#6 – Chris Shimoda

Welcome to Supply Chain Saga. My guest today is Chris Shimoda, vice president of Government Affairs at the California Trucking Association. Today, we’ll break down legislation California is enacting that will have implications for the entire US supply chain. Chris is a family man and native Californian who’s deeply passionate about the industry in the state of California. Let’s dive in.
All right. We’re live and I am here today with Chris Shimoda. Welcome.

Chris Shimoda:

Thanks for having me.

Mark Taylor:

Absolutely. Thank you for being here. Why don’t you tell the audience a little bit about, just introduce yourself and tell us how you got to where you are.

Chris Shimoda:

Sure. So Chris Shimoda, I’m senior vice president of Government Affairs for the California Trucking Association. The California Trucking Association is the nation’s largest statewide association representing the trucking industry. Been around for going to be 90 years next year.

Mark Taylor:

Wow.

Chris Shimoda:

I’ve been with the association for, let’s see, it’s going to be 16 years in December. Started my career doing compliance work. I actually came in around the time of the original Truck and Bus Regulation for your listeners who are California operators, they’ll be very familiar with that. Done more or less every job within the association, but currently I am our registered lobbyists, do all of our political work. I’ve kept all of our environmental regulatory work, which is going to be hot topic for today, as well as managing our team. We have three folks internally who work on government affairs within the staff. And I’ve got two contract lobbyists as well. So we’ve got a good team working on our trucking issues here in California.

Mark Taylor:

All right. Very succinct. I like it. So what currently is keeping you guys up at night?

Chris Shimoda:

Lot of things. A lot of things. Yeah, the state of California is moving very aggressively on all things climate change related. And unfortunately, again, we’ve been through this in the state of California. Since 2007, operators within the state have been turning over their trucks to EPA 2010 model year standards. We had the final deadline in 2023. We are right back at it, having met the state’s most recent objectives on the truck side, on the warehousing side. More regulations to come. I’ll start with the one that is at the top of my mind at the moment. The state agency who regulates air quality greenhouse gases in the state is the California Resources Board. Again, probably a very familiar name to your listeners who operate in and around the state of California.
California Resources Board is the states environmental regulator. California is unique amongst the states in that we have something called the California EPA waiver. This makes the news every now and then with states sort of objecting to the fact that California is unique amongst the nation in setting emission standards for new vehicles, including light duty passenger cars, all the way up to trucks off-road equipment, you name it. And because of that power, the California Resources Board is generally viewed as one of, if not, the most powerful environmental regulatory agencies in the country, have really driven where emission standards have gone both on cars and now medium and heavy duty trucks since they’ve got the waiver process in place, which was back in the ’70s.
The Clean Air Act, when it was established under, I believe it was the Nixon administration set up EPA. Clean Air Act happens in the ’70s. That waiver process has been in place and California has sort of taken the lead ever since on these issues. And so today, actually hot off the presses, the Air Resources Board, a regulation that’s been in the news quite a bit lately, it’s called the Advanced Clean Fleets Regulation, it is the nation’s first mandate for truck fleets to transition to zero emission trucks, either battery, electric, or hydrogen fuel cell, that regulation was sent not more than 24 hours ago to the the final step in the process, which is called the Office of Administrative Law, where it’ll be reviewed for consistency with procedural aspects of what regulatory agencies need to do to adopt rules in the state.
The deadline for the review is going to be on or around July 26th. And really what that means for the folks who are listening to this is if anybody was under the impression that this regulation was subject to further change, now that it’s met this step, it is set in concrete. So the rule that you’ve been hearing about, the requirements that I know I’ve talked to a lot of folks and they say this is crazy, this can’t be real, it is very soon going to be the law of the land. Not subject to further change, it’s just basically rubber-stamping. And again, I’d expect by late July it is officially going to be in law.

Mark Taylor:

Okay. So let’s back up a little bit. Can you detail the law, I mean specifically this one that’s that they’re going to basically review and then put into the law of the land or make it the law of the land on the 26th?

