Washington Report 2007: Looking Back, Moving Forward

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As the balance of power in Washington shifts, a new Congress will be called upon to assess private and public sector concerns about transportation security and infrastructure. Inbound Logistics looks back at the 2006 legislative season to forecast what's in store for 2007.

The coming year promises to be a major watershed for U.S. government and industry alike as political power shifts on Capitol Hill and long-anticipated transportation legislation finally comes to pass.

The new direction of a Democrat-led Congress will have a major impact on the transportation sector, specifically as it addresses infrastructure investment and development, port and airport security, and protocol and practices for ensuring a more efficient and environmentally sensitive surface transportation network.

Many observers see a bipartisan approach to transportation initiatives as inevitable, though whether or not U.S. business interests supersede political wrangling remains to be seen.

Industry lobbyists predict a sea-change effect as labor, security, and environmental petitions come to the table, shape legislation, and conceivably impede progress toward addressing critical capacity and congestion concerns.

Other special interest groups suggest that the current administration has been lax in creating a viable blueprint for improving infrastructure and that a sea-change approach is necessary.

Already, rumors of more proactive and restrictive cargo screening legislation for ports and airports are giving U.S. businesses cause for concern.

While shifting political interests cast a new light on the U.S. transportation and logistics industry, recent congressional activity foreshadows some lingering concerns and legislation that will take center stage in 2007. For better or for worse, 2006 may prove to be the calm before a re-regulation storm.

Securing U.S. Ports

Infrastructure—its security and its condition—took top billing on the transportation agenda in Washington during the 2006 legislative/regulatory session.

Overall, it was a relatively quiet year with regard to transport issues. Congress' biggest accomplishment was passage of the Security and Accountability for Every (SAFE) Port Act, which President Bush signed into law in October 2006.

The SAFE Port Act authorizes $3.4 billion over five years for safety measures, including installing radiation detectors at the 22 largest U.S. ports by the end of next year.

While $3.4 billion may seem like a lot of money, maritime interests argue it is not.

"The Port Security Grant program has been woefully under-funded since its inception, providing only about one-fifth of eligible port facility security investments identified in six rounds of grant applications," insists Kurt Nagle, president of the American Association of Port Authorities (AAPA).

"Compared to the more than $24 billion that airports have received since Sept. 11 in federal security assistance, seaports—which handle 99 percent of our country's overseas freight volumes—appear to be a poor stepchild."

The SAFE Port Act also codifies into law the Container Security Initiative (CSI), which was launched in 2002.Through this initiative, U.S. Customs and Border Protection (CBP) has deployed American inspectors to some 50 foreign ports on five continents where they are screening cargo before it leaves for the United States.

The legislation similarly rolls out the Customs Trade Partnership Against Terrorism (C-TPAT), a joint effort between the public and private sectors to improve cargo security. Under this partnership, private shippers agree to improve their internal security measures, and in return, they can receive benefits including expedited clearance through U.S. ports.

"This is the first time C-TPAT has been legislated versus being implemented administratively by Customs," notes Richard Bank, an attorney with Washington, D.C.-based law firm Thompson Coburn LLC. "The Act includes procedures for revoking C-TPAT status. It also authorizes a pilot program to allow third-party C-TPAT licensing validation."

Finally, the SAFE Port Act requires the Department of Homeland Security (DHS) to establish a plan to speed trade resumption in the event of a terrorist attack on U.S. ports or waterways. This bill makes clear that the federal government has the authority to clear waterways, identify cleanup equipment, and re-establish the flow of commerce following a terrorist attack.

"Developing such trade resumption strategies will require a good deal of work," says Christopher Koch, president and CEO of the World Shipping Council, a nonprofit trade association representing international ocean carriers. "We're still in a nebulous stage at this point."

As a result of the SAFE Port Act, DHS will focus on several priority areas with regard to cargo security over the next 18 months.

"First," says Koch, "will be establishing various pilot projects to test 100-percent screening of containers before vessel loading in foreign ports. The Act requires DHS to meet certain deadlines with regard to this effort."

CBP is taking steps to require 10 additional data elements in the 24-hour advance manifest rule. The regulation requires ocean carriers and non-vessel operating common carriers to provide CBP with detailed descriptions of the contents of ocean containers bound for the United States 24 hours before the container is loaded onboard a vessel.

"The data Customs presently uses for risk assessment under the 24-hour rule was a good start, but is still not adequate," adds Koch.

Worker Identification

By far the biggest DHS undertaking will be rolling out the transportation worker identification credential (TWIC) program in 2007, as the SAFE Port Act requires.

The Transportation Security Administration (TSA) is developing TWIC to ensure that only workers who do not pose a terrorist threat are allowed to enter secure areas of transportation facilities. TSA completed TWIC program testing in June 2005 and is now implementing the program in the maritime sector.

