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FREIGHT LOGISTICS: THE ROAD

AHEAD AS SEEN BY THE USERS OF

THE HIGHWAY SYSTEM

(109–94)

HEARING

BEFORE THE

SUBCOMMITTEE ON

HIGHWAYS, TRANSIT AND PIPELINES

OF THE

COMMITTEE ON

TRANSPORTATION AND

INFRASTRUCTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

SEPTEMBER 7, 2006

Printed for the use of the

Committee on Transportation and Infrastructure

(
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

DON YOUNG, Alaska, Chairman

THOMAS E. PETRI, Wisconsin, Vice-Chair

SHERWOOD L. BOEHLERT, New York

HOWARD COBLE, North Carolina

JOHN J. DUNCAN, JR., Tennessee

WAYNE T. GILCHREST, Maryland

JOHN L. MICA, Florida

PETER HOEKSTRA, Michigan

VERNON J. EHLERS, Michigan

SPENCER BACHUS, Alabama

STEVEN C. LATOURETTE, Ohio

SUE W. KELLY, New York

RICHARD H. BAKER, Louisiana

ROBERT W. NEY, Ohio

FRANK A. LOBIONDO, New Jersey

JERRY MORAN, Kansas

GARY G. MILLER, California

ROBIN HAYES, North Carolina

ROB SIMMONS, Connecticut

HENRY E. BROWN, JR., South Carolina

TIMOTHY V. JOHNSON, Illinois

TODD RUSSELL PLATTS, Pennsylvania

SAM GRAVES, Missouri

MARK R. KENNEDY, Minnesota

BILL SHUSTER, Pennsylvania

JOHN BOOZMAN, Arkansas

JIM GERLACH, Pennsylvania

MARIO DIAZ-BALART, Florida

JON C. PORTER, Nevada

TOM OSBORNE, Nebraska

KENNY MARCHANT, Texas

MICHAEL E. SODREL, Indiana

CHARLES W. DENT, Pennsylvania

TED POE, Texas

DAVID G. REICHERT, Washington

CONNIE MACK, Florida

JOHN R. ‘RANDY’ KUHL, JR., New York

LUIS G. FORTUN ̃ O, Puerto Rico

LYNN A. WESTMORELAND, Georgia

CHARLES W. BOUSTANY, JR., Louisiana

JEAN SCHMIDT, Ohio

JAMES L. OBERSTAR, Minnesota

NICK J. RAHALL, II, West Virginia

PETER A. DEFAZIO, Oregon

JERRY F. COSTELLO, Illinois

ELEANOR HOLMES NORTON, District of

Columbia

JERROLD NADLER, New York

CORRINE BROWN, Florida

BOB FILNER, California

EDDIE BERNICE JOHNSON, Texas

GENE TAYLOR, Mississippi

JUANITA MILLENDER-MCDONALD,

California

ELIJAH E. CUMMINGS, Maryland

EARL BLUMENAUER, Oregon

ELLEN O. TAUSCHER, California

BILL PASCRELL, JR., New Jersey

LEONARD L. BOSWELL, Iowa

TIM HOLDEN, Pennsylvania

BRIAN BAIRD, Washington

SHELLEY BERKLEY, Nevada

JIM MATHESON, Utah

MICHAEL M. HONDA, California

RICK LARSEN, Washington

MICHAEL E. CAPUANO, Massachusetts

ANTHONY D. WEINER, New York

JULIA CARSON, Indiana

TIMOTHY H. BISHOP, New York

MICHAEL H. MICHAUD, Maine

LINCOLN DAVIS, Tennessee

BEN CHANDLER, Kentucky

BRIAN HIGGINS, New York

RUSS CARNAHAN, Missouri

ALLYSON Y. SCHWARTZ, Pennsylvania

JOHN T. SALAZAR, Colorado

JOHN BARROW, Georgia

(II)
SUBCOMMITTEE ON HIGHWAYS, TRANSIT AND PIPELINES

THOMAS E. PETRI, Wisconsin, Chairman

SHERWOOD L. BOEHLERT, New York

HOWARD COBLE, North Carolina

JOHN J. DUNCAN, JR., Tennessee

JOHN L. MICA, Florida

PETER HOEKSTRA, Michigan

SPENCER BACHUS, Alabama

STEVEN C. LATOURETTE, Ohio

SUE W. KELLY, New York

RICHARD H. BAKER, Louisiana

ROBERT W. NEY, Ohio

FRANK A. LOBIONDO, New Jersey

JERRY MORAN, Kansas

GARY G. MILLER, California, Vice-Chair

ROBIN HAYES, North Carolina

ROB SIMMONS, Connecticut

HENRY E. BROWN, JR., South Carolina

TIMOTHY V. JOHNSON, Illinois

TODD RUSSELL PLATTS, Pennsylvania

SAM GRAVES, Missouri

MARK R. KENNEDY, Minnesota

BILL SHUSTER, Pennsylvania

JOHN BOOZMAN, Arkansas

MARIO DIAZ-BALART, Florida

JON C. PORTER, Nevada

TOM OSBORNE, Nebraska

KENNY MARCHANT, Texas

MICHAEL E. SODREL, Indiana

DAVID G. REICHERT, Washington

JEAN SCHMIDT, Ohio

DON YOUNG, Alaska

(Ex Officio)

PETER A. DEFAZIO, Oregon

NICK J. RAHALL II, West Virginia

JERROLD NADLER, New York

GENE TAYLOR, Mississippi

JUANITA MILLENDER-MCDONALD,

California

ELIJAH E. CUMMINGS, Maryland

EARL BLUMENAUER, Oregon

ELLEN O. TAUSCHER, California

BILL PASCRELL, JR., New Jersey

TIM HOLDEN, Pennsylvania

BRIAN BAIRD, Washington

SHELLEY BERKLEY, Nevada

JIM MATHESON, Utah

MICHAEL M. HONDA, California

RICK LARSEN, Washington

MICHAEL E. CAPUANO, Massachusetts

ANTHONY D. WEINER, New York

JULIA CARSON, Indiana

TIMOTHY H. BISHOP, New York

MICHAEL H. MICHAUD, Maine

LINCOLN DAVIS, Tennessee

BEN CHANDLER, Kentucky

BRIAN HIGGINS, New York

RUSS CARNAHAN, Missouri

ALLYSON Y. SCHWARTZ, Pennsylvania

JAMES L. OBERSTAR, Minnesota

(Ex Officio)

(III)

(V)

CONTENTS

TESTIMONY

Page

Duncan, Douglas G., President, Chief Executive Officer, FedEx Freight ........... 3

Lofgren, Chris, President, Chief Executive Officer, Schneider National ............ 3

Yatsko, Tim, Senior Vice President, Transportation, Wal-Mart Stores, Inc. ...... 3

PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Carnahan, Hon. Russ, of Missouri ......................................................................... 26

Porter, Hon. Jon of Nevada .................................................................................... 46

PREPARED STATEMENTS SUBMITTED BY WITNESSES

Duncan, Douglas G .................................................................................................. 27

Lofgren, Chris .......................................................................................................... 31

Yatsko, Tim .............................................................................................................. 47

(1)

FREIGHT LOGISTICS: THE ROAD AHEAD AS

SEEN BY THE USERS OF THE HIGHWAY SYSTEM

Thursday, September 7, 2006

HOUSE OF REPRESENTATIVES, COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, SUBCOMMITTEE ON

HIGHWAYS, TRANSIT AND PIPELINES, WASHINGTON,

D.C.

The subcommittee met, pursuant to call, at 10:00 a.m., in Room

2167, Rayburn House Office Building, the Honorable Thomas E.

Petri [chairman of the subcommittee] presiding.

Mr. PETRI. Good morning. The Subcommittee hearing will come

to order. My colleague, the senior Democrat on the Subcommittee,

Mr. DeFazio, is on his way, and I know a number of other members

have been at a meeting that started at 9 this morning and has just

concluded and will be here shortly as well.

I would like to welcome our witnesses to today’s hearing on

‘‘Freight Logistics: The Road Ahead as Seen by the Users of the

Highway System.’’ This is the second in a series of hearings on

freight mobility. Our first hearing in this series, titled ‘‘Highway

Capacity and Freight Mobility: The Current Status and Future

Challenges,’’ was held in May. Before the end of this year, we hope

to hold a third hearing in this series which will address the role

of technology in improving mobility.

Logistics can be defined as the overall management of the way

resources are moved to the areas where they are required.

Logistics as a business concept evolved in the 1950s as the days

of fully integrated regional economies began to disappear and businesses began to take a more global approach. Today, manufacturers and retailers demand raw materials and finished goods on a

global scale, and hope to serve a global market with their respective products and services.