Chris Shimoda:

Yeah, absolutely. So if you are a fleet with 50 or more trucks, and that’s nationally, that are Class 2B or above, so that’s 8,501 pounds gross vehicle weight rating and above, it’s a sprinter van or higher, if you are a company that does greater than $50 million revenue and operate a single truck in the state of California, or if you are a state, local, or federal fleet, you are going to be under the Advanced Clean Fleets Regulation under a provision known as the high priority fleets rule.
To try to sum it up as succinctly as possible, what happens under that portion of the regulation is you really have two options. So the first option is called the model year schedule. You, basically after January 1st, 2024, will not be allowed to add a truck into the state of California for the first time, be it a new or used vehicle, unless it is a zero emission truck. So flat out, just if you need to bring in additional capacity after January 1st, 2024, it’s got to be zero emissions. The fleet that you are operating today will be legal to operate.
So the diesel trucks in your fleet, natural gas or gasoline, will be legal to operate up to a certain limit. What that limit is, it’s actually a provision that the California Trucking Association got into the law back in 2017. It’s known as the SB 1 Useful Life provision. It is 13 years from the date that the engine in the truck itself was certified. So typically the model year of your truck is going to be one year newer than the model year of the engine in the truck. So if you got a 2020 model year truck, it has probably got a 2019 engine in it. You will have 13 years or 800,000 miles, whatever comes later.

Mark Taylor:

So we’re effectively looking at if that were to… So January of 2024, then if you had a 2012 model year, nothing older than 2012 would be allowed to operate in the state of California or nothing with more than 800,000 miles.

Chris Shimoda:

Correct. So if you were 2011 model year engine, you’re up. In 2024, you’re already up against that 13 years. If you are in exceedance of the 800,000 miles, the truck is done. It needs to be retired. If you are at half a million miles, you can keep operating until you hit that 800,000 mile threshold or a total of 18 years. So if you reach 18 years, doesn’t matter what the mileage is, it needs to be retired. So in the case of the 2011, you could potentially, if it’s a low mileage truck, run it until, if I’m doing my math right, 2029.

Mark Taylor:

So both pieces of criteria have to be met then. So the engine can be certified more than 13 years if it’s under… I mean, you can still use that truck as long as it doesn’t have a 800,000 [inaudible 00:09:24].

Chris Shimoda:

Correct. Correct.

Mark Taylor:

Okay. So it’s not an if an either or, it’s an yet, if and.

Chris Shimoda:

Yeah, whatever comes later. Right.

Mark Taylor:

Got it.

Chris Shimoda:

And then up to a maximum threshold of that 18 years. So that that’s the main compliance pathway, this model year schedule.

Mark Taylor:

That makes sense. Well, it doesn’t make sense, but I understand what you’re saying. And that is if a truck is, let’s say it’s a 2015, but it’s got 900,000 miles on it, it can still operate until that engine is 13 years old.

Chris Shimoda:

Correct. Correct.

Mark Taylor:

Okay. I’m with you. [inaudible 00:09:59].

Chris Shimoda:

Yes, the later of.

Mark Taylor:

And so that’s the most straightforward, if you will, compliance path. The second option is known as the milestone tier grouping phase in. And that is, again, for the folks who remember the Truck and Bus rule, there was a phase in under that regulation as well. So you have this option to say, “Okay, instead of only buying, after 2024, zero emission trucks and then retiring my existing fleet at useful life, I want to take this phase-in option.”
A little bit more complex. If you have a mixed operation where you’re not just doing day cabs and sleepers, maybe it’s a… I can think of some of our larger fleets that got a lot of box vans, yard trucks. Depending on the type of truck, there are three categories that phase in at different times. The first category is going to be the “easier” to electrify. It’s going to be your box vans, box trucks, yard tractors. Those go first. They’re in the first tier grouping where 10% of those trucks need to be zero emission as a total of your fleet. If you got 100 trucks, 10 of them need to go. And that needs to happen by 2025.
The next grouping is going to be your day cab tractors. Those hit that initial 10% by 2027. And then the third category is sleeper cab tractors and specialty vehicles. There’s a definition in the rule of what meets specialty vehicles. It’s like non-cargo carrying two engine type trucks, anything with a heavy front axle above 12,500 pounds. Those are in this third grouping where you got to hit your 10% by 2030. And then for each of these categories, they basically increase in increments until they hit 100% at various stages. I think the sleeper cab category hits the 100% by 2042. And so that option does provide a little bit more flexibility. So under that option, CARB does not care if you buy new internal combustion engines or bring on used internal combustion engines so long as a whole, your fleet is meeting those percentage thresholds.
Now, in reality, what fleets will actually find is that the capital intensiveness of transitioning to zero emissions, I don’t know how practical it’s actually going to be to add non-zero emission trucks in once this regulation kicks into effect, but the option is there.
Got it. So I’m going to ask, so one, what we spoke of first, that’s the model year schedule.

Chris Shimoda:

Correct.

Mark Taylor:

And that’s the 13 years engine or 800,000 miles, whichever one you hit last.

Chris Shimoda:

That’s right.

Mark Taylor:

And then there’s the milestone tier, which is separate from the model year schedule. And that happens… So the 2025 is the first thing, and that’s for yard movers. Anything with an axle, it’s got more than 8,500 pounds, which would be all of your UPS fleet trucks, your Amazon last mile delivery type trucks.

Chris Shimoda:

Correct.

Mark Taylor:

And then 2027 goes day cabs. And the sleepers are 2030-

Chris Shimoda:

’30.

Mark Taylor:

… is the first? Okay.

Chris Shimoda:

That’s right.

Mark Taylor:

So that’s the first there. And then the last one, which is kind of shocking, is then you also… I mean, I guess it’s not shocking based on this thought process, but anyone who has just like your windshield repair man who’s operating Toyota Tacoma fleet, they’re going to be subject to switching that fleet out as well.

Chris Shimoda:

Yeah. As of right now, if they are above 50 trucks or above 50 million revenue, they’re in the rule. Now, let me move to the drayage portion of this. This is where it gets really interesting.

Mark Taylor:

And then we have to revisit all this in a minute to talk about the actual practicality of what this means.

Chris Shimoda:

Yes, yes, absolutely. Yeah, the drayage portion is where the rubber is going to hit the road first. So everything I said about fleet size and revenue is out the window if you are visiting ports and rail yards in the state of California. So exact same scope as the current drayage truck regulation. It’s your Class 1 rail yards, all the major seaports around the state. So that rule applies to any and everybody entering those facilities. So if you got a single truck, doesn’t matter the revenue, you’re in the rule. And that rule is less flexible. We didn’t really get into some of the exemptions and timeframe extensions on the high priority piece of it, but there’s significantly less flexibility for trucks visiting ports and rail yards.
What it boils down to is you’ve got a single compliance option. You do not have this phase in available to you. It is the model year option. It is anything added to the state’s drayage truck registry after January 1st, 2024 needs to be zero emissions. Starting 2025, any of those legacy trucks that hit those same model year or mileage thresholds, the 13 years or 800,000 miles up to that total cap of 18 years needs to be retired. The end date on that is everything regardless of the model year, regardless of the mileage on the drayage piece, has to be zero emissions by the year 2035. So that is the one where I would say we can really get into the practicalities because my analysis of the numbers down at the ports of LA in Long Beach is we’ve got around 2,000 trucks that are going to hit that threshold in 2025. When you start talking infrastructure and other things that need to be in place, I’ve got some real questions about whether or not that’s going to be successful.

Mark Taylor:

Okay. I’m going to have to ask a lot of dumb questions. January 1, 2024, your trucks entering the port will be able to enter. You could be a single unit operator or single cab operator, or you could have 50. It absolutely does not matter.

Chris Shimoda:

Correct.

