Global Logistics and Supply Chain Strategies - June 2008 - (Page 49) INDUSTRY VOICES 100 percent inspection initiative. Ever since 9/11, Congress has debated legislation to screen all cargo. Some have objected that the commercial implications could be devastating. According to Jim May, president of the Air Transport Association, 100 percent physical inspection of cargo could shut down that part of the economy. Nevertheless, the Democratic-controlled Congress passed this proposal, now Public Law 110-53, as part of the 9/11 Commission Report Implementation Act. As a result, the Transportation Security Administration (TSA) must achieve 100 percent of air cargo screening by August 2010. TSA may impose an unfunded mandate, requiring supply chain companies to take on the costs and responsibilities of screening and certifying all cargo prior to arrival at an airport. We are already beginning to witness these changes in cargo on passenger planes, where “known shipper” rules are deemed to be non-transferable. The implications for the supply chain could be devastating. Potential consequences include increased costs of compliance, delayed shipments, increased prices, and reduction in air cargo. Small and medium-sized supply chain businesses that lack deep pockets may not survive the onerous requirements. All three presidential candidates voted in favor of this inspection bill in the Senate. The trend toward heightened global security legislation and increased costs for supply chain businesses is bi-partisan and will likely continue. It is likely that small businesses that cannot invest aggressively in new technology, services, and compliance costs will find it difficult to compete. Many such companies will consider a sale or merger. Wal-Mart.” Senator Clinton has echoed this criticism, joining Senator Obama in calling for a renegotiation of NAFTA. Conversely, Senator McCain has spoken out in favor of NAFTA and other free trade accords, saying, “I believe that those agreements should be kept.” Reconciliation Act of 2003 (JGTRRA) slashed the maximum capital gains and dividends rates from 20 percent and 35 percent, respectively, down to 15 percent. These tax cuts were favorable for M&A. Logistics mergers boomed during the reduced capital gains era, in part fueled by the reduced capital gains that sellers stood to receive. Deals such as PWC Logistics-GeoLogistics, JacobsonWilpak, and CR England-Dynalink all took place during this favorable environment. In aggregate, 2007 represented the most active logistics M&A year ever recorded. However, current levels are unlikely to continue. Of the three presidential candidates, two propose to raise taxes, and a third could end up doing the same. Both Senator Clinton and Senator Obama support higher rates. Senator Clinton has proposed increasing maximum capital gains to 20 percent, income taxes to 39.6 percent, and dividend rates to 39.6 percent. Senator Obama also supports a 39.6 percent maximum income tax rate. In addition, he would increase capital gains and dividends to 24 percent. Senator McCain proposes maintaining the current tax levels. However, it is worth noting that Senator McCain is unable to ensure that taxes will not increase. Tax legislation must be passed by the Congress. If the 2009 Congress is solidly Democratic, as currently appears likely to be the case, then Senator McCain may be forced to reach an accommodation. In addition, the Bush tax cuts are currently scheduled to “sunset,” or expire, by 2011, at which point they revert to the pre-Bush higher levels. So it seems reasonable to assume that taxes under a McCain presidency and a Democratic Congress would be unknown. Q: The North American Free Trade Agreement (NAFTA) is one supply chain related topic that has been in the general news. How do the candidates differ on NAFTA and free trade? Gordon: NAFTA really frames the differences between the candidates. Since 1994, NAFTA has removed trade barriers in the form of tariffs between the United States, Mexico and Canada. Both of the Democratic presidential candidates have attacked NAFTA. For instance, Senator Obama announced his opposition, arguing: “Trade deals like NAFTA ship jobs overseas and force parents to compete with their teenagers to work for minimum wage at Q: If international tariffs are reinstated by the next party in power, what implications will that have on cross-border supply chain companies and their partners? Gordon: The U.S. logistics sector depends on international trade. Over the past decade, global freight forwarders have enjoyed growth in excess of 10 percent. In turn, this trade has had a ripple effect on the entire supply chain, benefiting warehousing, trucking and logistics companies across the board. If the new president presses for international tariffs, we could see a major slowdown in the supply chain sector. Particularly hard-hit will be freight forwarders. If, as President Kennedy once said, a rising tide lifts all boats, then tariffs will have the opposite effect. However, there could be a few isolated winners. Those companies that are nimble enough to respond, large enough to invest in technology, and smart enough to anticipate changes could actually achieve increased growth. As trade barriers increase, shippers will be more dependent on supply chain partners that can use creativity and niche expertise to ensure successful freight flows. Hence, increased tariffs will be harmful to most supply chain companies. But, as we move toward a “winner take all” marketplace, a handful of large, technology-savvy freight forwarding and logistics could actually benefit. Q: Who gets taxes cuts or increases is another hot topic in the news, but how does that issue impact the logistics and supply chain industry? Gordon: The Bush tax cuts are another example of an endangered policy that engenders opposite reactions. The Bush tax cuts were extensive. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) lowered individual income taxes for all taxpayers. In addition, the Act lowered the top income tax rate from 39.6 percent to 35 percent. Thereafter, the Jobs and Growth Tax Relief Q: What does this mean for to the logistics industry? Gordon: The owners of the logistics firms would be hit the hardest. If you own a mid-sized logistics company, the gain on the sale of that business would vary widely among the candidates. To access this article online, visit The Digital Edition at www.SupplyChainBrain.com. Resource Link BG Strategic Advisors, www.bgsa.com www.supplychainbrain.com GLOBAL LOGISTICS & SUPPLY CHAIN STRATEGIES 49 http://www.SupplyChainBrain.com http://www.bgsa.com http://www.supplychainbrain.com
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.