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California Supply Chain Collapsing?

How California's AB5 is Crippling the Delivery Supply Chain and Hammering Consumers



California's Assembly Bill 5 (AB5), signed into law in 2019 and fully enforced in recent years, was designed with noble intentions: to protect gig workers by reclassifying them as employees, ensuring benefits like minimum wage, overtime, and workers' compensation. At its core, AB5 codifies the "ABC test" – a stringent standard requiring companies to prove that independent contractors are truly independent, free from control, outside the core business, and engaged in their own trade. Proponents hailed it as a victory against exploitation in industries like ride-sharing and trucking. However, in the trucking sector, where independent owner-operators form the backbone of flexible, last-mile delivery, AB5 has triggered a cascade of unintended consequences. What began as a worker-protection measure has evolved into a regulatory quagmire, driving an exodus of truckers, disrupting supply chains, and ultimately burdening consumers with higher prices, delays, and shortages.


As of early 2026, the fallout is accelerating, with national carriers pulling back, California's economy reeling, and new related legislation adding layers of complexity. Recent reports, including viral YouTube analyses from January 2026, highlight Governor Newsom's response to the crisis, amid claims of 70,000 truckers exiting the state and a wave of trucking bankruptcies tied to AB5 enforcement.


The AB5 Domino Effect: From Independent Truckers to Empty Roads

At the heart of the crisis is the reclassification of California's estimated 70,000 independent truckers. These owner-operators, who own their rigs and contract flexibly with carriers, have long handled the "last mile" – the critical final leg from ports, warehouses, and farms to stores and doorsteps. Under AB5's ABC test, most fail to qualify as independents because their work is integral to a carriers' core business (Part B of the test). As a result, carriers must treat them as employees, incurring massive costs: payroll taxes, insurance, workers' comp, and benefits that can add $20,000 to $50,000 per truck annually.


Faced with these burdens and potential fines up to $25,000 per violation, many carriers have opted for a drastic solution: instructing independent truckers to leave California or risk losing contracts. This mass exodus began in earnest after trucking's temporary exemptions expired, with enforcement ramping up in 2022 and hitting a peak in late 2025. Protests in 2022 shut down terminals at the Port of Oakland, and by November 2025, the first major penalties were levied – an $868,000 fine against three trucking firms for misclassification. A wave of bankruptcies followed, exacerbated by a freight downturn, emissions deadlines, and compliance complexities, with recent analyses pointing to AB5 as a key driver in California's trucking collapses.


Compounding the issue are intertwined regulations, such as refinery closures (e.g., Phillips 66 in October 2025 and Valero in Benicia) and 473 fuel station shutdowns under Senate Bill 445, causing diesel shortages and skyrocketing fuel prices. Additionally, California's policy of issuing commercial driver's licenses (CDLs) to illegal aliens has played a controversial role in attempting to fill the trucking gaps left by AB5. Since 2015, under AB 60, California has allowed undocumented residents to obtain standard driver's licenses, and this extended to limited-term legal presence (non-domiciled) CDLs, enabling an estimated 17,000 such individuals to drive commercially. This practice aimed to address labor shortages, particularly in trucking, by allowing immigrants to operate semi trucks, school buses, and other commercial vehicles, potentially mitigating some AB5-induced disruptions. However, critics argue it raises safety concerns due to varying background checks and has been politicized as prioritizing immigrants over citizens.


Recent federal interventions under the Trump administration have upended this approach. Starting September 29, 2025, the California DMV ceased issuing or renewing limited-term CDLs to non-domiciled immigrants. In November 2025, the state planned to revoke 17,000 such licenses following new federal restrictions imposed by Transportation Secretary Sean Duffy, targeting undocumented drivers to enhance safety and compliance. After a lawsuit by immigrant groups, California delayed these revocations on December 31, 2025, prompting the federal government to withhold $160 million in funding as a penalty for non-compliance. This reversal could exacerbate the trucker shortage caused by AB5, potentially affecting up to 61,000 drivers statewide and deepening supply chain woes, as the influx of immigrant labor that once offset losses is now curtailed. Some reports suggest exemptions or workarounds for foreign workers persist in practice, but federal pressure has largely halted new issuances, leaving gaps unfilled and raising tensions over immigration and labor policies.


Outmigration and Employment Losses: Quantifying the Human and Economic Exodus

New data as of early 2026 underscores the scale of outmigration and job losses tied to AB5, particularly in trucking and gig sectors. While California's overall net outmigration (e.g., 690,000 in 2023) is multifactorial, AB5 has driven targeted displacements. A 2024 study found no increase in traditional jobs but a 10.5% decline in self-employment and a 4.4% drop in overall employment in nonexempt occupations, affecting up to 2 million workers statewide. Estimates suggest 65,000–140,000 workers (160,000–350,000 including families) have relocated due to AB5, with trucking accounting for the bulk: 50,000–70,000 independent truckers moving to states like Texas or Arizona to maintain contractor status. Gig economy freelancers and other sectors add 15,000–70,000 more, often citing lost flexibility and higher costs. This "Truckpocalypse" has eroded communities, especially among minorities and immigrants hardest hit by reclassification – a group now further impacted by the CDL restrictions, potentially accelerating their outmigration or unemployment.


Employment losses in logistics and trucking are stark, with California leading the nation in 2025 job cuts amid a freight recession. Bloomberg estimates that 67% of California's 70,000 independent truckers will leave the state or shut down (some through bankruptcy).

This will leave to thousands of direct layoffs and indirect layoffs of related businesses, compounded by bankruptcies and restructurings – for instance, a mid-sized carrier converted 40% of contractors to employees in 2025 but still faced operational strains. Broader impacts include ripple effects on warehouse and distribution jobs, with estimates of 88,000–210,000 net losses in self-employment across affected sectors. California's unemployment crisis is spiraling, with logistics firms collapsing under AB5's weight, emissions rules, and capital constraints.