Mark Taylor:

You have to fall within the model year schedule, which is the 800,000, 13 year for the engine certification.

Chris Shimoda:

That’s right.

Mark Taylor:

Just do you know off the top… I mean, this is probably very hard to know. How many trucks do you think immediately on January 1st, 2024 can just no longer enter?

Chris Shimoda:

So it is when that kicks in, when they’re going to start booting people out of the registry is 2025. In LA and Long Beach, part of LA publishes numbers on the model years of trucks that are registered to operate at the port. And as of the last time I checked, the most recently published statistics are, we’ve got a little bit under 2,000 trucks that are going to age out by 2025. So unless fleet operators are taking steps today to change those out, we’re going to lose, let’s call it maybe a-fifth of the capacity at the ports of LA in Long Beach in 2025.

Mark Taylor:

So that was going to be one of my questions. So we believe that you guys have established there are about 10,000 trucks required to operate just port of LA and Long Beach.

Chris Shimoda:

Yeah, it gets a little complicated. You have around 8,000 trucks that are doing five or more visits a week. Let’s call it a universe of around 16,000 that are more casual as a whole. So 8,000 frequent visitors and then another, let’s say 6,000 to 8,000 that are visiting on a less frequent basis. And so rough numbers, if you talk about the numbers needed to just keep things churning on a daily basis, a-fifth or a-sixth of the capacity depending on what number you’re using.

Mark Taylor:

Okay. And that number would be?

Chris Shimoda:

2,000 guys that are going to be facing deadline for their truck.

Mark Taylor:

Got it. Okay. I don’t expect you to know this, but how many of those 2,000 trucks do you think already have their electric vehicle on order?

Chris Shimoda:

Probably very few.

Mark Taylor:

Yeah. You don’t say?

Chris Shimoda:

No, we don’t have the numbers on that. The state of California has been putting a lot of dollars towards trying to get the grant and incentive programs directed towards specifically the drayage fleet. I think everyone is aware because of the lack of flexibility in that deadline, because you are targeting small enterprises, it’s going to be where the pain hits first and hits the hardest. I do know that, again, for the folks in the shipping side, you’re probably aware that there is a clean truck fee, and that’s been assessed by both the ports of LA and Long Beach on a per TEU basis for some time now. It’s generating, between the two ports, about $90 million in incentive money. It’s supposed to go right back. The clean truck fee is assessed on any diesel or natural gas trucks coming in. It’s supposed to be turned right around into to grants and incentives for zero emission trucks.
My understanding is the grant programs administered by the ports have been having a hard time moving that money because unlike our previous regulations where you go down to the dealership and say, “Hey, I got a trade in my 1994 truck for a 2010 model year,” well, you might get some education on how to maintain a DPF and putting death fluid into the SCR device, but it wasn’t the type of wholesale change in technology that involves as much complexity as what we’re facing right now.
So the reason why they’re having a hard time is you can’t just buy the electric truck and expect to run it. You need the charging in place in order to actually operate that vehicle. And that is becoming, I think, increasingly the biggest barrier for a lot of folks who are making efforts to transition into, we basically only have battery electric trucks on offer right now. Getting that charging in place is the biggest barrier. It is a multi-year process involving a lot of different players. You got to involve your utility. It’s a major capital infrastructure project on site. There are delays that can be completely out of your control, both from the supply chain standpoint. And just the reality is it takes utilities some time to interconnect these projects. That is really why they’re having a hard time moving that money and why I think that this particular part of the rule is where we’re going to see some of these complexities, let’s just say throwing a wrench into some of these plans to transition the fleet.

Mark Taylor:

Right. So on average, what are the costs of one of these electric trucks?

Chris Shimoda:

Out the door, what we’ve heard from our dealer members is you’re looking at around, let’s say in the neighborhood of the mid 400,000 for the initial offerings as opposed to, especially in the drayage market, you can pick up a used compliant diesel truck for 20,000 to $50,000 depending on state of the market. Just a real paradigm shift with regards to cost. The chargers themselves are basically more expensive than that used drayage Truck. I just talked about a DC fast charger. My understanding is on the low side, it’s about $100,000 installed. So not just 450,000 for the truck. You’re facing another 100,000 plus for the charging.

