Safety Regulations and Paradigm Shifts

by Henry E. Seaton, Esq. Seaton & Husk, L.P.

Transportation and Logistics Council

41st Annual Conference March 23-25, 2015

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30 years ago, deregulation:

• Created increased truckload competition and supply; and

• Initiated “procurement law” as a reaction to “the filed rate

doctrine” fiasco.

• New safety regulations 30 years later will irrevocably

change shipper/broker/carrier relations and the use of

shipper dictated terms in procurement contracts.

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Pending Safety Regulations and Supply and Demand Issues

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1. Sleep Apnea

• STOP-BANG (Snoring, Tiredness during daytime, Observed apnea, high blood Pressure, Body mass index, Age, Neck circumference, Gender)

• Average age of drivers is 50

• Early retirement of road warriors

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2. Insurance ANPRM:

• Proponents advocate as much as $9,000,000 to $10,000,000 insurance minimum

• Insurance market has no appetite

• Would raise settlement value of all suits

• Giving competitive advantage to only largest carriers

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3. Driver Training Reg-Neg:

• Driver training school and safety advocates want CDL training requirement

• Would substantially raise entry barrier requiring new entrant scholarship or contracts with future employer requiring repayment

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4. Hours of Service Requirements

• Circadian rhythms and nighttime driving

• 34 hour restart and new study

• Reduces productivity/frustrates owner-operator model and 1 truck, 1 driver

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5. FDA Rules

• All parties agree increase cost of transporting perishable foodstuffs/cargo claims

• Increased costs must be passed on to shipper and ultimate consumer

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6. URS – Unified Registration System

• 40 page application will frustrate new applicants.

• Required evidence of insurance and agents for all (private and exempt).

• System has been outsourced and will implode.

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7. Agency has Sought Authority over Shippers and Brokers

• Requiring or permitting will stifle delivery demands “beyond reasonable” dispatch.

• Prepare to pay detention and to accommodate carrier unloading upon arrival.

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8. CSA 2010 / SMS Methodology

• “Liability runs up the supply chain” • Shippers and brokers duped into becoming willing “stakeholders” • Failure of the industry to timely examine SMS methodology

• Warmed over SafeStat • Enforcement anomalies (5 states produce 45% of unsafe driving) • Peer group creep • No correlation to safety • Insufficient data to measure 90% of carriers • Cannot determine crash preventability • Profiling of non-fleet trucks / ISSP

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Crash Ratios and the Law of Large Numbers • 10 truck operator involved in 2 non-preventable accidents is over 1.6

million crashes per million threshold.

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Power Units

Carriers with 3 Alerts

49% of small carriers with 3 had no accidents in past 2 years. Proves volatility point, the larger the size, the less fluctuation.

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FMCSA Regression of Averages – Fatigued Driving

Fatigued Driving – Plot of 35,933 Carriers

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FMCSA Regression of Averages – Unsafe Driving

Unsafe Driving – Plot of 26,435 Carriers

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Rigged to Fail

• Law of large numbers / insufficient data

• 90% of carriers cannot be measured (GAO)

• Agency cannot determine crash preventatiliby (3/4th of crashes are not carriers fault)

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• Now all stakeholders recognize methodology is fatally flawed, but:

• Some seek competitive advantage; and

• Shippers asleep at the wheel

• No recognition it is the Agency’s job to certify safety

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Legislation and Congressional Oversight

• Proposed in 2 bills last Session.

• Will be reintroduced.

• What is needed is a simple affirmation of preemption of state laws / it is the FMCSA’s job.

• No second guessing required.

• State law causes of action up the supply chain trumped under §31144.

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Double Brokerage and MAP-21

• Increase in bond to $75,000 may have helped but is no remedy. • Chain of custody issues and double payment liability is largely

shipper’s fault:

• Don’t confirm retained carrier actually picks up shipment at point of origin and delivers at destination

• Do not require broker to maintain constructive trust as required by regs

• Ostrich like approach is not winsome

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Shifting Paradigm Resulting from Restricted Supply

• Carriers will no longer sign “take it or leave it” procurement contracts.

• The “just sign it, everybody does” argument will not work.

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How Aggressive Procurement Contracts are Counterproductive for Carriers and Brokers • Vicarious liability

• Shippers insist broker accept carrier duties

• Shipper places on broker the duty to “ensure”:

• Driver is qualified • Equipment is in good working condition • Hours of service are complied with; and • Worker’s compensation benefits are paid, etc.

• This type of language makes the broker vicariously liable under variety of

state law theories (e.g.): • In control of carrier • Joint venture with carrier • In a contractor/subcontractor relationship with carrier • Assumes non-delegable duty as “de facto” carrier

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Simple Requirement that broker is solely responsible for carrier selection and

indemnity is sufficient.

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Use of SMS Methodology

• Shipper requires that carrier or broker (when selecting carrier) use arbitrary SMS threshold higher than safety fitness standard imposed by FMCSA

• Shipper in effect has admitted state law credentialing obligation

• Opens the door for plaintiff’s bar (e.g., watermelons and bricks)

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Cargo Claims in Excess of Carmack • Broken seals

• Reject it, crush it and dump it

• Shippers insist on sole discretion with respect to salvage

• Shipments rejected for broken seals are dumped without inspection

• Shipper fails to recognize carrier’s insurer will not pay claim!!

• Shipper and broker attempt to enforce by offset liability which exceeds Carmack

• Creates spiral of death for small carrier

• Need for joint inspection and collaborative effort to deal with issue in context of FDA rules 23

Unilateral Offset

• Driven by defective cargo insurance

• Yet leads to unadjusted claims / no insurance settlement

• Carriers cannot accept

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Indemnity and “Buy Me Insurance”

• Shipper insists on broadly worded indemnity without reference to breach or negligence by carrier including for shippers own negligence.

• Ignore affect of “anti-indemnity statutes” and need for evenhanded bilateral indemnification.

• Risk transfer device – broker cannot promise shipper everything and expect to be held harmless by “poor man’s indemnity” from small carrier.

• Broker unlike carrier is not beneficiary of state anti-indemnity laws.

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Freight Payment

• Shippers selecting a 3PL must recognize that 3PL is its agent.

• Protracted payment terms in excess of 30 days without interest and

no shipper recourse is unacceptable to carriers.

• Broker is not a bank and should not be required to finance the float or

to accept surety obligation to carriers if shipper does not pay.

• Outsourcing without accountability is frivolous.

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Conclusion • FMCSA has no appetite to encourage or protect the shipping community.

• It abandoned the simple cargo insurance requirement years ago.

• Views shippers and brokers as a source of recovery for plaintiff’s bar.

• Procurement contracts designed for “general vendors” by corporate counsel:

• Will not withstand carrier scrutiny when truckload supply and demand is balanced.

• Shippers and brokers need to be proactive in insisting on enforcement of federal rules of

commerce that:

• protect the shipping public against upstream liability for truck accidents in the absence of direct

shipper negligence;

• exercise great care to avoid self-inflicted wounds and lengthy procurement contracts.

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