National Carriers Fleeing the Golden State: A Roster of Retreat

The crisis has prompted major national carriers to limit or drop California deliveries, prioritizing compliance over chaos. These firms, reliant on independent contractors for scalable operations, are rerouting freight to ports in Texas or the East Coast, removing California loads from boards, and forcing owner-operators to relocate.

  • Landstar System: This freight giant has explicitly told California-based independents to leave the state or face lease termination. By avoiding CA-based contractors, Landstar has slashed capacity for port hauls from Los Angeles and Long Beach, which handle 40% of U.S. imports.

  • Prime Inc.: A leader in refrigerated and flatbed transport, Prime has overhauled operations, directing leased operators out of California to preserve their independent status. This hits agricultural shipments hard, with potential 20-50% cost increases per load.

  • Ryder Last Mile (Ryder System): Fined in the 2025 enforcement wave alongside partners like Costco, Ryder is shifting to employee models, scaling back last-mile services for retail and e-commerce.


Even non-carriers like Costco face joint liability, amplifying the retreat. Carriers are "abandoning" California, leading to container backups, increased dwell times, and national logistics rerouting.


Hardest Hit Retailers and Impacts on Food Delivery

Retailers with heavy reliance on California ports, agriculture, and last-mile trucking are suffering the most, facing stock shortages, closures, and price hikes. Key examples include:

  • Costco Wholesale: Fined as a joint employer in the 2025 AB5 action, leading to shortages in bulk goods and potential fee increases.

  • Walmart: Closing distribution centers in 2025-2026 due to unsustainable costs, delaying essentials.

  • Albertsons (Safeway, Vons): Laid off drivers post-AB5 pressures, causing empty shelves for perishables.

  • Amazon: Rerouting imports, extending delivery times by 2-5 days and raising costs.

  • In-N-Out Burger: Relocated HQ in 2025, with supply disruptions raising menu prices.

  • Other Grocers (Kroger, Whole Foods): Shortages of CA-sourced produce, with 5-10% price hikes.

Food delivery is hit hard: Upstream shortages delay perishables, increasing fees by 5-10% and causing cancellations on apps like DoorDash or Instacart. While gig drivers are exempt via Prop 22, inventory gaps worsen wait times, especially for low-income users.


Impacts on Major Container Ports and Border Shipping Sites

AB5 strains drayage at ports like Los Angeles, Long Beach, and Oakland, with dwell times up 20-30% and throughput potentially dropping 5-10%. Rerouting to East Coast ports inflates costs by 10-20%, risking $1-2 billion monthly losses. At borders like Otay Mesa and Calexico East, delays rise 15-25%, shifting freight to Texas sites like Laredo, which may see 10-15% growth but face bankruptcy risks. As a result of these delays in California ports, container shipments are beginning to shift to other ports (e.g., Portland and Seattle). Pacific Northwest ports have seen an almost 20% increase in container traffic.



Shifting Distribution: Moves to Neighboring States

Distribution centers are relocating to Nevada, Arizona, and Idaho for lower costs and fewer regulations, though moves are broader than AB5 alone. Nevada sees expansions (e.g., Amazon in Las Vegas, Daimler to Vegas in 2026); Arizona's Phoenix booms in logistics; Idaho gains in warehousing. This exacerbates CA's job losses, with gains in neighbors offsetting some regional impacts.


The Consumer Crunch: Higher Prices, Empty Shelves, and Everyday Disruptions

While truckers and carriers bear the immediate brunt, consumers are feeling the pain most acutely. California's ports and farms feed the nation, but AB5-induced disruptions are inflating costs and causing shortages. Freight rates have surged due to reduced capacity, with estimates of 5-10% price hikes for food, retail goods, and imports. Last-mile delays mean slower e-commerce deliveries, spoiling perishables, and empty shelves in stores. Agricultural exports from California's farms – a key economic driver – are declining, potentially raising grocery bills nationwide. The CDL policy shifts add another layer: While initially providing a pool of drivers to ease shortages, the revocations could worsen delays, hitting low-income households hardest with even higher prices amid already strained supply chains.


Job losses among independents (thousands displaced) ripple into communities, while broader economic losses could reach $10-20 billion annually from diminished port activity. Low-income households, already strained, face the steepest impacts from inflated prices. X users and industry voices express frustration, calling for repeal to restore flexibility.


Recent Developments: Unionization, New Laws, and Lingering Effects

As of January 2026, a new California law effective January 1 grants certain gig drivers the right to unionize and bargain collectively, potentially mitigating some AB5 harms but adding uncertainty for carriers. Additionally, AB 692 bans "stay-or-pay" clauses in trucking contracts starting 2026, further complicating compliance. A federal court dismissed the trucking industry's latest AB5 challenge in 2025, solidifying enforcement. While some sectors saw an 8.1% earnings boost for remaining workers (e.g., online labor), overall self-employment has collapsed without offsetting gains. Insurance markets remain volatile, with unknown long-term effects from AB5 and related rules.


Well-Intentioned Progressive Regulations lead to Devastation

AB5 exemplifies how progressive policies can backfire in complex industries like trucking, where flexibility is key. While some gig sectors saw wage boosts, trucking has suffered net losses, eroding California's logistics edge (3% of state GDP). The interplay with CDL policies for undocumented immigrants highlights broader tensions: State efforts to bolster the workforce clashed with federal restrictions, ultimately amplifying shortages rather than resolving them. As carriers continue to exit and disruptions mount, federal intervention may loom. For now, the supply chain collapse serves as a stark reminder: regulations must balance protection with practicality, lest consumers pay the ultimate price.

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