In addition to global supply chains, businesses are cutting costs

and increasing productivity by adopting ‘‘just in time’’ inventory

strategies. Businesses from automobile manufacturers to big box

retailers are eliminating warehouses and relying on computerized

inventory systems so that parts arrive when they are ready to be

used and products arrive to replace the ones sold the day before.

Without an extensive and reliable freight transportation network

of trucks, railroads, pipelines, airplanes, and boats, businesses

would not be able to incorporate global supply chains and ‘‘just in

time’’ inventory strategies into their business models. Or, if they

did, they would be much less cost effective because of the inefficien-
2

cies that would be forced on them by an inadequate transportation

system.

Freight congestion problems have a direct impact on businesses

that employ ‘‘just in time’’ inventory strategies and global supply

chains. Predictability in shipping freight is the cornerstone in both

of these business strategies. The reliability of our Nation’s transportation system has a direct impact on the productivity and,

therefore, the competitiveness of our economy.

We are very fortunate to have three senior executives from companies that rely heavily on freight logistics and are directly impacted by the reliability of the transportation system. First witness, Mr. Chris Lofgren, is the President and CEO of Schneider

National. Schneider is headquartered in my home State, and we

are very proud of it. My interactions with Schneider over the years

and my conversations with Mr. Lofgren about freight logistics have

convinced me of the direct correlation between an efficient transportation system and a profitable freight logistics business model.

Second witness is Mr. Douglas Duncan, who is the President and

CEO of FedEx Freight. Mr. Duncan is a 30-year veteran of the

transportation industry and has been on the executive committees

of the American Trucking Association and the Transportation Research Board, and is considered an expert in the field of transportation logistics. We thank you for being here.

Third witness is Mr. Tim Yatsko, the Senior Vice President of

Transportation for Wal-Mart. He began his career with Wal-Mart

in 1990 and has served in various positions in the private truck

fleet division. As Senior Vice President of Transportation for the

world’s largest retailer, he is responsible for product movement

from suppliers to Wal-Mart distribution centers and product movement from distribution centers to stores.

I look forward to hearing the testimony of all of our witnesses

and yield to Mr. DeFazio for his opening statement.

Mr. DEFAZIO. Thank you, Mr. Chairman.

Mr. Chairman, I look forward to hearing from the witnesses. Obviously, the capability of moving freight in a timely manner, costeffectively and, hopefully, fuel-effectively is of critical importance.

As the Chairman is aware, I am very interested in the idea of least

cost planning for transportation infrastructure; that is, we look at

the modes available and decide where and how to best enhance the

movement.

Particularly on the West Coast I think we could be better utilizing rail and mixing that with the truck movements. I would be interested in any ideas that can be contributed by the panel on that

approach. It is an ongoing frustration for manufacturers in my district that they are held hostage to a very inefficient rail system and

often have to move to truck when they know it is not as cost-effective.

Thank you, Mr. Chairman. I look forward to the testimony.

Mr. PETRI. Thank you.

Any other opening statements? Ms. Berkley?

Ms. BERKLEY. Thank you, Mr. Chairman, and thank you for

holding what I consider a very important hearing.

I represent an area in the Country that is especially dependent

on highway capacity for the movement of freight. As the fast grow-
3

ing area in the Country, Southern Nevada faces serious challenges

in maintaining and expanding the network of roadways to enable

the efficient transport of goods to and from the Southern NevadaLas Vegas area.

Anyone who has ever been to Las Vegas and tried to negotiate

their way through the spaghetti bowl or waited in a taxi cab at a

parking lot, otherwise known as I-15, during rush hour can understand that these same traffic issues also confront shipping companies and their clients as they struggle to keep up with the increased demand caused by the area’s explosive growth, which does

not seem to be slowing down in the foreseeable future.

I have stated many times how proud I am to serve on this Committee, which has taken such an active role in modernizing our Nation’s transportation infrastructure, and in Southern Nevada in

particular the miles of roads and highways and freeways and overpasses that we are currently constructing is truly awesome.

I look forward to hearing from the witnesses about the challenges they face in freight logistics and what we can do to make

your lives easier, as well as the lives of my constituents and our

fellow countrymen. Thank you very much.

Mr. PETRI. Thank you.

We want to first of all thank each of the witnesses for your prepared statements. They will be very helpful and, as you know, they

are a permanent record and will be available publicly and will be

a resource for hopefully a variety of people who are interested in

this field. And you build things one brick at a time, and these are

important bricks, so we thank you for the effort that went into your

statements and invite you to give us a summary in approximately

five minutes, beginning with Mr. Lofgren.

TESTIMONY OF CHRIS LOFGREN, PRESIDENT, CHIEF EXECUTIVE OFFICER, SCHNEIDER NATIONAL; DOUGLAS G. DUNCAN, PRESIDENT, CHIEF EXECUTIVE OFFICER, FEDEX

FREIGHT; TIM YATSKO, SENIOR VICE PRESIDENT, TRANSPORTATION, WAL-MART STORES, INC.

Mr. LOFGREN. I want to thank the Committee for giving Schneider National and me the opportunity to come and participate in

this.

I think that I have to start my summary comments by just pointing out that since 1980s, with some major changes in the industry,

part of what has driven the power and economy in the United

States has been the transportation industry. In that time, transportation as a percentage of gross domestic product has reduced significantly, and it has been brought about certainly by the deregulation efforts, but also by the response of those entrepreneurs who

were willing to set out in that environment and really create an infrastructure to move the goods of this Country.

As we have seen in the last five years, there has been inflationary pressures on all aspects of the transportation industry. And our

lead in the world in the area of logistics in transportation is being

eroded while other countries continue to move forward, and I think

it is a fact that is often not understood and probably needs to move

a little bit higher on the agenda because it is going to become more
4

and more of a pressing issue that ultimately does affect the standard of living in this Country.

The two issues, in addition to what is in the written comments,

that I would like to spend some time on is just the reality of how

we are going to fund the infrastructure needs going forward. The

first is that there has been a shifting of the tax burden onto trucks.

The fact is that passenger miles make up 95 percent of the vehicle

miles traveled on this infrastructure.

For Class 8 trucks, it is less than 5 percent of that total and yet,

as we see, the fuel efficiency that is coming about in a lot of those

passenger vehicles through hybrids and those kinds of things, the

burden of carrying that is falling on the fuel tax and, frankly, a lot

of the burden has been pushed back on clean air and environmental requirements back onto the trucking industry. So there

really is a disproportionate burden that is being pushed back on.

Now, clearly, we look at that and we would like it to be less. We

understand that there are those requirements, but I think there is

another thing that happens: the structure of the Federal excise tax

actually puts disincentives in place, whether it is on environmental

issues or whether it is on safety issues. Any investments that we

make to enhance those kinds of activities and put more capacity on

the road is taxed at 12 percent. So, fundamentally, the structure

doesn’t incent, I think, the very things that we all would like to see

happen, and we have got plenty of examples in the written testimony.

The other thing that I think is really a crucial issue—and Wisconsin is sort of a poster child, I think, for this—is that the taxes

that are going in, whether it is the fuel tax, don’t ultimately stay

in a highway fund. You can look at tolls; same kinds of things. But

if you look at how those funds actually become diverted back into

the general funds of States, increasing taxes to try to meet this infrastructure need isn’t working.

So addressing the integrity issue on these transportation trust

funds is vital in order to solve this problem, and our position is,

we understand that the current funds that are coming in probably

don’t cover what it is we need as a Country. The problem is those

dollars don’t go to ultimately provide the solutions to this capacity

issue because of the diversion.

So I would encourage your efforts to bring integrity to that process, and then once we understand what dollars really are available

for transportation, and not those things diverted for bike paths and

things like that, but the ability to move freight, once we understand what really is available and what the gap is, I think there

is probably a way to work through it.

But that is our biggest issue. As you continue to tax, what is

going to happen is we are going to move it to our customers—WalMart being our largest—because it is a cost that we must recover.

It is ultimately a cost that shows up in the landed cost of goods

which consumers in the United States are going to have to bear the

burden of, and right now I don’t believe the process is working as

well as anybody would like it.

So those would be kind of my two summaries around the topic,

and I look forward to any questions.

Mr. PETRI. Thank you very much.
5

Mr. Duncan.

Mr. DUNCAN. Thank you very much for the opportunity to make

my comments to this Committee on what we consider to be a very

important subject.

I think it is clear, if you look in this Country, that the logistics

professionals at companies large and small have done a wonderful

job of executing what I call fast-cycle logistics, but it has many

names, like just in time inventory, quick response, fast response.

Every industry has a different term for it.

