A new law signed by California Gov. Gavin Newsom last week could exacerbate the current supply chain challenges plaguing the U.S. and the world, several retail industry groups say, warning that the legislation is “duplicative and overbroad.”
Known officially as AB 701, the law, which goes into effect on Jan. 1, requires distribution and fulfillment centers to disclose any quotas that an employee is subject to and prohibits companies from imposing work quotas that would hinder an employee’s ability to take legally mandated breaks. The Retail Industry Leaders Association says this will add to the documentation and bureaucracy that warehouses have to contend with, “and will add more processes that are already sufficiently regulated by California’s existing occupational protections.”
According to the U.S. Commerce Department, nearly 17% of the country’s total imports come from California, including approximately one-third of the goods that the U.S. receives from China.
“With California’s ports facing record backlogs of ships waiting off the coast and inflation spiking to the fastest pace in 13 years, AB 701 will make matters worse for everyone — creating more backordered goods and higher prices for everything from clothes, diapers and food to auto parts, toys and pet supplies,” Rachel Michelin, president of the California Retailers Association, said in a statement.
Jess Dankert, vice president of supply chain for the Retail Industry Leaders Association, noted that the new law comes just months after a federal appeals court upheld California’s authority to apply its gig economy law to some 70,000 truck drivers, forcing companies to classify them as employees rather than independent contractors. “This is just another example of good intentions leading to bad legislation,” Dankert wrote in a blog post.
Mired for Months
For months, supply chains have been plagued with increased costs and delays as an increase in consumer demand meets a lack of available labor and resources needed to transport thousands of goods and materials around the global economy. By some estimates, it could take up to 18 more months for all of the issues to be resolved.
Related news: Retailers Face ‘18-Month Struggle’ as Global Supply Chains Remain Tangled
Nike executives noted last week that prior to the COVID-19 pandemic, it took approximately 40 days to move product from Asia, where it’s manufactured, to North America — but over the past few months, that transit time has ballooned to 80 days. The footwear and athletic apparel giant is also grappling with factory shutdowns across southeast Asia, especially Vietnam, leading to at least 10 weeks of lost production for the company.
“This has created a gap to the flow of inventory originally ordered for delivery beginning in mid-October,” Nike President and CEO John Donahoe told analysts on a conference call. “And our experience shows us that based on navigating through this pandemic over the last 18 months, it’s going to take several months to ramp back up to full production.”
Read more: Factory Closures Cause 10-Plus Weeks of Lost Production for Nike
In July, Salesforce estimated that costs across the retail supply chain would increase by $223 billion in the second half of the year, with manufacturers adding $12 billion because of the continued risk of COVID-19, stores adding $48 billion because of a shortage of employees, and logistics companies adding $163 billion because of a lack of capacity on ships.
Even some artificial Christmas tree sellers are being squeezed by the tight supply chain, with some planning to raise prices by 20-25% this holiday season. Trees and other holiday-themed items are subject to an extremely tight supply chain window — if they arrive too early, they might not last until the holiday, but if they arrive too late, shoppers may have found alternatives elsewhere, meaning the price must be discounted to sell it at all.
See also: Supply Chain Issues Could Hamper Artificial Christmas Tree Sellers
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