California’s AB 5 will impact trucking companies and shippers

Ever since California Gov. Gavin Newsom signed Assembly Bill 5 (AB 5) in September, there has been heated debate around changes to the gig economy. AB 5 lays out stricter regulations for the way companies classify their independent contractors, who lawmakers said were often exploited.  

The gig economy was made famous by the advent of Uber, but U.S. companies long have brought on truck drivers to work as independent contractors without such employee benefits as sick leave or paid vacation. 

On-demand cab-hailing and delivery companies like Uber, Lyft and DoorDash have registered their opposition to the bill, pledging to spend $30 million each on a 2020 ballot initiative to reverse AB 5. The law is set to take effect Jan. 1. 

FreightWaves caught up with Erik Malin, the vice president of operations at Loadsmart, a digital freight marketplace, to discuss the impact of AB 5 on the California freight industry. 

“This legal move will lower the threshold for what is the dividing line between an independent contractor and an employee,” said Malin. “When it lowers that threshold, it effectively lets more independent contractors fall under the employee status. The impact has to do with associated costs. On one side, you have truck drivers who will make more money, but on the other side, it increases the cost for carriers.”

Malin explained that although it looks good from the truck driver’s perspective, AB 5 might not have a positive impact from the industry’s financial standpoint. Hauling costs are expected to increase, and that cost would be passed along to shippers.

But Malin pointed out that inefficiency in the system was a primary driver of AB 5.

“Drivers are sitting in their trucks for extended periods of time, like at ports, waiting for a container to arrive so that they can move it from the port to a nearby warehouse. But they are not properly compensated for their dwell times, which means that there is additional pressure for them to be compensated more for the hours they spend driving, which is again part of increasing that cost,” he said.

This negative macroeconomic impact on carriers will decrease their income and operating profit, which leads to shrinking resources for them to invest in operations. This includes a shortage of funds to invest in technology that goes into upgrading their trucks, driver recruitment and their subsequent training. Malin contended that this also could have an impact on capacity in the short run and a potential long-term impact on the end consumer. 

Malin suggested that stakeholders on both ends of the spectrum look to resolve the issue amicably to prevent major disruption within the industry. “I think there should be a focus on why all these issues occur and what needs to be done to solve them in addition to whatever legal resolutions need to be put in place,” he said. 

“A good example is the ELD regulation that, when mandated, reduced the number of miles that drivers could cover in a day. This tightened capacities and had an impact on hauling costs at a macroeconomic level.”