What Is Causing the Supply Chain Problem?

We all suspected as much, but we did not have enough information. We all suspected that the supply chain bottleneck at the ports of Long Beach and Los Angeles had something to do with labor unions and environmental regulations. 

We knew that the port of Shanghai, to take an easy example, is five times more efficient than the ports of Long Beach and Los Angeles. The reason, we have been led to believe, is simply that the port of Shanghai is automated. It is run by robots. In California, ports are run by longshoremen. As for why they do not automate, the unions and the bureaucrats would never allow it.

Anyway, Alyssia Finley lays out the facts about the situation in California ports. Writing in the Wall Street Journal, she explains how the Golden State got itself into such a mess. Given that hers is the first cogent analysis of the problem, she deserves special credit.

Some 20 business groups recently asked Gov. Gavin Newsom to declare a state of emergency and suspend labor and environmental laws that are interfering with the movement of goods. Opening the Port of Los Angeles 24 hours a day “alone will do little without immediate action from the state to address other barriers that have created bottlenecks at the ports, warehouses, trucking, rail, and the entire supply chain,” they wrote.

As for the details, try these facts about how a labor union made it far more difficult to find truck drivers:

One barrier is a law known as AB5. Before its enactment in 2019, tens of thousands of truck drivers worked as independent contractors, which gave them more autonomy and flexibility than if they were employees. As contractors, truck drivers can work for multiple companies, which allows them to nimbly respond to surges in demand.

The International Brotherhood of Teamsters, however, has long wanted to organize truck drivers, including those serving California’s ports. Since the National Labor Relations Act prevents unions from organizing independent contractors, Democrats passed AB5, sponsored by Assemblywoman Lorena Gonzalez, a Teamsters member.

Trucking companies warned that the law could put small carriers out of business and cause drivers to leave the state. They want the U.S. Supreme Court to review a legal challenge to AB5, but many are complying after defeats in lower courts. It’s hard to quantify how much AB5 has contributed to the shortage of truck drivers. But there’s little doubt the law hinders efficiency and productivity.

Fair enough, we cannot be certain of the extent to which the law has reduced the number of truck drivers, but clearly it has had a nefarious influence. 

Finley then moves on the the problem with not enough storage space and insufficient warehouse facilities:

Another problem: a shortage of storage space. “There is absolutely no available capacity in the warehousing sector due to the difficulty in developing any new capacity,” the businesses noted in their letter. The vacancy rate for warehouses near the Los Angeles and Long Beach ports was a mere 1%, compared with 3.6% nationwide.

If warehouses don’t have space in their facilities or parking lots to unload goods, drivers can’t make deliveries. Some truck drivers are leaving container boxes along with the chassis outside storage facilities and are picking them up later, but that results in a shortage of chassis at the ports. (About half of chassis are leased to truckers from a common pool supplied by private companies.)

Inland California cities, where land is abundant, flat and relatively inexpensive, have had enormous warehouse growth over the past decade amid the boom in e-commerce. The number of inland “big box” distribution centers increased 54% between 2009 and 2020 to 711, according to Statista. Some cities encouraged development because warehouses provide relatively high-paying jobs for less-educated workers, including immigrants.

What is inhibiting warehouse growth? Why, it’s the environmental lobby:

But in California warehouse growth ignited opposition from environmental groups, which complain of pollution and noise. Many cities have limited new logistics facilities. Colton, in San Bernardino County, has imposed a moratorium on new warehouses and truck facilities through early May 2022.

One trucking company this year withdrew a plan for a 54,000-square-foot warehouse and parking facility for 475 trucks and containers atop a former landfill in Carson amid political opposition.

Some cities have limited the hours when trucks can unload containers at stores, which makes it harder to free up warehouse space—another reason Mr. Biden’s 24/7 call has had little effect.

And, of course, new warehouses need to be green friendly:

State officials have also pressed localities to attach green mandates to permits for new warehouses, which can be poison pills. Former Attorney General Xavier Becerra issued guidance with a long list of “best practices and mitigation measures” for warehouses to comply with the California Environmental Quality Act. Among them: “prohibiting off-road diesel-powered equipment from being in the ‘on’ position for more than 10 hours per day,” “forbidding idling of heavy equipment for more than two minutes,” “requiring on-site equipment, such as forklifts and yard trucks, to be electric with the necessary electrical charging stations provided,” and “constructing electric truck charging stations proportional to the number of dock doors at the project.”

This July Mr. Becerra’s successor, Rob Bonta, sued the city of Fontana for approving a 205,000-square-foot warehouse with 22 truck docks. Mr. Bonta complained the city didn’t adequately consider strategies to mitigate air pollution, such as requiring low-emission construction equipment and green building standards.

Finley concludes:

This boatload of regulations is making it more expensive and difficult to store goods arriving at California ports. As the business letter to Mr. Newsom notes: “We have floating warehouses idling off the coast, wasting fuel. Inaction has—and will continue to have—far more of an environmental impact than the requests contained in this letter.”

Mr. Biden last month threatened to call out companies if they didn’t “step up” to ease supply-chain bottlenecks. He should instead call out California Democrats.

As if that is going to happen….