California’s hostile environment for the trucking industry

This past week, I had the opportunity to visit the lovely state of California, with its thriving tech sector and massive ports that provide the front door to the American retail economy. In speaking with a number of people on the ground, I came away with an impression of a State that is more divided than ever, and if recent political decisions have any indication of what the future holds, this will only get worse.

What do I mean? The optimism and confidence of the venture capital community is remarkable. Firms that dot Silicon Valley believe their technology will make every part of humanity more rewarding and will improve the quality of life for all. Drive from the airport at SFO to downtown and you will pass hundreds of new buildings sporting companies with the obligatory, flashy “tech names.” The area is home to some of the smartest people on the planet that are thinking about every problem that plagues humanity. They are budding with excitement about the future.

But there’s another side of California. The left out part. The blue-collar sector that provides an enormous part of the State’s labor force and makes up two major industries–agriculture and logistics. As a freight publication, we spend our time at the ports and warehouses and not in the fields, but the issues that face transportation and logistics could very well transfer over to the agriculture sector.

The trucking industry is massive in California, employing over 870,170. This is slightly below the tech sector that employs 1,186,471 and far above the 374,000 that are employed in the movie and TV production industries.

The optimism of the folks in the freight sector is far from optimistic. Never mind that the economy is on fire and all sectors of the economy are performing better than they ever have post WW2. Executives and workers (employers and employees) face more and more government interference, taxes, and regulations. They feel strangled by the State, and while they may see less government intrusion at the Federal level, the State has doubled-down.

In the past few months California’s political regime has made a number of decisions which make the State a hostile work environment for carriers and logistics professionals. These include:

  • Higher fuel taxes: California passed a $.20/gallon fuel tax on fuel purchases in the state. Politicians pitched as a “green” thing to do and a way of rewarding purchasers of fuel efficient vehicles. This means that for every mile carriers run in the state, they will pay the California treasury $.04/mile. No surprise that the a few sane minds in the State have decided the tax is way too punitive and regressive and have submitted a bill to repeal it.
  • CARB citations of out of state freight brokers: The California Air Resources Board (CARB) recently cited two freight brokers for failing to ensure that the carriers they brokered loads to were compliant with CARB regulations. Neither broker was based in the state, but California demonstrated a willingness to go out of state to force their will on any company that touched freight traveling through their state. CARB said the fines weren’t “precedent setting,” but admitted this was the first time the laws had ever been enforced to out of state brokers.
  • The Dynamex California Supreme Court ruling: This is pure madness. The State’s highest court ruled that if a company’s core business is related to the product offered through a contractor, those contractors must be classified as employees. While the details are murky, even by legal experts we’ve spoken with, the implications of such a ruling promises to bring lawyers out of the woodwork to sue every company that has independent contractors on staff to change their classification from contractor to employee. Not only does this have the potential of forcing companies to pay for overtime, benefits, and taxes, it also changes the way companies conduct business. One can extrapolate from this that an argument can now be made that every trucking company that has contractors signed up under their operating authority will be forced to either leave the State or convert these contractors to employees. Imagine the impact of freight brokers, agents, and carriers.

California is a state divided between the haves and the have-nots. The “haves” are the pioneers breaking new ground like the ‘49ers used to mine for gold. It’s still a land of opportunity and the Golden Gate Bridge still a symbol for a future filled with hope and grand aspirations. The “have nots” are on the front lines, keeping the mega-economy and population density rolling along in spite of wildfires, droughts, and the occasional earthquake. The question is: Will the powers-that-be feel the tremors in time to save the state from themselves?