But it basically starts with logistics professionals managing the

supply chain holistically, from start to finish, and what they have

successfully done is compress those supply chains, taking inventory

out. As Chris said, we have reduced logistics as a percent of GDP

for the last 20 years. Inventory to sales ratios have dropped over

the last decade and these fast cycle supply chains have put tremendous pressure on the transportation providers to provide absolutely

on-time transportation, because a shipment that I deliver late is no

longer an asterisk on a service report to a customer, it is an empty

shelf, it is a lost sale, it is an upset customer because, as you said

in your opening remarks, the inventory is riding up and down the

highways on our trucks, and it has to be delivered just in time.

And I think the reality is that the congestion and the bottlenecks

in today’s infrastructure is creating a bigger and bigger challenge

for us every day to make those on-time deliveries. So if we are

going to see the continued improvements in logistics that made our

American companies much more competitive, we have got to figure

out a way to continue to support this on-time transportation network.

I don’t believe that the highway system or the transportation

network that we have in place today really adequately meets the

needs of today, and it certainly doesn’t meet the needs when you

look forward into the future.

Now, I agree with Mr. DeFazio. It would be easy for me that,

from a trucking perspective, more highways is the answer, but I

think the answer is far more complex than that. I think we have

to approach this from a national transportation policy and look at

better highways and more productive highways, better and more

use of rail, ports, dams, and the transit system. I mean, it has to

be worked in cooperation, because if we can increase the transit

system and reduce the inflow of new automobiles to the highways,

that reduces a requirement for more highways for commercial traffic.

The port system, obviously we are going to have to expand the

port system to support the ever influx supply of imports and containers, but also, just as we improve the ports, we have got to improve the connectivity of highways and rails to those ports. It does

no good to get the containers on the ground in the Port of Long

Beach if they can’t be moved expeditiously throughout the Country

for those ‘‘just in time’’ deliveries.

I also mentioned the dams, the lock and dam system. And that

is not something that you normally hear talked about in a ‘‘just in

time‘‘ quick response system. But imagine, if you will, if you had

a major failure of a lock and dam system in the Mississippi River.

The amount of commerce that would be diverted to rail and high-
6

way would overpower the system. So it is an integrated logistics

transportation network, and I think the solution we are going to

find is going to be all of that, and not just one silver bullet.

The issue of funding obviously is an important one because we

are going to have to invest in this. I don’t think the highway bill

that was passed in 2005 will probably just barely maintain our existing highways; it certainly won’t expand it. So we have got to find

new ways to raise revenue for infrastructure.

We are being an advocate of the fuel tax because it is in place.

It is an efficient way to raise dollars that can put those dollar-fordollar to infrastructure needs if it is controlled, as Chris indicated.

I am afraid the horse might be out of the barn on that one. And

tolls seem to be the way to go about it. And I am okay with that

as long as we can control it, but the funding by State and then controlled on a national transportation policy seems to me to be a very

difficult thing to administer. There has also been the advent of

highway privatization, which I think is a new form of bringing new

money to the infrastructure problem. And, again, with proper control, that might be a good solution as well.

So I would say, in closing, I think it is our job in industry to

make the case for this infrastructure expansion. I think the research is clear from a number of bodies of what the future looks

like. I think we can model what the future commerce is going to

be, and I think we can come up with good solutions to a call to action to find solutions to those problems, and we really need to get

started on it sooner rather than later.

And, with that, I will defer and look forward to your questions.

Mr. PETRI. Thank you.

I think Mr. Boozman wanted to say a word.

Mr. BOOZMAN. Well, thank you, Mr. Chairman. I would like to

take the opportunity to formally introduce Tim Yatsko, our next

person that is going to testify, Senior Vice President of Transportation for Wal-Mart. I am really proud that Wal-Mart is

headquartered in my district, in the growing city of Bentonville,

Arkansas. I live in the community adjacent, in Rogers, Arkansas,

which is still the larger community. It and Bentonville are rapidly

becoming one community.

In addition to being the world’s largest retailer, employing 1.8

million associates worldwide, they also own the largest private

truck fleet, with approximately 8,000 drivers, 7,000 tractors. WalMart is one of the largest users of our highway system and they

are truly experts in the logistics industry.

I am glad that Tim is here today to share Wal-Mart’s knowledge

and experience with the Subcommittee. Tim has been with WalMart since 1990, serving in various positions in the private truck

fleet and direct imports department. Currently, as Senior Vice

President of Transportation, Tim is responsible for product movement from supplies to Wal-Mart distribution centers and product

movement from distribution centers to stores. Prior to joining WalMart, he worked as a sales rep for Cisco and served as a captain

in the U.S. Army. So it really is with pleasure that he is here.

I also am so pleased that Mr. Duncan is here. And Mr. Duncan,

in his capacity at FedEx, has a large distribution center also in my

district. And I will tell you, FedEx does a tremendous job of moving
7

supplies and things, but also I can tell you firsthand that when

they are in a community, when they are in a State, they are a tremendous partner, and we really do appreciate, besides the tremendous things that you do as a business, like I say, we really do appreciate your community spirit and all that you do for communities

and States.

Thank you, Mr. Chairman.

Mr. YATSKO. Thank you, Mr. Petri and Ranking Member DeFazio

and distinguished members of the Committee.

Wal-Mart Stores appreciates the opportunity to participate in

this critical discussion. While I agree with Chris and Doug, I would

like to approach this a little differently from Wal-Mart’s perspective. We deal with the congestion on the roads and we make adjustments and contingencies to deal with that through the years, so we

don’t think as much about what it costs, Chris, as much as what

do we do to get the freight to the stores and keep the customers

in stock. So I would like to share that perspective with you.

Wal-Mart’s logistics network includes 117 distribution centers,

ranging from 800,000 square feet to over 4 million square feet, and

these distribution centers service all of our regional grocery, fashion, specialty, and Sam’s Club needs. As we increase the number

of stores, we have to increase the efficiency of those DCs, as well

as the number of the DCs that we have.

As Congressman Boozman mentioned, Wal-Mart utilizes both a

private truck fleet and third-party carriers such as Schneider and

FedEx Freight to move our product. Further, we utilize a wide

array of transportation modes, including dry and refrigerated

trucks, intermodal rail, LTL, and other motor carrier modes of

transportation.

Each year, inbound to our distribution centers we move 1.3 million loads on our truck fleet and we bring back 1.4 million other

loads, using 160 different third-party carriers. A half a million

loads move on LTL motor carriers and 350,000 loads move to our

Sam’s Clubs each year. Sixty-nine percent of our total loads move

on truck, 20 percent by LTL, 7 percent by small package carriers,

and 2 percent by ocean freight.

Our strategy is driven by our corporate strategy, which is to

drive international growth, broaden our appeal to our customers,

become an even better place to work, and improve our operations

and efficiency, while making unique contributions to the community.

The key focus of our transportation strategy is efficiency, and we

take many steps in order to maintain logistics efficiency throughout

the year. We choose channels that are most cost-efficient and reliable, and, as a rule, we believe cost-efficient, reliable supply chains

are also the most environmentally friendly. We avoid transportation congestion risks by maintaining multiple channels on the

flow of our goods to our stores.

Regardless of what occurs in the transportation environment, our

transportation goals remain constant. We strive to remain a safe

fleet, secure fleet, efficient and environmentally friendly fleet.

A key element of our efficiency focus is ‘‘just in time’’ delivery

and improving our driver/truck productivity. This is particularly

challenging in congested Metro areas. As a transportation organi-
8

zation, Wal-Mart has successfully dealt with congestion for years.

We innovate and work around congestion, but there are learnings

there.

Some of our methods to mitigate congestion and maintain truck/

driver productivity include establishing pickup and delivery operational yards around Metro areas; using consolidation facilities at

Metro areas; applying trailer pools that enable drop and hook delivery versus live unload or load; driver and delivery schedule

changes, where we will drive at night versus day to avoid congestion; supplier pickup scheduling changes; truck versus rail decisions; and we also employ an import port split strategy. Let me expand on that just a second as an example.

We began to experience an influx of imports into our network

from overseas into Los Angeles in the late 1990s. That product was

flown from L.A. all the way to DCs in the East Coast, New York,

for example. The congestion in L.A. began to impact our ability to

flow goods to our stores, so we split our shipments to flow through

ports on the East Coast and the Gulf to avoid congestion in L.A.,

especially during peak seasons. And this strategy has been very

successful for us, neutralizing both the cost and the risk of congestion.

However, as successful as we believe our logistics and transportation networks are, we continue to face challenges. We will address these challenges in the future with the following strategies:

we will reduce the number of trucks and trailers needed on the

road in Metro markets through those contingencies that I just discussed; we will keep our trucks safe and fuel-efficient; we will keep

our networks flexible to change as the congestion conditions

change; and we will compensate for the rail shortfalls with shifts

of supplier ship points and the use of trucks.