"This is an extremely ambitious timetable," Koch says. "Everyone supports the concept of a TWIC program but it is difficult to implement when you don't have the specifications worked out yet. It covers hundreds of thousands of people."

The AAPA, the World Shipping Council, the American Trucking Associations, and even the Government Accountability Agency (GAO) have expressed serious reservations about TWIC's ability to succeed in the short term.

"AAPA is concerned that biometric card readers—devices that confirm the identity of card holders, such as through a fingerprint scan—have not been extensively tested in the maritime environment," Nagle reports.

"Without proper planning and evaluation, significant problems could occur by slowing down cargo movement and placing additional financial burdens on ports and their facility operators."

In a report issued in September 2006, the GAO explored the TWIC program as currently conceptualized. It enumerated several shortcomings and surprisingly, DHS concurred with GAO's findings. To accomplish its objective, the TWIC program requires transportation facilities to:

  • Mandate background checks on transportation workers.
  • Collect personal and biometric information to validate workers' identities.
  • Utilize tamper-resistant biometric credentials that cannot be counterfeited.
  • Verify these credentials using biometric access control systems before a worker is granted unescorted access to a secure area.
  • Revoke credentials if workers are found to pose a threat to security or if a card is lost or stolen.

In August 2006, DHS decided to implement the TWIC program in the maritime sector using two separate rules. The decision was made in response to maritime industry concerns about whether the access control technologies necessary to operate the TWIC program would work effectively.

One rule covers enrolling workers and issuing cards; a second rule covers implementing TWIC access control technologies, such as biometric card readers. DHS planned to finalize the first TWIC rule by the end of calendar year 2006, and issue the second TWIC rule in 2007.

TSA estimates that implementing the TWIC program in the maritime sector will cost the federal government and transportation facilities about $800 million over the next 10 years. The agency further speculates that individuals applying to receive a TWIC card will be charged a $149 fee.

TSA is considering implementing TWIC in other transport modes in the future, but has not established a time frame for doing so.

According to the GAO, DHS and industry stakeholders face three major challenges in addressing problems identified during TWIC program testing. The first challenge is enrolling and issuing TWIC cards to a large population of workers in a timely manner. In testing the TWIC program, TSA enrolled and issued TWIC cards to only about 1,700 workers, short of its goal of 75,000 workers.

"TSA is taking steps to remedy this problem," the GAO notes. "Nevertheless, the challenge of issuing TWIC cards to 850,000 workers at 3,500 maritime facilities and 10,800 vessels is daunting." The second challenge is ensuring that the access control technology, such as biometric card readers, required to operate the TWIC program works effectively in the ocean sector. The harshness of the maritime environment makes this issue problematic.

In addition, most testing facilities lacked the technology to connect with TSA's national TWIC database. This prevented them from obtaining current information on workers already issued TWIC cards who have subsequently been identified as potential threats to security or whose cards have been lost or stolen.

While TSA acknowledges these problems, the agency does not plan to conduct additional testing of TWIC access control technologies to ensure that they work effectively before implementing the program.

The third challenge DHS faces is the possibility that the TWIC program could slow the flow of maritime commerce. If individual workers or truck drivers have problems with their fingerprint verification on a biometric card reader, for instance, it could create a long queue, delaying other workers and trucks trying to enter secure areas of a port.

The GAO recommended that TSA delay implementation of the TWIC program to resolve these issues, but as of yet it has no plans to do so. The transition to TWIC, therefore, could be rough.

Tackling Infrastructure Issues

"Today, our vital transportation infrastructure is showing signs of aging. We are experiencing increasing congestion on our highways, railways, airports, and seaports. We are robbing our economy of productivity and our citizens of quality time with their families."

So said then U.S. DOT Secretary Norman Mineta in May 2006 when he announced the National Strategy to Reduce Congestion on America's Transportation Network.

"The objective of the initiative is to reduce congestion, not simply to slow its increase," Mineta said. "Solutions will require a smarter approach to capacity expansion and improved productivity of existing transportation assets."

DOT's plan provides a framework for discussions on infrastructure issues, but does not include any specifics for addressing congestion relief or funding.

"The nation faces a major challenge in responding to the rising tide of freight traffic," said Senator Trent Lott (R-Miss.) in July. "It is not just another 'challenge of the month,' but a long-term structural problem calling for a vision and response framed in terms of decades.

"If we do nothing now, we can expect to pay a growing price—more highway gridlock, more pollution, higher fuel consumption, lost lives, higher shipping costs, and slower economic growth."

This challenge is further compounded by the reality that demand for freight transportation is predicted to triple over the next decade, says Edward Hamberger, president and CEO of the Association of American Railroads (AAR).

The nation's railroads, for their part, have invested $64 billion in infrastructure over the past decade. In 2006, the rail industry was on course to invest $8.3 billion in track, locomotives, and other capital equipment.

