NEW ORLEANS – The recent California Supreme Court decision virtually outlawing independent contractors in that state hung like a dark cloud over the annual meeting of the Customized Logistics and Delivery Association earlier this month.
The decision overturned three decades of more flexible legal standards for determining who was an employee and who was a contractor. Instead, the court adopted much stricter criteria that deny contractor status for anyone who is in the same business as the company they work for (AA, 6-15-18, P. 3).
“In my opinion, it is the person who is doing the work who should decide whether they are a contractor. That shouldn’t be up to the company or the government,” said Scott Leveridge, president of Dynamex, the company that was the defendant in the California case involving its delivery drivers.
Speaking at a CLDA meeting session on May 11, Leveridge also said his company had not yet decided on what its next move will be. Legal observers have concluded that there is no further recourse in the courts for the company.
Brian Surber, vice president and chief operating officer of Priority Dispatch Inc., said in an interview with ACWI Advance that if courier and express firms in California are forced to reclassify their drivers as employees, it will raise costs for shippers by 30-40%, which could deal a devastating blow to attempts to hold down medical costs.
Few people are aware of the extent to which the practice of modern medicine is dependent on package carriers, who are needed to quickly deliver essential drugs, blood, organs and documents. Among those who make heavy use of these services are hospitals, clinics and other facilities, including those operated by the American Red Cross during natural disasters.
Surber’s firm is based in Cincinnati and currently operates in Ohio, Illinois, Michigan and Kentucky. But his company will not expand into California because of the anti-business legal environment there. “We’ve been asked to come in, but we just won’t,” he stated.
Operating Under the Radar
Although no one knows exactly how many package express and courier firms are operating in the United States these days, Surber believes it is significantly larger than an earlier estimate of 2,000. There are at least 50 such companies located in the Cincinnati area alone, he pointed out.
The sheer size of the industry is one reason they are worried that the California Supreme Court decision may have widespread repercussions beyond that state. In many similar situations in the past, policymakers in other states were not slow to follow the examples set by the Golden State, particularly when it comes to workforce law and regulations.
The ruling could not have come at a worse time as the industry is struggling to deal with a burgeoning demand for its services driven by ecommerce.
Greg Smith, enterprise consultant with Tech Mahindra, predicted that the final-mile delivery market will grow from $3.7 billion in annual expenditures at present to more than $12 billion in at least 10 years – and quite likely sooner.
Research indicates that two-fifths of the overall logistics cost is being spent on last mile delivery, the consulting firm of Frost & Sullivan reports. This has resulted in logistics and transportation firms looking at technology and new business models to address the growth issue.
One impact is that urban real estate is being purchased to become home to relatively small distribution and delivery centers for serving the ultimate customer, Scott Leveridge said.
Players in this market are manufacturers, retailers, Amazon and delivery firms. “It is the opposite of warehousing – you hold the shipment for not more than one or two days,” he observed.
One unnamed Chinese ecommerce giant already has bought up land for this purpose in several U.S. cities, according to Leveridge.
All of this activity is generating enormous amounts of data. Smith asserted it is essential for service providers’ survival that they learn how to leverage all of the data being generated by their operations.
“Data is an asset like your people and your trucks. The companies that learn how to use their data will grow and survive,” he said. “Those who don’t will go out of business. Customer satisfaction doesn’t end with data accuracy, but it begins with it.”
Key to dealing with growth pressures are Transportation Management Systems, which are evolving to addressing the need, a panel of shippers and TMS software suppliers argued.
They agreed with Smith’s observation that off-the-shelf TMS systems are coming down in price and are better than home-grown systems, which 85% of companies are still using.
The software providers on the panel said they are working more closely with each other to create shared solutions, including interchangeable apps.