Supply Chain Variables Cloud the Future

The Ocean Shipping Reform Act of 2022 (OSRA22, S. 3580) signed on June 16 by President Joe Biden is a major step toward fixing supply chain problems that involve ocean carrier practices. An immediate benefit for trucking firms and shippers is that OSRA now requires 13 specific items of information on carriers’ invoices and failure to include such information relieves the need to pay. This is a good first step, but the biggest improvements will come from Federal Maritime Commission rulemakings that are required to implement other sections of the law.

Regardless, the congressional spotlight on ocean carriers and America’s ebbing demand for goods appear to have caused a pullback in shipping costs. As reported by AXIOS on July 8, the spot price to ship from China and east Asia to the West Coast was $7,600 per 40-foot container, which is down 62% from the high above $20,000 last September according to Freightos (a booking and payments platform for international freight). However, the reduction of ships to be unloaded at West Coast ports is based on West Coast labor negotiations between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA).

The ILWU and PMA issued a press release when the current contract expired on July 1 stating negotiations for a new contract covering more than 22,000 dockworkers at 29 West Coast ports would go on despite no contract extension, and normal operations would continue until an agreement can be reached. Biden Administration officials have been engaged in the negotiations due to the possibility that labor actions could disrupt cargo flow and exacerbate inflation. This potential for disruption also caused shippers to divert containers to East Coast ports, lessening the West Coast backlog.

Railroads are in labor negotiations, too, and on July 16 it was reported that talks between a union representing 115,000 railroad workers and railroad companies had deadlocked and mediation had officially ended. A strike would severely disrupt supply chains and on July 17 President Biden named a board of arbitrators to review the contract dispute and make recommendations. Upon this action, any potential strike is delayed for 60 days under federal law.

Another supply chain variable to keep an eye on is California’s new independent contractor law, California Assembly Bill 5 or AB-5, which determines whether a worker is an employee or independent contractor. CA AB-5’s new test for such a determination (the “ABC” test) basically finds that all workers are employees prompting the California Trucking Association (CTA) to challenge the law in court because it could destroy the owner-operator model for trucking.

The U.S. Supreme Court declined to take up CTA’s challenge to AB-5 on July 13 allowing the law to go into effect.  These new restrictions on some 70,000 truck-owner operators have generated protests throughout the state, and particularly at California’s ports, where the overwhelming majority of trucks are independent contractors.

In all likelihood, AB-5’s impact on the supply chain won’t be limited to California. The American Trucking Associations (ATA) says the trucking industry is already 80,000 drivers short, and it’s believed more will quit in California now that they’re no longer allowed to be independent contractors. Also, the Biden Administration supports AB-5 and would like to apply it nationally.

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