In 2006, the rail industry sought tax relief from Congress as a means to offset some of the financial burden this infrastructure investment carries.

In July, Senators Lott and Kent Conrad (D-ND) introduced the Freight Rail Infrastructure Capacity Expansion Act, which would have provided a 25-percent tax credit for any business investing in new rail track, intermodal facilities, rail yards, locomotives, or other rail infrastructure expansion projects. Railroads, ports, shippers, trucking companies, and other transportation-related businesses would be eligible for the credit.

The rail infrastructure act failed to move last year. Consequently, "getting this investment tax credit for railroad infrastructure expansion passed will be our number-one offensive objective for 2007," Hamberger asserts.

The nation's ports are also anxiously awaiting an infrastructure funding decision from Congress—in the form of the Water Resources Development Act (WRDA). The WRDA authorizes dredging projects and other navigation improvements, and includes reforms for the U.S. Army Corps of Engineers' project development process.

"Congress is supposed to pass WRDA funding legislation every two years, but the last one was passed in 2000," notes AAPA's Nagle. "We're four years past due.

"America's ports depend upon a regular, biennial cycle of new project authorizations to improve federal navigation channels and accommodate calls from a modern world fleet of deep-draft ships," Nagle says.

"This bill is critical to maintaining America's position as a dominant world trading partner and to keeping our ports working as engines of the nation's economic growth."

On the broader issue of the national multi-modal infrastructure system, the American Trucking Associations' president and CEO Bill Graves believes that realistically, lawmakers won't take any significant steps to address congestion until the next round of surface transportation funding reauthorization in three years.

"My expectation is that infrastructure will get a place at the table during the next presidential campaign," Graves says. "Everyone recognizes that we have significant inadequacies in our efforts to keep roads and bridges properly maintained and that we need to invest significant money in new capacity to eliminate or smooth out some of the congestion we face.

"I am optimistic that we will see the same kind of attention to this issue that we saw during the Eisenhower administration with the creation of the interstate highway system.

"Our transportation infrastructure is a critical piece of what makes the United States so competitive in the world economy and what sustains our quality of life. The next 10 years will create the footprint in which we're going to move freight for the next 50 years," he concludes.

A Shifting Role

Since the terrorist attacks of Sept. 11, Washington has undergone a metamorphosis. "In a regulatory sense, the role of federal agencies has not increased but their focus has shifted from economic regulation to security-based regulation. This is a major shift, and one that is likely to continue," observes Washington attorney Bank.

But while critically important, security isn't the engine that enables the U.S. economy. That engine is transportation infrastructure. As our infrastructure becomes more congested, grows outmoded, or falls into disrepair, the cost to our economy only goes up. This issue won't go away. The longer Congress waits to take significant action, the worse the situation will become.

Short Sea Shipping: A Tall Order?

While surface transportation matters garnered top billing in Washington during 2006, one related smaller issue circled around the periphery—short sea shipping.

With all the talk about port congestion, the federal government—specifically the U.S. Maritime Administration—continues to explore the potential advantages of short sea shipping.

"Shippers that would normally truck cargo from Los Angeles to San Francisco would instead put that freight on a ship and send it up the coast," explains Washington attorney Richard Bank.

Proponents of this modal option say it would ease highway congestion, and is environmentally friendly—fewer trucks equal less pollution.

While short sea shipping possibly makes sense for bulk commodities and certain other types of traffic, it may have limited effectiveness for containerized traffic.

"Suppose you have a truck moving from Los Angeles to San Francisco, and you divert the load to short sea shipping," says Bank. "You will have to truck the container to port, offload it, store it in the container yard, put it onto a vessel, and do the same thing at the destination.

"That's a lot of handling for a 400-mile trip. The cost would be prohibitive, not to mention the additional time and potential for damage. This likely offsets the benefits of reducing pollution and taking trucks off the road," he adds.

Even if short sea shipping could overcome time, cost, and reliability issues, another aspect makes it seemingly untenable—the Jones Act, a 200-year-old federal statute restricting the carriage of goods between U.S. ports to "coast-wise qualified vessels."

The Jones Act requires these vessels to be U.S.-flagged, built in the United States, owned by U.S. citizens, and documented—registered, enrolled, or licensed—under U.S. laws.

Further, all officers and 75 percent of the crew on these vessels must be U.S. citizens. Even non-U.S. origin cargo is covered under the Jones Act's provisions. Once cargo lands in this country, it "enters the commerce of the United States," becomes U.S. domestic trade, and therefore cannot be transported by vessels that are not coastwise-qualified.

"Unless the Jones Act is repealed or modified, short sea shipping for containerized cargo in the United States is unlikely to develop," Bank asserts.

"The regulations for crewing and registering vessels make it too costly. Plus, there are few, if any, Jones Act container vessels today, so they would have to be built in U.S. shipyards, which would be very expensive," he adds.

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