Mark Taylor:

I have been told 115 is about what to expect.

Chris Shimoda:

That sounds about right.

Mark Taylor:

And in addition to $115,000, I’ve also been told it is an 18 to 24 month lead time to just get the thing installed.

Chris Shimoda:

Yeah. And that is going to vary greatly depending on where you are located. So I’ve had to become a little bit of an expert in our electrical grid, unfortunately, due to this regulation. What I learned is the address of the building we’re sitting in feeds back through the distribution network to something called a substation. The function of the substation is basically to step down voltage from the ultra-high voltage transmission distribution network. You get power out of a power plant. It gets put into these transmission lines that are in the multiple tens of thousands of volts. In order to make it usable in a building like this, 480 volt electricity, you need a series of transformers along the way to step down that voltage.
Where you really start getting into delays… The 18 to 24 months is just-

Mark Taylor:

That’s the charger. Just the charger.

Chris Shimoda:

Yeah, just to get the charger, the switch boxes, the transformers, you name it. Anything involved in the electrical supply chain, what we’re hearing from the utilities, everything’s backed up. Not surprisingly. It’s like everyone in the world’s having these issues. If you are, let’s say, a decent sized fleet… I’ll use the example of we went out to a member facility in Carson and did the back of the envelope. They got a slip seat operation with 40 trucks out of their facility there. They need to turn the trucks in about two to three hours. We said, “Okay, well they need about a 350 kilowatt charger.” And just an idea of how fast that is, the Tesla supercharger network, I think they started at about a 50 kilowatt DC fast charger.

So it is a heavy duty charger. And with the number of trucks that they have, their project would be around, let’s call it 10 to 15 megawatts, which to translate that in plain English, that’s about the amount of electricity to power 15,000 homes, a decent-sized town. I live in the city of Davis, it’d probably be enough to power a whole town. And that’s just one company with 40 trucks, one facility in Carson.

Mark Taylor:

So then each charger needs about a capacity of 350 kilowatts?

Chris Shimoda:

Correct. On demand.

Mark Taylor:

On demand. And then, as I understand, electrical grids don’t love it when there’s giant sine-like waves.

Chris Shimoda:

Correct.

Mark Taylor:

You want it to be even as much as you can. And so for their 40 trucks, they would need 40 of those. I mean, they’d probably need fewer than that just because you wouldn’t have every truck on the charger at the same time. But you would still need that 10 to 15 megawatt capacity.

Chris Shimoda:

That’s right. That’s right. Yeah. And so when you start talking about projects of that size, you’re starting to get into the type of electricity demands that only large industrial sources, or the other example that always gets cited is the Empire State Building draws about nine megawatts. You’re into the larger size of projects that any utility is going to be bringing onto their system. And so the 18 to 24 months you’re waiting for your charger can turn into 10 plus years if on the utility side they need to do things like build new substations. If your listeners are driving along the highway and you see this collection of stuff that you say, “Is that a power plant or what is that?” that’s a substation, just as a visual. Big plot of land, big capital project. Has to go through a lot of environmental review, bring in a lot of transformers, a lot of steel. 10 plus years to get those things on the system.
So the expectation is, especially the member that I visited out in Carson, they’re in an industrial cluster. And so not just them, it’s going to be every single one of their neighbors responding to this regulation with their own large power demands. You’re going to be triggering a lot of major upgrades on the utility side of the equation. That’s where this gets really complex is when you are from an operational standpoint trying to figure out, “How do I sync up the delivery of trucks with this regulation, with the charging?” I’ll just say, this is not something we’re expecting that most operators, no matter how sophisticated, are going to be able to navigate without a lot of consulting work.