In addition, a few specific initiatives we currently are working on

include: our trucks remaining governed at 65 miles per hour; optimizing the use of longer, higher cube trailers and double trailers

where allowed; and reducing the packaging on all our product lines

to reduce the number of trailer loads and trucks we need on the

road. We are also focused on utilizing hybrid diesel and energy recovery concepts to eliminate emissions should we be in congested

situations; and, of course, we are engaged with assisting and advising State and national associations seeking other best practices on

working through congestion.

While we believe Wal-Mart’s associates and logistics network can

deal with the challenges in the future transportation environment,

we also believe we can work together with others in the industry,

members of Congress and government officials to develop solutions

for the challenges together.

Thank you again for allowing us to participate today, and we

hope we have provided you with some insight that can be used.

Thank you.

Mr. PETRI. Thank you.

We will now turn to questions. Mr. DeFazio?

Mr. DEFAZIO. Thank you, Mr. Chairman.

I would first focus on the issue of the driver shortage which Mr.

Schneider brought up. And I guess I am particularly interested in

Wal-Mart which has 8,000 drivers, as I understand it, and has a
9

very low rate of turnover. Are you having trouble recruiting? And

to what would you attribute your high retention rate? Have you

modified schedules to provide more time at home or are you doing

more short hauls so people get more time at home? Or what is it

that allows you to—

Mr. YATSKO. Well, let me just tell you what our drivers tell us

on why our turnover is so low, and that is, first of all, they are respected, they are well paid, they are offered a variety of schedules,

they are supported when they have personal critical needs at home.

We have a real open door policy at Wal-Mart for our drivers and

our other associates. We do pay our drivers when they break, when

they take their DOT required break, and that is a positive to our

drivers. And they don’t load or unload. So they are very proud to

wear the white and blue uniform of Wal-Mart. And that pretty

much sums up why our turnover is so low.

Mr. DEFAZIO. Do they get a benefit package in addition to—you

said they were well paid. Do they get health care, retirement?

Mr. YATSKO. They have a health care package, as well as a 401-

K plan and profit sharing. And our drivers are recruited. We have

some of the highest minimum requirements for our drivers, so we

are recruiting drivers from—

Mr. DEFAZIO. From other companies.

Mr. YATSKO.—that are experienced at it. So we are bringing in

skilled drivers. And that also attributes completely to our safety

record as well.

Mr. DEFAZIO. So you haven’t found it necessary to recruit foreign

truck drivers.

Mr. YATSKO. No, sir.

Mr. DEFAZIO. Okay.

Mr. Lofgren, if you could expand on that. How would the benefits, wages, schedules compare to what the Wal-Mart folks are saying here? I mean, they have a higher retention rate, have enough

people, and don’t see a need to recruit foreigners. And you are saying we need to establish a quota for bringing in—I mean, I would

reflect that there are a lot of young men graduating from high

schools in my district and rural areas who don’t have great job

prospects, and I don’t understand why we might not be targeting

groups like that.

Mr. LOFGREN. Well, first of all, we don’t hire anyone that is

under 21 years of age, and we do that because of the fact that that

vehicle—

Mr. DEFAZIO. Sure. I am not saying it has to be right out of high

school, but I am just saying—

Mr. LOFGREN. But the other—

Mr. DEFAZIO. I am looking at great lifetime job prospects unless

they leave the rural areas, in a lot of cases.

Mr. LOFGREN. Let’s understand and let’s go back. From the point

of deregulation, in real terms, the real wage of drivers in the truckload industry is less than they were making in 1980. And the reason is that competition.

The other side is that driver pay is our number one cost. If you

are going to increase the number one cost to roughly almost 40 percent to start to achieve some of the wages that I know people can

get when they drive for Wal-Mart, those costs have to be recovered.
10

And that has been part of the challenge with the industry, is that

people haven’t been willing to cover those costs.

So driver pay is our number one cost. It hasn’t changed in real

terms since 1980; it is actually less. So we fundamentally think it

is an issue but, as a private industry, we have to be able to recover

the industry in that cost, and the market has not allowed us to do

it.

Mr. DEFAZIO. Well, I guess I am puzzled by the market. If everybody is confronted with the same situation that you are, has to deal

with the same labor pool that you do, real wages are down for drivers except at Wal-Mart and maybe some other major firms, the

other companies must be having the same problems you are.

Mr. LOFGREN. They absolutely do. And so it is—

Mr. DEFAZIO. Okay. So then perhaps—so you are saying your solution is we import cheap labor. How about we start paying people

more and the competitive market just drives everybody in that direction? Because if we don’t open the door to a flood of immigrants

who will work for less, then maybe everybody is going to have to

raise their wages and you won’t be at a competitive disadvantage.

Mr. LOFGREN. That is a great thought, but as an industry where

you have to deliver returns to your shareholders, the issue is in the

long-term it will happen; in the short-term it is not something that

is going to get solved in a year or two years or probably even five

years because, again, you have to go to the marketplace. It is kind

of a truth or dare—

Mr. DEFAZIO. Well, then maybe what we ought to look at, maybe

the Federal Government ought to set a standard wage and benefit

package. Then you wouldn’t be at a competitive disadvantage and

we wouldn’t have to be talking about importing labor. And anybody

can go above that, but can’t go below it.

Mr. LOFGREN. Well, with all due respect, sir, I don’t know that

you guys have proved to be real successful in those kinds of activities.

Mr. DEFAZIO. Yeah, well, it doesn’t sound like you are being real

successful in your business here, because you want to bring foreign

labor into a Country that has a labor surplus among people who

have less than a college education, and it is projected to continue.

And as you pointed out, you are paying people less than in 1980.

I don’t consider that to be a great success either. It may be profitable, but at some point you have got to have a middle class, and

truck drivers used to be middle class. If we want to put them in

the poverty class, then you are moving in the right direction.

Thank you, Mr. Chairman.

Mr. PETRI. Thank you.

Any questions, Mr. Duncan?

Mr. DUNCAN OF TENNESSEE. Well, thank you very much, Mr.

Chairman, and thank you for calling this hearing.

Mr. Lofgren, I was interested in this page that you submitted to

us that says Federal regulation has the unintended effect of increasing the price of truck fuel, arguably the highest and best use

of petroleum products. And I found that most people in the Country

seem to think that ethanol is the greatest thing since sliced bread

in regard to some of our fuel and pollution problems and so forth.
11

Would you go into a little detail about that and the potential problems you see with over-regulation?

Mr. LOFGREN. Well, I think the thing that people have to understand with the ethanol—and this was really based on some work

that was done by the Wisconsin Department of Natural Resources

that came out, and basically it said that ethanol is the precursor

to NOx, nitrous oxide, which is one of the things that in the mandate for the diesel engines was to reduce that.

So fundamentally, the cost of those engines and the fuel inefficiency that is attributed to those changes that we are taking into

the industry, it is driving that cost and it is causing us to purchase

more fuel. And we understand why, but there is then this activity

on the other side as it relates to ethanol and the use particularly

in, passenger vehicles that is actually working counter to what it

is we are trying to accomplish in the trucking industry.

So I think that, when we look up here and understand that we

may not have achieved quite the improvement in NOx that we

were looking for, you can’t look back to the diesel engine and the

trucking industry for that issue because there is an alternative

that is being used out there for all kinds of reasons, but maybe

without a clear understand of its impact.

Mr. DUNCAN OF TENNESSEE. Then you say that problems have

been created because truck fuel has been singled out for ultra low

sulfur mandates and, in addition, multiple, national and State fuel

specifications increase refining costs and greatly increase the probability of spot shortages. I mean, some of these things, I guess,

there were good intentions behind them, but the results have not

met the intentions. Would you say that is correct?

Mr. LOFGREN. Yes. I think that what has happened is allowing

States to come in and specify the different distillate characteristics

that they would like to have out there. You know, our issue in fuel

in our mind is really one of a refining and supply issue, not a crude

availability issue. So you get all of these distillates; refineries have

to change over, there are changeover costs.

So I think getting to a standard of what it is we want. Clearly,

the ultra low sulfur diesel isn’t as efficient. It is not quite as bad

as we thought it was going to be, but it clearly puts a demand on

the refining and supply system, so it causes these spot shortages

which, in supply and demand, will cause those prices to spike. So

I think that if we could step back and kind of put some reasonableness onto that process, I think the supply can improve. It won’t be

perfect, but it certainly would be better than what we are experiencing today.

Mr. DUNCAN OF TENNESSEE. Let me ask all three of you. All

three of you have mentioned things like freight choke points and

declining or decreasing highway capacity and things of that type.

There are some potentially long-term solutions. Are there any

short-term solutions that you see that the Congress could do that

would help alleviate some of these problems? And along with that,

if each of you had the power to do one thing to help out the problems that you have discussed here today, what would that one big

thing be, or your first step that you would take?

