Well folks, we have a real mess on our hands.
As you are aware, we have a huge problem with our supply chain.
The evening news shows hundreds of ships anchored off shore and thousands of box containers stacker up at our piers.
They are even talking about serious shortages of goods and empty shelves during the Christmas shopping season.
How in the world has this happened?
The answer is simple. Government regulation. In their effort to fix one problem in California, they have triggered a huge problem nationwide.
Now bear with me folks, because this one was tough to research since governments have a tendency to not advertise their screw ups.
There are 2 big issues.
The first is something called the AB5 Gig Worker Law in California.
The Second is the California Truck and Bus Regulation Compliance Requirement
Let’s start with the AB5 Gig Worker Law in California.
Now folks, I must be honest. I didn’t know what a gig worker was until I started my research.
Gig workers are independent contractors, online platform workers, contract firm workers, on-call workers and temporary workers.
Gig workers enter into formal agreements with on-demand companies to provide services to the company’s clients. Gig work consists of income-earning activities outside of standard, long-term employer-employee relationships.
Well, that makes sense. I knew I had heard the term before. When a band gets a job to play at a local venue, they usually refer to it as a gig.
So with our definition in hand, let’s dive into this AB5 thing.
NOLO.com
Nolo, in Latin, means “I don’t choose to.”
By Stephen Fishman, J.D.
California’s Historic AB5 Gig-Worker Law
California law (AB5) changes the rules for how employers determine whether a worker is an employee or independent contractor.
Bottom of Form
This law took effect in California on January 1, 2020 that dramatically changed the rules employers must use to determine whether workers are employees or independent contractors (“ICs”) in the state.
The distinction is important because independent contractors are not entitled to most of the protections and benefits that employees get. This includes a minimum wage, overtime pay, unemployment insurance, workers’ compensation insurance, and paid family leave.
The law applies only to workers in California—regardless of where the employer is based. It does not apply to workers outside of California even if the employer is based in California.
As a result of AB5, many California workers who had previously been classified as ICs must be reclassified as employees and are entitled to employee benefits and protections. This led to an uproar in the business community.
Uber, Lyft and other online hiring platforms sponsored a successful ballot proposition (Proposition 22) that exempted most drivers for app-based rideshare and delivery platforms from the law
Over 50 categories of workers are exempt from AB5. However, workers in these exempt categories are not automatically ICs. Instead, almost all such workers are required to pass muster as ICs under the legal test in effect before AB5 was enacted.
Under the law, an ABC test must be used to determine if non-exempt California workers are employees or independent contractors for most California employment law purposes. Under this test, all workers are presumed to be employees.
A worker qualifies as an independent contractor only if the person satisfies a new “ABC test.” Under this test, a worker is an IC only if he or she:
(A) is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact, and
(B) performs work that is outside the usual course of the hiring entity’s business, and
(C) is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
All three prongs of the ABC test must be satisfied for workers to be independent contractors. In other words, to be an IC a worker must: be free from control + work outside the hiring firm’s usual business + have an independent business.
It’s difficult for most workers to qualify as independent contractors under the ABC test.
The biggest sticking point for the truckers needed to haul our supplies from California ports to destinations throughout the nation, is the second one.
“performs work that is outside the usual course of the hiring entity’s business”
Quite simply, an independent trucker can’t satisfy this requirement if he or she performs services related to the hiring firm’s core business.
So, if an independent trucker must be classified as an employee under the ABC test, the worker’s employer must provide the worker with the benefits and protections mandated by the California employment laws.
This includes minimum wage, paid annual sick leave, time and one half for overtime, reimburse employees for out-of-pocket expenses necessarily incurred on the job, such as driving expenses, provide meal and rest breaks, and paying employees for unused vacation time when employment ends.
In addition, as employees, the workers must be provided with California unemployment insurance. Their employers must register with the California Employment Development Department and pay unemployment insurance premiums.
California law also requires all employers with at least one employee to have workers’ compensation insurance.
The list goes on and on with things like California paid family leave, disability benefits, etc. Do you now see the problem?
It used to be that a freight company could hire an independent trucker to pick up a load from the port in LA and haul it to Kansas City for X amount of dollars.
The freight company just contracted with the trucker and paid a set fee, period. Now, that company would have to pick up the tab for all the benefits due emplyeee in California.
So in trying to fix the UBER problem, the California Legislature screwed up the entire trucking industry.
Good grief.
If that wasn’t bad enough, the California environmentalists added another hurdle.
This brings us to our second big issue.
I had a heck of a time trying to find info on this one.
It deals with another California state law.
The California Air Resources Board came out with new regulations in June of 2019.
It can be found under Truck and Bus Regulations.
According to the California Air Resources Board, the new The Truck regulation affects individuals, private companies, and Federal agencies that own diesel vehicles with a Gross Vehicle Weight Rating (GVWR) greater than 14,000 lbs. that operate in California.
What it basically says is that all trucks and buses operating in California must have 2010 model year or newer engines.
Now I am not a trucker, but I do know that those trucks are expensive. I would be willing to bet that a huge percentage of those we see on the road have motors that are over 12 years old.
So, once again, California, in an effort to fix one problem, has created a problem for all of us.
Now I know what you are saying. Professor P, where is our history lesson for today? Well, here we go.
By Tim Harford
BBC World Service
So now that we have identified the problem, we need to look at the impact.
Toys from China, copper from Chile, T-shirts from Bangladesh, wine from New Zealand, coffee from Ethiopia, and tomatoes from Spain.
Like it or not, globalization is a fundamental feature of the modern economy.
In the early 1960s, world trade in merchandise was less than 20% of world economic output, or gross domestic product (GDP).
Now, it is around 50% but not everyone is happy about it.
