[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 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





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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                      DON YOUNG, Alaska, Chairman

THOMAS E. PETRI, Wisconsin, Vice-    JAMES L. OBERSTAR, Minnesota
Chair                                NICK J. RAHALL, II, West Virginia
SHERWOOD L. BOEHLERT, New York       PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         JERRY F. COSTELLO, Illinois
JOHN J. DUNCAN, Jr., Tennessee       ELEANOR HOLMES NORTON, District of 
WAYNE T. GILCHREST, Maryland         Columbia
JOHN L. MICA, Florida                JERROLD NADLER, New York
PETER HOEKSTRA, Michigan             CORRINE BROWN, Florida
VERNON J. EHLERS, Michigan           BOB FILNER, California
SPENCER BACHUS, Alabama              EDDIE BERNICE JOHNSON, Texas
STEVEN C. LaTOURETTE, Ohio           GENE TAYLOR, Mississippi
SUE W. KELLY, New York               JUANITA MILLENDER-McDONALD, 
RICHARD H. BAKER, Louisiana          California
ROBERT W. NEY, Ohio                  ELIJAH E. CUMMINGS, Maryland
FRANK A. LoBIONDO, New Jersey        EARL BLUMENAUER, Oregon
JERRY MORAN, Kansas                  ELLEN O. TAUSCHER, California
GARY G. MILLER, California           BILL PASCRELL, Jr., New Jersey
ROBIN HAYES, North Carolina          LEONARD L. BOSWELL, Iowa
ROB SIMMONS, Connecticut             TIM HOLDEN, Pennsylvania
HENRY E. BROWN, Jr., South Carolina  BRIAN BAIRD, Washington
TIMOTHY V. JOHNSON, Illinois         SHELLEY BERKLEY, Nevada
TODD RUSSELL PLATTS, Pennsylvania    JIM MATHESON, Utah
SAM GRAVES, Missouri                 MICHAEL M. HONDA, California
MARK R. KENNEDY, Minnesota           RICK LARSEN, Washington
BILL SHUSTER, Pennsylvania           MICHAEL E. CAPUANO, Massachusetts
JOHN BOOZMAN, Arkansas               ANTHONY D. WEINER, New York
JIM GERLACH, Pennsylvania            JULIA CARSON, Indiana
MARIO DIAZ-BALART, Florida           TIMOTHY H. BISHOP, New York
JON C. PORTER, Nevada                MICHAEL H. MICHAUD, Maine
TOM OSBORNE, Nebraska                LINCOLN DAVIS, Tennessee
KENNY MARCHANT, Texas                BEN CHANDLER, Kentucky
MICHAEL E. SODREL, Indiana           BRIAN HIGGINS, New York
CHARLES W. DENT, Pennsylvania        RUSS CARNAHAN, Missouri
TED POE, Texas                       ALLYSON Y. SCHWARTZ, Pennsylvania
DAVID G. REICHERT, Washington        JOHN T. SALAZAR, Colorado
CONNIE MACK, Florida                 JOHN BARROW, Georgia
JOHN R. `RANDY' KUHL, Jr., New York
LUIS G. FORTUNO, Puerto Rico
LYNN A. WESTMORELAND, Georgia
CHARLES W. BOUSTANY, Jr., Louisiana
JEAN SCHMIDT, Ohio

                                  (ii)



            SUBCOMMITTEE ON HIGHWAYS, TRANSIT AND PIPELINES

                  THOMAS E. PETRI, Wisconsin, Chairman

SHERWOOD L. BOEHLERT, New York       PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         NICK J. RAHALL II, West Virginia
JOHN J. DUNCAN, Jr., Tennessee       JERROLD NADLER, New York
JOHN L. MICA, Florida                GENE TAYLOR, Mississippi
PETER HOEKSTRA, Michigan             JUANITA MILLENDER-McDONALD, 
SPENCER BACHUS, Alabama              California
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
SUE W. KELLY, New York               EARL BLUMENAUER, Oregon
RICHARD H. BAKER, Louisiana          ELLEN O. TAUSCHER, California
ROBERT W. NEY, Ohio                  BILL PASCRELL, JR., New Jersey
FRANK A. LoBIONDO, New Jersey        TIM HOLDEN, Pennsylvania
JERRY MORAN, Kansas                  BRIAN BAIRD, Washington
GARY G. MILLER, California, Vice-    SHELLEY BERKLEY, Nevada
Chair                                JIM MATHESON, Utah
ROBIN HAYES, North Carolina          MICHAEL M. HONDA, California
ROB SIMMONS, Connecticut             RICK LARSEN, Washington
HENRY E. BROWN, Jr., South Carolina  MICHAEL E. CAPUANO, Massachusetts
TIMOTHY V. JOHNSON, Illinois         ANTHONY D. WEINER, New York
TODD RUSSELL PLATTS, Pennsylvania    JULIA CARSON, Indiana
SAM GRAVES, Missouri                 TIMOTHY H. BISHOP, New York
MARK R. KENNEDY, Minnesota           MICHAEL H. MICHAUD, Maine
BILL SHUSTER, Pennsylvania           LINCOLN DAVIS, Tennessee
JOHN BOOZMAN, Arkansas               BEN CHANDLER, Kentucky
MARIO DIAZ-BALART, Florida           BRIAN HIGGINS, New York
JON C. PORTER, Nevada                RUSS CARNAHAN, Missouri
TOM OSBORNE, Nebraska                ALLYSON Y. SCHWARTZ, Pennsylvania
KENNY MARCHANT, Texas                JAMES L. OBERSTAR, Minnesota
MICHAEL E. SODREL, Indiana             (Ex Officio)
DAVID G. REICHERT, Washington
JEAN SCHMIDT, Ohio
DON YOUNG, Alaska
  (Ex Officio)

                                 (iii)































                                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





















 
 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 inefficiencies 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, 
cost-effectively 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 growing 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 Nevada-Las 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 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--Wal-Mart 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.
    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 highway 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-for-dollar 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. Wal-Mart 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 Wal-Mart 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 Wal-Mart, 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 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 organization, 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 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. 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. 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.
    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.
    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.
    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 short-term--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.
    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 on-time 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 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 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.
    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 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.
    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 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.
    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 fuel-effective.
    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 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 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.
    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 long-term 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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