Mr. Duncan, we will start with you, I guess.
12

Mr. DUNCAN. I don’t know that I have the short-term silver bullet. I think it is a complicated issue. I mean, we need more highways, but highways are difficult to build in certain parts of the

Country given the population makeup. Transit is an answer; rail

is an answer. I think the bigger problem is we have always addressed all these different modes completely separate of each other.

We look at transit and don’t look at the impacts on highway; we

look at highway, we don’t look at the impact on rails; and back and

forth.

So I think we have developed very rapidly this wonderful infrastructure that made us the envy of the world, but now we are getting to the point where we are going to have to invest more, and

I think it has got to be coordinated, which is what I refer to as this

national transportation policy. I think the funding is available. I

think, as Tim said, the last thing he wants to hear me say is no;

he would rather hear me say it costs a little more, but not that I

can’t get it there on time. And I think we have got to start investing in the infrastructure given those issues.

Mr. DUNCAN OF TENNESSEE. Mr. Yatsko?

Mr. YATSKO. I guess I would just refer to what we are focused

on in the company, and that is utilizing as much of the high queue

doubles equipment where we can. I mean, that is the easiest way

to get trucks off the road: reduce your emissions, reduce the fuel

consumption, and reduce congestion.

So we are going to look at—and then on the other side of that

is to, again, reduce packaging so we can, again, reduce the number

of trucks that we need out there on the roads. And then, lastly, is

looking at supplier shifts that put us closer to our stores and distribution centers from a logistics channel standpoint.

Mr. DUNCAN OF TENNESSEE. Do any of you think that more toll

roads or public-private partnerships, or things of that nature, are

a big part of the solution?

Mr. DUNCAN. Well, as I said in my comments, I think the most

efficient way to raise the funds is with fuel taxes. But I am fast

becoming a believer that is probably not a political answer we can

move forward with. So if that is not the answer, then toll roads are

certainly okay. It does create some bureaucracy and some delay in

spending that doesn’t benefit the infrastructure.

The public-private partnerships I think is an interesting concept

that should be explored; it is certainly a way to bring private equity money into the infrastructure expansion, which we are so very

interested in. I think we have to be careful of what the States and

local communities do with the monies that they gain from those

sale of private highways.

I think there are some examples out there where one toll road

was sold to a private equity firm, but 80 percent of the funds were

earmarked then for new highway construction. I think that is probably the right way to go about it. There was another example

where a toll road was sold to a private equity firm and the money

was used to pay down general obligation debt. That, I think, is

problematic.

So I think those are interesting possibilities, and given the fact

that we need the infrastructure, I think we are willing to support

good ways going down those paths, yes.
13

Mr. DUNCAN OF TENNESSEE. All right, thank you very much. I

have gone over my time, so I apologize.

Mr. PETRI. Thank you.

Mr. Blumenauer.

Mr. BLUMENAUER. Thank you, Mr. Chairman. I appreciate the

testimony and talking about some of the conflicts that we are facing.

Mr. Lofgren, I think you are right, we are working against each

other. And if you look at ethanol and what some folks are talking

about in corn base, not only is it going to hurt the environment,

putting pressure elsewhere, but that is achieved at a not insignificant cost in terms of subsidization, massive subsidization.

So we are getting some cross subsidy. We are sending some confusing signals. And as you know, private refineries have been shutting down, in part because it is confusing and in part because it

is more profitable for them.

So the private sector has reduced capacity, and it is a vexing

question. And I hope that you folks, through your industry representation, can take a step back and be willing, even though

sometimes it is a little dicey politically—nobody wants to get outside their tent—but to maybe have some commentary about consistency in other areas, in terms of budget, in terms of environment, because that perhaps, Mr. Duncan, will get us to the point

where it is not toxic to talk about how we increase resources.

And this Committee was willing to put forth a more robust bill,

but other political forces decided that that was not to be. And, as

you know, between now and 2009, the trust fund surplus is exhausted. We are spending more than we are taking in.

I would hope—and, Mr. Duncan, your notion of the new vision—

actually, we have got three years before the reauthorization. We

will have a new administration, which will be, I think, have a different attitude, regardless of which party. I have an idea of which

party it should be, but I think the next administration will be easier to work with on this big picture and on the resource.

In that connection, I would offer questions that you might come

back to us on. I don’t want to put you on the spot right now, but

there are three issues that I personally would welcome your

thoughts and observations, and I think would be useful to have

part of our record and a more robust conversation in the future.

You have referenced in your testimony where things like speed

limits and fuel efficiency standards for the 97 percent of the small

vehicles that are on the road can make a difference in terms of the

overall functioning. I would appreciate your thoughts about specific

programs for urban freight mobility.

This is one where, as I looked at the last legislation, we really

weren’t able to zero in with something that might be an initiative

that would speak to movement of freight through our urban area,

and these are the choke points that vex the people that I work with

and that produce, at least visually, the conflicts. We know that the

trucking industry is actually safer than some people think, but,

nonetheless, just when you are sitting there and you have got a

double wide whipping past—and I come from an area where it

rains all the time—it gives people pause.
14

And the extent to which some of the certified smart people that

work with you are just thinking kind of pushing the limits of what

might an urban freight program look like, whether it is dedicated

lanes, it is different connections in some cases where we have different mechanisms for generating resources that might be limited

to freight movement, which leads me to the second point that deals

with how we get the resources in the trust fund. Just auctioning

off chunks of our interstate freeway system and getting shortterm—in selected tobacco settlement, we don’t know where that

money is going to go, frankly, and if it is contingent on just somebody else having the political will to raise tolls, politicians won’t,

and then take a cut off the top, that is going to produce a backlash

in the long-run.

But notions of where we might, for example, have registration

fees for the other 97. And in my State there is a weight mile tax,

so the freight movement is based on the road demand. We don’t

have that for private passenger cars. The little old lady who drives

800 miles a year to church pays exactly the same registration fee

as somebody who puts 50,000 on a Hummer. It doesn’t seem right.

And we have done a little bit of exploration, but the extent to

which there may be some opportunities for new revenue sources

and, frankly, I am of the opinion that if all of us get together in

lockstep and say, you just gave 65 cents a gallon more to foreign

oil producers. I am not convinced that we couldn’t make the case

for a couple cents a gallon that might make a difference here, but

your thoughts about revenue.

The last deals with intermodal connection. You are all telling us

that you are in the business of sort of making these connections.

The original ISTEA legislation in 1991, the I was for intermodal

and it moved us sort of in that direction, but it seems to me we

have kind of lost kind of our way in subsequent reauthorizations.

I don’t know that we have been as creative as we should be about

ways to make the intermodal connection.

And the extent to which you or the people you work with have

some thoughts about putting the I back in the ISTEA legislation

for the next reauthorization, I would really appreciate it. Urban

freight mobility, trust fund things that you are willing, as corporations and as associations that you are a part of, to join with some

of us crazy people who think there should be more money invested

in transportation infrastructure, and then ideas for the I in intermodal, I would be very interested in receiving those as you are able

to. Thank you.

Thank you, Mr. Chairman.

Mr. PETRI. Let’s see, any comments, or they will submit their responses?

Mr. Boozman.

Mr. BOOZMAN. Thank you, Mr. Chairman.

I was listening to the discussion with Mr. DeFazio and you about

the imported labor, and, to be honest, I would agree with him in

the sense that I don’t think that is going to happen. And, yet, I also

agree that the trucking industry, the railroad industry—in fact, we

have a shortage of physicians, we have a shortage of computer programmers.
15

The problem is you can draw the same argument with physicians

as you can with the other. You can go to St. Petersburg, Russia,

which is a large city, where the average physician there that is

very well trained makes $300 to $400 a month. And you can bring

in all kinds of folks to eliminate that problem.

I think the better thing that we have done is we have increased

the slots of medical students by 30 percent. What we are trying to

do, I know in Veterans Affairs we are trying to get ourselves in a

position where we can front-end the G.I. bill so that they can get

it more up front for the shorter training courses, that you all offer;

encourage people coming out of the service to enter those professions.

The other thing that we are trying to do is trying to get credit

for guys that have spent four years driving a truck in the military,

much like you do when you come out. Those are things that you

would be looking for in knowing that. Now, they would still need

to go through driver training in the sense of getting up to speed

on all of the laws and applicable stuff, but, again, those folks ought

to get some credit. And you do represent an industry that a young

guy can get out and work hard and support his family, and I think

that is really what that is all about.

Now, Mr. Duncan, you were talking about—and I hadn’t really

thought about these things, with on-time delivery. I am an advocate of rail. I am an advocate of the water. And, yet, you indicate

that there is really—that things are segregated now such that ontime delivery really doesn’t make itself where you can really substitute those. That is a trucking function. Can you kind of elaborate

on that?

