Jay Rockefeller (D-WV). Supported by rail shippers and opposed by major railroads. Would increase rail competition and the effectiveness of regulatory remedies for captive rail shippers at the STB.

18. OTHER LEGISLATION RELATED TO TRANSPORTATION • Freight Rail Infrastructure Capacity Expansion Act, S. 3749, introduced by Sen. Kent Conrad (D-ND) would provide 25% investment tax credit for railroads. Railroads support but bill not moving. • Focusing Resources, Economic Investment and Guidance to Help Transportation (FREIGHT) Act, S. 3629, introduced by Senator Frank Lautenberg (D-NJ). Supported by railroad industry and opposed by trucking. • Freight is the Future of Commerce in the United States (Freight FOCUS) Act, H.R. 6291, introduced by Rep. Laura Richardson (D-CA). Calls for 12 cent increase in diesel tax, $3 billion transfer to trust fund, and creation of National Freight Advisory Committee. Supported by trucking industry.

19. OTHER LEGISLATION RELATED TO TRANSPORTATION • Drug Safety and Accountability Act, S. 3690, introduced by Senator Michael Bennet (D-CO). Bill would require each drug producer to report on each producer, manufacturer, distributor and shipper involved in drug production or transport. Allows Secretary of HHS to order immediate cessation of distribution, or order a recall. Supported by AARP, Consumers Union, American College of Physicians and others. PhRMA “studying”. • Motor Carrier Protection Act, S. 3483, introduced by Senators Snowe (R-ME) and Klobuchar (D-MN), increases registration fees for brokers and forwarders, and prohibits trucking companies from brokering unless they register as brokers or forwarders, furnish a $100,000 bond, and specify in writing the form of service provided

20. HOURS OF SERVICE UPDATE • Since 2003, FMCSA has had HOS rules based on 11 hours max time on duty and at least 34 hours off duty between work weeks • H&PCLC and other shipper groups have supported ATA and the trucking industry and FMCSA because the current rules work • Safety advocates have continued to push for shorter hours, even as highway fatality rates have fallen to the lowest level in 60 years • FMCSA will announce new rules in the next month or two. H&PCLC will continue to support efficient truck operations and reasonable HOS rules.

21. PORT DRAYAGE UPDATE • For several years, efforts to improve air quality at ports have been affected by unionization issues • Port of LA wants to require owner-operators driving port drayage trucks to become employees of trucking companies. Port of Long Beach has seen dramatic improvement without forcing owner-operators to lose their independence. • LA approach facilitates organizing efforts by Teamsters • Pro-union forces are trying to change law through the Clean Ports Act of 2010, H.R. 5967, introduced by Rep. Jerrold Nadler (D-NY) • ATA has been successful in resisting change in court, but most recent trial court decision favored Port of LA. ATA will appeal and seek stay. H&PCLC supports ATA.

22. TRUCK SIZE AND WEIGHT • Greater Gross Vehicle Weights would increase trucking productivity, as would longer combination vehicles • Change to federal “freeze” to allow more LCVs unlikely • Safe Highways and Infrastructure Preservation Act (SHIPA), H.R. 1618 (Rep. McGovern, D-MA) and S. 779 (Sen. Lautenberg, D-NJ) would expand freeze to all national highways, not just interstates • Some progress on raising 80,000 lb. GVW limit to 97,000 lb. GVW with another axle and set of wheels. • Safe & Efficient Transportation Act, H.R. 1799 (Rep. Michaud, D-ME) and S. 3705 (Sen. Crapo, D-ID) is gaining support • Obama Administration wants Congress to make Maine and Vermont pilot programs for 100,000 lb. trucks on interstate highways permanent. Railroads oppose.

23. DOT AND FMCSA • After trying and failing to support increased fuel taxes, DOT Secretary Ray LaHood has spent time promoting high speed rail, and arranging for TIGER grant funds to go to railroads. DOT needs support of Class I railroads for high speed rail initiative. • Comments about trucking provide less comfort, though LaHood is not talking so much about getting gas-guzzling trucks off the roads • Adverse impact on trucking from FMCSA Hours of Service rules likely to be compounded by CSA 2010 initiative. Driver shortage will get worse.

24. DOT AND FMCSA(continued) • Satisfactory ratings required by many shipper contracts may become Marginal or Unfit under CSA 2010. Motor carrier and broker/forwarder contracts need to be modified to call for trucking companies to maintain Safety Measurement System (SMS) ratings exceeding Marginal. • SMS ratings to become available in December 2010. Notice of Proposed Rulemaking on CSA 2010 due in early 2011. H&PCLC will file comments

25. CSA 2010 BASICS Behavior Analysis and Safety Improvements Categories (BASICs) Elements: • Unsafe Driving – speeding, reckless driving • Fatigued Driving – exceeding hours of service • Driver fitness – lack of CDL, medical disqualification • Controlled Substance/Alcohol • Vehicle Maintenance – defective brakes, lights, etc. • Cargo-Related – overloading, improper securement • Crash Indicator – high crash involvement

26. PUERTO RICO PORT SECURITY • Puerto Rico has announced plans to implement port cargo screening using Rapiscan X-ray technology • Said to apply to inbound shipments, and to comply with Puerto Rico law • Concern for Pharma shippers with goods moving through Port of San Juan is that X-ray screening might damage goods or packaging, or might lead to rejection of screened cargo as potentially compromised or contaminated • Efforts are under way to address the problem

27. SUPREME COURT ON CARGO CLAIMS • At H&PCLC Spring Meeting, K-Line v. Regal Beloit discussed, in which Supreme Court considered whether international bill of lading or Carmack amendment governs cargo claim resulting from UP derailment • Normally, federal laws trump shipping papers • However, Court majority held that BOL was controlling, forcing shipper to go to Tokyo to resolve cargo claim • Decision simplifies life for forwarders, ocean lines and connecting ground carriers, and suggests that Rotterdam Rules, like COGSA, will supersede Carmack for most ocean/surface shipments • Shippers can still arrange for Carmack coverage for U.S. surface leg of ocean shipments from Asia or Europe, but contracts with forwarders and shipping lines will need appropriate language