AB5 Expected to Worsen Driver Shortage, Supply Chain Issues

After the U.S. Supreme Court last week refused to hear a case that would have reopened the issue of using independent contractors in California, shippers are bracing for the supply chain impact as AB5 makes a nagging truck driver shortage even more acute.

With AB5, California lawmakers took a swing at gig-heavy, same-day delivery services like Uber, DoorDash and Postmates, and in the process also hit the entire trucking sector.

If carriers lose drivers or are unable to pass the increased cost of maintaining company drivers and vehicles along to customers, “We’ll see delivery companies exit the California market,” said Fred Miesch, a senior consultant with Argon & Co. “This could then lead to a shift back to private fleet model for intra-California shippers as they scramble to replace lost delivery capacity.”

Joe Wilkinson, VP of transportation consulting for enVista, called the Supreme Court decision to deny a request from the California Trucking Association (CTA) for a hearing on the issue “a real disappointment,” given the driver shortage and supply chain bottlenecks in West Coast ports.

“Now we’re going to throw gas on the fire with an entirely new driver model for many carriers,” Wilkinson said. “That may not be a good analogy, as even gas takes a second to ignite, whereas with the denial of the CTA’s appeal AB5 goes into effect right now. This leaves affected carriers and independent drivers scrambling for a solution.”

In order for California companies to continue to classify workers as independent contractors, they have to meet an ABC test established by the state’s Employment Development Department. The “B” portion is the real sticking point: proving the person is performing work “outside the hiring entity’s business,” which would not apply to contract drivers.

Bill Aboudi, owner of AB Trucking in Oakland, told CBS News that 90% of the trucks servicing the port there are independent contractors, “so, this is a big, big impact.”