Mr. DUNCAN. You know, I think the mode selection is dictated by

the supply chain and the logistics professionals managing those

supply chains, not by a trucking company. And the reason 70 percent of the commerce in this Country is handled on a truck is because truck is the only mode that is fast enough and reliable

enough to meet the needs of the customers and the fast-cycle supply chains that are put in place today.

In our case, we deliver up to 600 miles next day and 1600 miles

second day with a money back guarantee. There is no way in the

world you can introduce a rail piece in that and ever come close

to meeting those service standards. So as these supply chains demand more and more, transportation has to move faster and faster

and more reliable, and, frankly, the rails just have not operated

with speed or reliability at this point. So there is low-value merchandise that doesn’t have the inventory velocity that we are used

to that works well on the rail, but the things that we do every day,

the rails don’t even come close to meeting those service requirements.

Mr. BOOZMAN. And yet, again, the rail, their capacity now, hauling the products that they haul, we have got the commerce on the

rivers and things, and as you indicated—I hadn’t thought about

it—if we don’t support those and continue to have those grow, then

those products are going to also wind up in the trucking end of

things and create more problems for us there.

Mr. DUNCAN. Well, in my duties on the Transportation Research

Board, I have had a chance to interact with the Corps of Engineers
16

people and they are very concerned about the locks and dams.

Many of them are well beyond their useful lives and it does create

a concern for what could happen.

Mr. BOOZMAN. Mr. Yatsko, can you tell us a little bit—I have

been intrigued. We are in an energy crisis now in the sense of high

fuel prices. One of the things that we have got to do better is conservation. That is something that we can do right now. When I

grew up, when you left the building or you left your room, you

turned the lights out. Denny Rehberg from Montana, when he

brushes his teeth, coming from Montana with the water shortages,

he turns the water on, brushes, turns it off, and those things. We

have gotten away from that.

Can you tell us a little bit about some of the things you all are

doing to maximize your fuel capacity?

Mr. YATSKO. Sure. I think, first of all, as I mentioned, an efficient supply chain is an environmentally friendly supply chain in

most cases that we look at, so our basic logistics strategy of being

efficient causes us to be environmentally friendly in doing so. Using

train from the West Coast into the center of the truck makes sense,

less emissions overall. We are attacking fuel efficiency in our truck

fleet by going after some pretty aggressive goals. We are looking

at 25 percent improvement of fuel efficiency by next year. We have

achieved 18 of that 25 percent so far, and we will have the rest as

we turn the corner into next year.

We are also going after kind of one of those big dream goals of

100 percent fuel efficiency improvement by 2015, and we are doing

that by engaging the OEMs, the makers of truckers, makers of engines, makers of components, EPA, DOD, Department of Energy,

everyone that we can get involved to try to produce a truck that

uses hybrid technology. And at this point we are making progress;

the concepts are coming, in terms of energy recovery concepts that

we are looking at, and we are pretty optimistic we will get there.

But it is important and it is a natural thing for us to do in the

truck business when fuel cost is as high as it is, to drive that fuel

cost down. So the return on investment on these projects is promising as the fuel cost remains high.

Mr. PETRI. Thank you. Those bells mean that there is a vote on

the floor.

Ms. Berkley is unable to come back and had about a minute or

two worth of questions.

It is only one vote, so what we are going to do is go over and

resume the hearing in about 10 minutes from the point where we

adjourn.

So go ahead.

Ms. BERKLEY. Thank you for the courtesy of letting me speak. I

have an IR Committee hearing across the way at 11:00.

I think it is somewhat disheartening to recognize that we just

passed a $286 billion transportation bill that is a maintenance bill

and doesn’t get us any further down the road, dare I say, than to

where we need to be in order to accommodate the extraordinary

amount of freight that traverses our Nation’s highways. I would appreciate having the information that Mr. Blumenauer requested. I

have got one of the most urban districts in the United States; I

have no rural area whatsoever. So any suggestions that you can
17

provide us for movement to and through our urban areas would be

greatly appreciated.

And his second request regarding resources into the highway

fund, I represent a district that is very—although it is Las Vegas,

it is very conservative politically. We are still paying over $3.00 a

gallon in gas, and it would be very, very difficult to ask my constituents to pay more for a gasoline tax, although I appreciate the

importance of that. And if you have been in the Western United

States for any length of time, you know that toll roads do not work

because there is no history of a toll road. And while it is rather

commonplace on the East Coast, I can’t even begin to imagine putting toll roads in the Western United States.

So these are dilemmas that we have. We recognize the needs for

our future, but we also need to figure out how we are going to get

there. So any information you could provide with us would be

greatly appreciated. Thank you very much for being here.

And thank you, Mr. Chairman.

Mr. PETRI. Thank you.

I think what we will do is, as I said, recess until around 11:10.

That should give people a chance to run over to the floor. We are

voting on a bill having to do with the future of horses.

[Laughter.]

[Recess.]

Mr. PETRI. The Subcommittee will resume. A number of our colleagues will be returning shortly and we will continue with the

questioning. If it is all right, I will begin. I haven’t asked a first

round as yet.

I had a number of questions and, of course, one of the big ones,

we have all been talking about not only the need for good infrastructure, but then how to fund it, and we use a number of techniques currently, all the way from sort of sales taxes and fees on

vehicles to proxy user fees, some call it tax. It is really a user fee;

you don’t have to pay it if you don’t use the roads directly or indirectly. It is through gas and diesel fuel taxes. And then we have

other tolls.

And I would really be interested in your observation as to how

to go. When the Congress adopted the interstate highway system

after a big debate back in the 1950s, the president at that time

submitted a proposal, President Eisenhower, and I believe part of

it was to have the program initially funded through financing

mechanisms, bonds, other mechanisms.

When it got to the Congress, the people’s representatives, led in

the Senate by Senator Gore in Tennessee, who was the leader at

that time, decided that it was fairer and more equitable to have a

kind of a user pays principle and do that through a gas tax, rather

than borrowing on Wall Street or trying to toll. So that is the system that we have, which was devised by people’s elected representatives as the fairest way of doing it.

It has now evolved, we kind of have a mixed system. I would be

interested in your experience as you see different States having different approaches. You have to drive and operate over them.

Schneider is going to the West Coast and East Coast with trucks

from its base in the Midwest. It has lots of bases, really.
18

Anecdotally, I have heard that when the tolls on the—now Indiana is talking about raising trucks tolls a lot more because it is

being owned by Italian and Mexicans or, excuse me, Spaniards,

New Zealand people or Australians or other foreign investors. What

do you do, do you go off the roads? Do you drive back roads? Or

do you just pay more tolls? Is this really going to work, all this tolling, whether it is called privatization or just plain tolling?

You have to buy gas, you are not going to move the trucks. So

at least everyone pays and we have a universal system and it is

relatively fair. But the tolling thing, I mean, are you sitting ducks

or do you avoid tolls? Do you make so much on each movement

that you are able to pay whatever the traffic will bear, so to speak?

Would you care to comment on that?

Mr. LOFGREN. Sure. I think we have looked at some of the lanes

that we run for customers coming out of the Midwest into the

Northeast, and I think in one case it would add $195 in tolls. I

would be thrilled if I could make that on a load.

So essentially you are in a loss position. So what typically happens is that you tend to divert off of toll roads onto other roads

where you have more intersections and those kinds of things. So

it is a very well known result that happens not just by us, but all

of our competitors, because, again, you have to recover these things

in the marketplace. And if you can’t, and if there are alternatives,

then the customers expect you to find them. So it really does drive

traffic off of these toll roads.

Mr. PETRI. Well, historically, tolls have worked at sort of choke

points in any transportation system. There is this theory, I read a

book once, about economically why Columbus was looking for the

new world, and that was there were so many people imposing tolls

for travel across the Middle East and Europe that they were looking for toll-free ways of getting around to the other side of the

world, and people were willing to finance that. Whether that is

true or not, I don’t know.

I mean, we have discouraged States from tolling unless they

build their own systems at the Federal level, but is there more of

a Federal interest in that? I mean, if Indiana decides, as it looks

like, it is going to raise its truck tolls significantly, won’t that affect

toll revenues in Ohio and other place that are on adjoining systems, and might you not divert out of those systems entirely?

So some kind of—I mean, there is some—I mean, they could be

engaging in a robbing Peter to pay Paul thing, or it may make

sense for Indiana to raise its tolls but not make sense overall because the loss of toll revenue throughout the system would far exceed what they gain in their one piece of it.

Mr. LOFGREN. I think clearly, over the long term, those things all

hold, because they hold with the principles of economics. In the

short term what happens is, in our case there is freight that we

just simply will not haul any longer because of what is required

from a tolling standpoint. We just choose to take our tiny aspect

of this industry and focus it other places.