There is probably no other issue where the anxieties of ordinary people are so in conflict with the near-unanimous approval of economists.
Perhaps the biggest enabler of globalization has not been a free trade agreement, but a simple invention: the shipping container.
It is just a corrugated steel box, 8ft (2.4m) wide, 8ft 6in (2.6m) high, and 40ft (12m) long but its impact has been huge.
Here is your history lesson.
Consider how a typical trade journey looked before the invention of the shipping container.
In 1954, a simple cargo ship, the SS Warrior, carried merchandise from New York to Bremerhaven in Germany.
It held just over 5,000 tons of cargo – including food, household goods, letters, and vehicles – which were carried as 194,582 separate items in 1,156 different shipments.
Just keeping track of the consignments as they moved around the dockside warehouses was a nightmare.
But the real challenge was physically loading such ships.
Longshoremen would pile the cargo onto a wooden pallet on the dock.
The pallet would be hoisted in a sling and deposited in the hold.
More longshoremen carted each item into a snug corner of the ship, poking the merchandise with steel hooks until it settled into place against the curves and bulkheads of the hold, skillfully packed so that it would not shift on the high seas.
There were cranes and forklifts but much of the merchandise, from bags of sugar heavier than a man to metal bars the weight of a small car, was shifted with muscle power.
This was dangerous work.
In a large port, someone would be killed every few weeks.
In 1950, New York averaged half a dozen serious incidents every day, and its port was safer than many.
Researchers studying the SS Warrior’s trip to Bremerhaven concluded the ship had taken ten days to load and unload, as much time as it had spent crossing the Atlantic.
In today’s money, the cargo cost around $420 a ton to move.
Given typical delays in sorting and distributing the cargo by land, the whole journey might take three months.
Sixty years ago, then, shipping goods internationally was costly, chancy, and immensely time-consuming.
Surely there had to be a better way.
Indeed, there was: put all the cargo into big standard boxes and move those.
But inventing the box was the easy bit – the shipping container had already been tried in various forms for decades.
The real challenge was overcoming the social obstacles.
To begin with, the trucking companies, shipping companies, and ports could not agree on a standard size.
Some wanted large containers while others wanted smaller versions; perhaps because they specialized in heavy goods or trucked on narrow mountain roads.
Then there were the powerful dockworkers’ unions, who resisted the idea.
Yes, the containers would make the job of loading ships safer, but it would also mean fewer jobs.
US regulators also preferred the status quo.
The sector was tightly bound with red tape, with separate sets of regulations determining how much that shipping and trucking companies could charge.
Why not simply let companies charge whatever the market would bear – or even allow shipping and trucking companies to merge, and put together an integrated service?
Perhaps the bureaucrats were simply keen to preserve their jobs.
Such bold ideas would have left them with less to do.
The man who navigated this maze of hazards, and who can fairly be described as the inventor of the modern shipping container system, was called Malcom McLean.
McLean did not know anything about shipping, but he was a trucking entrepreneur.
He knew plenty about trucks, plenty about playing the system, and all there was to know about saving money.
As Marc Levinson explains in his book, The Box, McLean not only saw the potential of a shipping container that would fit neatly onto a flatbed truck, he also had the skills and the risk-taking attitude needed to make it happen.
First, McLean exploited a legal loophole to gain control of both a shipping company and a trucking company.
Then, when dockers went on strike, he used the idle time to refit old ships to new container specifications.
He repeatedly plunged into debt.
He took on “fat cat” incumbents in Puerto Rico, revitalizing the island’s economy by slashing shipping rates to the United States.
He cannily encouraged New York’s Port Authority to make the New Jersey side of the harbor a center for container shipping.
But probably the most striking coup took place in the late 1960s, when Malcom McLean sold the idea of container shipping to perhaps the world’s most powerful customer: the US Military.
Faced with an huge logistical nightmare in trying to ship equipment to Vietnam, the military turned to McLean’s container ships.
Containers work much better when they are part of an integrated logistical system, and the US military was perfectly placed to implement that.
Even better, McLean realized that on the way back from Vietnam, his empty container ships could collect payloads from the world’s fastest growing economy, Japan.
And so trans-Pacific trading began in earnest.
A modern shipping port would be unrecognizable to a hardworking longshoreman of the 1950s.
Even a modest container ship might carry 20 times as much cargo as the SS Warrior did yet disgorge its cargo in hours rather than days.
Gigantic cranes weighing 1,000 tons apiece lock onto containers which themselves weigh upwards of 30 tons and swing them up and over on to a waiting transporter.
All of this is choreographed by computers, which track every container as it moves through a global logistical system.
The refrigerated containers are put in a hull section with power and temperature monitors.
The heavier containers are placed at the bottom to keep the ship’s center of gravity low.
The entire process is scheduled to keep the ship balanced.
And after the crane has released one container onto a waiting transporter, it will grasp another before swinging back over the ship, which is being simultaneously emptied and refilled.
Not everywhere enjoys the benefits of the containerisation revolution.
Many ports in poorer countries still look like New York in the 1950s.
Sub-Saharan Africa remains largely cut off from the world economy because of poor infrastructure.
But for an ever-growing number of destinations, goods can now be shipped reliably, swiftly, and cheaply.
Rather than the $420 that a customer would have paid to get the SS Warrior to ship a ton of goods across the Atlantic in 1954, you might now pay less than $50.
Indeed, economists who study international trade often assume that transport costs are zero.
It keeps the mathematics simpler, they say, and thanks to the shipping container, it is nearly true.
So, thanks to Mr. McLean and his invention, I must ask, do we really have a shipping problem, or is what we are seeing the result of government bureaucrats in California passing laws and regulations that affect us all.