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How California’s AB5 Contractor Law affects Drayage for Smaller Businesses

by Geoff Chambers, Director of 3PL Solutions

The Scarbrough Group

California’s new independent contractor law will disrupt drayage among the state’s trucking owner-operators; smaller businesses will face change and challenges as a result.

The law (referred to as AB5) places new restrictions on independent contract work in the state. AB5 primarily aims to help gig workers for companies like Uber transition into full-time employment. Those same compliance rules also make it more difficult to legally drive a truck as an owner-operator. As a result, many drivers will lose their independent contractor status and either join larger companies as full employees or stop driving altogether.

This is a challenge for California’s robust fleet of drayage owner-operators. More than 50 percent of drayage companies serving California ports are owner-operators. All must review their compliance with AB5 accordingly.

Owner-operators have responded to AB5 with anger and protest. But drayage drivers are not the only businesses that have to contend with the changes.

AB5’s disruptions will have both procedural and financial impacts on small and medium-sized businesses. Firstly, Beneficial Cargo Owners (BCOs) will need to thoroughly vet their owner-operator drayage providers for compliance with AB5. Neglecting this step risks exposure to potential lawsuits.

Secondly, BCO small and medium-size businesses may see as much as a 15-20 percent increase in California drayage costs as the law takes effect.

Moving forward, similar laws may crop up in other states. Apprehensions around higher prices nationwide are sure to grow if that happens. In the meantime, we watch and wait to see how both the implementation and effects of AB5 evolve.


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