So I think long-term those things happen. I think they are demanding issues. I think very much like Mr. Duncan has said, that

that horse is out of the barn. I think it is, how do we use it appropriately. I think that we do need to get some situation where there
19

is an opportunity to challenge the fairness and reasonableness of

these tolls, which we have struggled to be able to challenge appropriately, but I think they are going to continue to be there.

I don’t know that I am smart enough to figure out all the rippling economics behind them, but they clearly drive behavior, and

that is a well known, well understood, well documented fact today.

I think given they are going to go and continue, I think the biggest

issue is certainly at the State level. If those funds go back to enhance and maintain the infrastructure that is generating them, I

think that is just one of the biggest steps that we can take right

now, is just let’s let those dollars go to maintain and enhance the

infrastructure that generated them, and then we can really understand how much of a problem we have got beyond that in terms

of what has to get covered.

Mr. PETRI. Any comments on that, Mr. Duncan or Mr. Yatsko?

Mr. DUNCAN. Well, to reiterate what I have said, I still think the

most efficient way to raise the revenues is the fuel tax that is already in place. I think tolls, as you say, are counterproductive; they

create congestion, choke points, they create more costs to administer them that we don’t need. I would rather have those dollars

go through.

But I guess I deal so much with the research, frankly, I am more

concerned about the looming infrastructure problem than I am the

cost concern. I mean, by 2020, most of the people will tell you commercial vehicle traffic will go up 70 percent just to support today’s

commerce on a current growth trend. Yet, at today’s growth rate

of the highways, to support that will grow about 5 percent of lane

miles for that 70 percent increase in commerce.

Said another way, the roads that you and I drive on every day

will have twice as many cars and vehicles on them by 2025. Clearly, that is not acceptable. We are going to be at absolute gridlock

in this Country if we don’t start to take action now.

So as a business, obviously, I am terribly concerned about cost

and rising costs, because it is very difficult to pass that on, but,

frankly, no matter how you tax a trucking industry or a transportation industry, whether it is a user fee or a fuel tax or a toll, that

ultimately becomes a tax on the consumer because I can’t bear

those costs. Those costs that you give me go on to the consumer.

So it is a cost to the consumer no matter how you structure it. I

think we just ought to look at the most economically feasible way

to structure those revenue increases and go that route.

Mr. YATSKO. Mr. Chairman, I would just give you this perspective, that we have 117 distribution centers out there, and there are

those that have tolls and those that don’t. And as tolls come on top

of those areas where we have distribution centers, we don’t have

the flexibility to go around them, so it is a direct cost hit to our

company and, as Mr. Duncan mentioned, to the consumer in some

cases.

The caution on tolls to Chris’s point, too, is safety. When a road

is tolled and trucks go around that road, it does create issues for

some of the local areas in the Country as well. So we just have to

be cautious about that. But we understand tolling is going to probably happen, and if those funds are used for infrastructure improvements, we would support that.
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I would just also mention that, from a safety standpoint, our systems are all built on authorized truck route only, so that in some

cases that toll road is our only alternative and you have to use it.

Mr. PETRI. Just one maybe other observation, and that is when

the interstate highway system, as I mentioned, was proposed to the

Congress, they didn’t say, no, we don’t want to pay for it, let someone else pay for it or bond it; they said, hey, we really want that,

it is important for our Country long-term and, of course, it has

transformed our Country. You can’t imagine what our Country

would be like—there probably would not be a Wal-Mart if there

was not an interstate highway system; it would not have grown,

probably, out of being a regional company down in Arkansas or

wherever. Anyway, it has transformed our Country.

But the challenge now is to figure out how to marshal resources.

And we know the public is going to have to pay one way or another; they pay through inefficiencies in the system if we under-invest, they can pay through over-investment or waste or diversions

if we don’t manage the system properly. And we need to come up

with some—it is not going to be perfect from everyone’s point of

view, but some kind of a combination of a program with a funding

mechanism that people can get behind and explain. I am sure the

public will support it.

This has happened in regional areas across the United States,

where they have to get bonding or funding authority, taxing authority through referendum in California and other places by 60

percent votes, and they do for transportation infrastructure investments. People will vote for it if they feel the money will go for that

need and it is a well thought out, appropriate program.

So it is a political and community challenge for those of us in the

transportation sector, but it can be done because it has been done

in many part of the Country. We look forward to working with you

in figuring out how to meet that challenge because it is very important not only for today, but for our children and our grandchildren

going forward, not just their own convenience, but with efficiency

and competitiveness of our economy 20, 30 years from now, in my

view.

Mr. DeFazio.

Mr. DEFAZIO. Thank you, Mr. Chairman.

Just back to the financing issue and tolling. The ATA was represented in the audience at the last hearing we had, but I don’t

know whether you have all been sort of briefed. But we held a

hearing on the Indiana toll road and there were some disturbing

things that arose from the discussion, and it is mirrored here.

Mr. Lofgren admits, and I think it is very rational, that, where

possible, you will find a route that doesn’t cost extra. If you are

going to pay more in tolls than your profit margin, it doesn’t make

a lot of sense. But then there becomes a question of the whole system and what it means.

In the case of Indiana, it is interesting. The Indiana toll road is

privatized, it is being controlled by foreign interests. They have a

non-compete clause within a certain distance of the road, which

means Indiana cannot improve roads adjacent to that over the life

of the contract. And then they put in place a mechanism which Mr.

Daniels assured us would take care of the possibility of very high
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tolls. He said, in part, the State didn’t do it on their own because

the State didn’t have the will to raise the tolls.

And then he said, but don’t worry, we have given that to a private entity, but we put in the contract some controls. Well, our

staff went back and computed out if we had applied those same

controls, the lesser of one of three factors, since the construction of

the Holland Tunnel and the current toll to go through the Holland

Tunnel, applying those factors would be $175 per car.

I am very concerned about what may—and then they also have

this other kind of—I asked about congestion. They said, oh, we put

in congestion standards. And I said, yes, but there are two ways

of meeting a congestion standard. You can meet it by expanding

the capacity or you can meet it by raising the price and diverting

people somewhere else, and none of those things was satisfactorily

answered.

So I guess I am not quite as sanguine as Mr. Yatsko about tolling is inevitable and we have got to kind of deal with it, because

I am worrying about the fragmentation of what is now a great national network of highways that needs some investment into something that gets parceled out. I guess I would like to hear you all

reflect. I mean, is avoidance a factor also for Wal-Mart or for your

firm in terms of tolls, or is there a level at which it may well cause

diversion or avoidance like with Mr. Lofgren? Are you monitoring

this, concerned about the potential?

Mr. DUNCAN. Certainly. I mean, there is a price for which the

consumer will not pay.

Mr. DEFAZIO. Right.

Mr. DUNCAN. So there will be some point you get to that diversion. Some modes of trucking may get there quicker than others.

My biggest problem is getting things delivered on time. I offering

a value-added service that allows a customer to do without inventory, so they are willing to pay a little more for the transportation

to avoid the bigger inventory costs, but there is a maximum to that

as well.

I am certainly concerned about having all these different toll

structures and creating a maze that becomes harder and harder to

execute this national strategy that I am talking about. This complicates the issue phenomenally more. I am just simply saying if

this is the only way we can bring new money to the infrastructure,

it is better than living with what we have.

Mr. DEFAZIO. Right, if it was the only way.

Mr. DUNCAN. My preference still is to raise the fuel tax. It is the

most—

Mr. DEFAZIO. Right. And since you are brave enough to say raise

it, I assume then you would also support indexing, which would

be—

Mr. DUNCAN. Yes.

Mr. DEFAZIO. Since we haven’t raised the tax since 1983. I mean,

had it been indexed, obviously it would be quite a bit higher today.

Mr. Yatsko, do you have any reflection on this point?

Mr. YATSKO. Well, again, I agree if the question is about funding

and the tolling is going to occur to fund it, if that funding goes to

infrastructure improvements, it makes sense to adapt to that, as

long as it does lead to infrastructure improvements.
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Mr. DEFAZIO. Right. Of course, in the case of Chicago it didn’t.

They are funding social services with the tolls, which is—

Mr. YATSKO. Which doesn’t make sense.

Mr. DEFAZIO. Right. But even in the case of the infrastructure

investments, which Indiana is dedicating the bond revenues to, the

question is who will that benefit, because if it is not an investment

in that corridor which is being tolled, which has now been transferred to a foreign entity, the revenue is actually going to be invested elsewhere in the State and may or may not provide substantial benefit to the problems that you are outlining.

I guess my concern is the fragmentation of the system, which

brings me back to where I started, which is the idea that I really

think we need to look at, perhaps through the commission that we

named in the TEA-LU bill that has just started to meet, a least

cost transportation planning, which would involve all modes. I

mean, if it makes sense, if you are going to move something from

Seattle to L.A. to short haul on either end to the train, and then

take it down on rail if rail was cost-effective—we know it is fueleffective.

There is a question of who they are targeting, what their capacity is and that, but would we be better served as a Nation, say, on

the I-5 corridor—I am most familiar with that—to invest more

money in more lane miles or should we maybe be partnering with

the freight rail with some kind of incentive to get the investment

that is needed there, whether we do it through tax incentives or

something else, so that we get an alternative.

I don’t know, but I am just thinking that moving to tolls is really

taking us back more to the beginning of the Republic as opposed

to the dedication we had in the 1950s to a national system that

was going to be the best in the world, and I am really worried

about its future and I am just trying to apply some thought.

Mr. Lofgren.

Mr. LOFGREN. Well, we run freight down the I-5 corridor, but we

also run freight behind trains running down the West Coast, and

I think the thing that has got to emerge—and I think, frankly, the

entire transportation industry is different today. I think people recognize there isn’t one answer, there isn’t one mode.

I think people recognize that these things fit together, there is

an appropriateness for them. And I think there is more of a willingness to say, hey, how do we work through this, where traditionally we have been, we have kind of fought each other in this whole

thing to try to get whatever share that we could get of whatever

dollars were going anywhere, and I think it is different today.

So the I-5 corridor, I think the answer is probably both, but is

both thoughtfully done to get the result that we want. So I come

down on that issue and I do frankly think there is just a new spirit

of collaboration in the industry. So I think the possibility is there.

I think the Committee has the opportunity to be able to get leverage from that.

Mr. DEFAZIO. Yes. I would just say in Oregon our Governor started something called the Connect Oregon Program, and they have

identified—it is interesting. Of course, the congestion obviously

comes almost in the same places both for rail and highways--which

in Portland is a big problem, it is the big city right there in the
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middle, I-5 and the rail. So actually, the State is partnering with

the rail companies to use some money to build sitings so we can

get more efficient movement of freight on the rail, with the idea

that we are avoiding an almost impossible problem of saying we

are going to build more lane miles through Portland on I-5, which

is not likely to happen, although there are people proposing—I

mean, there is diversion around Portland, and then you get into

the other issues about diversion and tolling and bridges across the

Columbia. Anyway.

Well, I would look forward to anything you all can contribute to

the idea of how we move forward as we move toward the next reauthorization in an integrated way that is going to make sense both

for your businesses and all the industry it serves, and for the traveling public. But I really do appreciate the testimony.

Thank you, Mr. Chairman.

Mr. PETRI. Thank you.

Mr. Brown.

Mr. BROWN. Thank you, Mr. Chairman. I certainly want to commend the panelists for coming and participating in this discussion

today.

One of my largest issues, I guess, on the Committee is that we

really haven’t had a real vision for our transportation infrastructure since 1954, when President Eisenhower laid out the interstate

system. And I know we have been trying to improve it and patch

it and expand it, but we haven’t really redesigned new corridors

that we feel like might help alleviate some of the congestion on the

current corridors.

And I was just wondering, since we have got three of the top people in the Country right here, if you all have any input, Ms. Peters

now is the new highway guru, so we are just wondering if you all

have been able to come to the table with those folks to try to determine where the new routes might be.

And I know that a lot of the population has shifted since 1954,

and I noticed you all were certainly willing to make some concession on how we fund it. Apparently, I have been able to gather that

you would rather have just an across-the-board price of gas increase with some user fee, rather than be confronted with all the

tolls from different regions.

Do any of you all have a comment about how we might proceed

on the next level? I know we are going to be having another reauthorization bill I guess sometime in the near future, and it looks

like we ought to be a little bit more proactive in where we might

want to go. Any suggestion on you all’s part?

Mr. DUNCAN. Well, Secretary Mineta did put together a commission to investigate the national transportation policy, and that is

underway. I think that begins with the framework of how to craft

this new vision. I think the next part is how do you get all these

different modes working together, and I think Government has to

assist in that.

But I think the biggest issue we are going to come to is the funding side of it. So we can develop the vision, we can develop the

plans. And I think, as Chris said, I think there is a cooperative

spirit today like there has never been before among the modes of
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transportation, but this funding issue is going to raise its head very

early in that process.

Mr. BROWN. I know that you mentioned that, and I am just wondering, in the process, did we ever try to put a cost dollar line on

the cost congestion lost time that we experienced from congestion,

if that is built into that analysis so that we can use those numbers

to say that it is going to cost us so much more, but it is going to

save us the bottom line on those issues? Is that part of the formula

in determining which direction we might go? I mean, it is costing

you already, right? It is just a matter of—

Mr. DUNCAN. That is right.

Mr. BROWN. And I know you said the biggest issue is on-time delivery, and I know it has got to be a real problem there, trying to

get through some of the maze of traffic.

Mr. DUNCAN. Well, it is. I mean, I think a statistic that Secretary

Mineta used when the trucking industry was deregulated in 1980,

logistics cost was 16 percent of the GDP, and in the year 2000 it

was down to 10 percent. I think that is what has happened with

this fast-cycle logistics, and that is the kind of improvements we

have made, but that trend is going to begin to reverse and go back

the other direction if we don’t address the infrastructure issue. So

I think the research can be done, those issues can be quantified,

and there are savings to be made in doing that.

Mr. BROWN. Anybody else?

[No response.]

Mr. BROWN. Thank you very much. We certainly look forward to

working with the industry as we move forward in the next reauthorization bill. Thank you.

Thank you, Mr. Chairman.

Mr. PETRI. Thank you.

Mr. Boozman.

Mr. BOOZMAN. Thank you, Mr. Chairman.

I, like Mr. DeFazio, am also concerned about the fragmentation

of things. Oregon can do a tremendous job out there. If you can’t

get out there, in other words, if Oregon gets its act together, which

they are working very hard to do, it sounds like, if you can’t get

to Oregon because, the States in front of it haven’t done what they

are supposed to do, then it is very difficult.

So I think you could argue that, again, right now, we have got

problems, but we really are the world leader in what we have got,

and I think that has really come about through congressional leadership, that was done many years ago and has continued. So,

again, I think our challenge is to continue that more than ever.

We mentioned the challenge of how you pay for these things, and

certainly tolling is out there. Mr. Yatsko and the rest of you I know

are working very hard to cut your mileage down. You mentioned

your goals of I think 25 percent in the next year or so, so theoretically you are going to drive the same miles and you are going to

pay significantly less fuel tax.

That is commendable. I am not criticizing that at all. That is exactly what we need to do because of environmental reasons, security, and then the economics of the things. On the other hand, the

real challenge is how we make up for that. So I really appreciate

the testimony.
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I appreciate you, Mr. Chairman, and the Ranking Member for

having this hearing. I think it has been an excellent, excellent

meeting. I would really encourage us, under your leadership, I

think we need to almost start a series of roundtable meetings, very

informal, to get State, Federal, and the business entities together

to start looking forward.

The new Highway Bill is going to be on us before we know it,

and probably some of these things we need to be doing immediately

that really don’t cost any money, it is just a matter of coordinating.

And certainly with individuals like this, we really do—and many

others—we have got the opportunity to be proactive.

So, again, thank you all for being here, and I really did enjoy

your testimony.

Mr. PETRI. Thank you.

I second Mr. Boozman’s comments. Your organizations are catering to a significant percentage of the American people in our economy, and if you put two or three other components together in the

rail industry and probably a few other segments, you would have

a representative group of people who have to spend a lot of time

figuring out how to make the system work. And I guess your work

is to basically make the hand you are dealt work as effectively as

possible, and our job is try to improve your cards.

And we need to work together on figuring out how to do that,

and I don’t think one master plan and top-down is at all the way.

It is not the American way and it is not probably the best longterm way, because situations change and opportunities develop,

and you want to be able to adapt to them and not be locked into

something that ends up looking like a good idea and 20 years later

you wonder why you are stuck with it, and that has happened a

lot in other countries around the world.

So I am hoping that maybe we can have some meetings with the

Transportation Research Board or some other people and build on

the Mineta Commission that is going forward and do the best job

we possibly can of laying out a road map that will people—no one

likes to pay for anything, but makes you feel it is worth paying for,

because we know, as I said before, we are going to have costs whatever we do. The only issue is whether we make a considered effort

and build over time or whether we kind of fritter our money away

through inefficiencies and gradually lose competitiveness. So it is

a major challenge for all of us, in addition to the challenges you

face every day in your work.

We thank you very much and your associates for preparing the

testimony and your written submissions, and we look forward to

working with you as we begin the process of renewing the Federal

commitment to a first rate intermodal transportation system for

the 21st century.

The hearing is adjourned. Thank you.

[Whereupon, at 11:50 a.m., the subcommittee was adjourned.]
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