Mark Taylor:

So here’s a dumb question. Private industry like Tesla and some of these other electrical car charging stations, nobody has a… Well, I’m sure somebody does, but nobody has a 50 kilowatt DC fast charger in their garage. It’s all community-based. You go in there, there might be five or 10 available or whatever it may be. But that was a concerted effort by the company to set up these things and then have people basically come in, like hub and spoke almost. Is the state of California doing anything like that to have big trucking yards where people can come in and do these big charging projects?

Chris Shimoda:

There are some players emerging on the charging side that I think the model you’re going to see is one of two things in the near term. So if you are a fleet that has a depot, especially a depot that you own, and are bringing trucks home every night to the same location, you’re going to do your own projects, you’re going to have the charging on site. There are some people that have diesel fueling on site today. It’s not super commonplace, but it does happen. So similar sort of model. You’re going to have that charging onsite. The trucks are going to roll out once they’re fully charged. Okay, that’s one model. The second model that we’re seeing is what you might call shared infrastructure, or truck as a service, charging as a service. There’s various names that they’re going by. A bunch of startups, some of which I won’t name the folks, but they’re getting a lot of publicity these days.
Those are folks who have a lot of expertise in dealing with utilities, dealing with these types of capital projects, that are setting up yards where typically you’re going to have a core customer who is agreeing to off-take a certain amount of electricity. They’re going to sell subscription services for X amount of megawatts that you need for your fleet. But the truly retail model, the gas station, cardlock, Pilot Flying J model of charging I don’t really think has emerged yet, due to the fact that even with the fastest available charging speeds today, you’re probably sitting at that location for about two hours. If you do the math, the class A tractors that are coming out that are electric are 500, 600 kilowatt-hour batteries. That’s going to take two hours roughly on a 350 kilowatt capacity charger. Some of these initial trucks that have been deployed actually have battery management systems that will throttle the charging down to 100, 150 kilowatts total speed.
In that case, you’re sitting there for four hours to charge. So I always like to tell the general public when I’m doing panels on this, it’s, “Hey, check your watch. If you rolled into a gas station as a person that owns a car and it is, as we speak, four o’clock, and you were not going to get out of that gas station until 8:00 PM, would you even own a own car at that point in time?” Four hours per day, I think most people realize that there’s not really a retail model yet that is going to work because you just can’t get in and out fast enough.
In order to do that, you are going to have to go up in speed in chargers, and this is being worked on. Eventually what the battery electric charging folks would like to get to is rolling about 1,000 kilowatts, or it’s known as a megawatt, through a charger at one time. That’ll let you get in and out with a Class 8 in about a half an hour to 45 minutes, a little bit more reasonable. But that creates a whole host of other issues, mostly on the utility side, when you start pushing that much power through one charger, much less a battery of those at one time.

Mark Taylor:

So the interesting thing to me here is, and you’re going to know the stats a lot better than I would. Maybe you do, maybe you don’t. Do you know the draw right now in the state of California? How many megawatts does the entire state consume, produce?

Chris Shimoda:

Yeah, it varies depending on time of the year. And in a hot summer month, everyone running their air conditioning during the day, you’re going to peak out around, let’s call it 50,000 megawatts or somewhere north of that. I think the all-time record in the state of California is like 68,000 megawatts. Sometime in the mid-2000s we hit that mark. And so when you do the math on, we’ve got 400,000 Class 8s running around the state, 2 million Class 2Bs and above.
It does not take a huge portion of the fleet plugging into those megawatt chargers if they do come online to basically equal the entire state’s demand. I think a nice-tempered day like today, we’re probably drawing around 30,000 megawatts as a state in its entirety right now. And so you basically need 30,000 trucks, around less than 10% of the total fleet operating, plugged into those chargers at one time to double the demand in the state of California for electricity.

Mark Taylor:

So then, I’m trying to wrap my head around these numbers. So you said around 400,000 big trucks running around California.

Chris Shimoda:

That’s right.

Mark Taylor:

And so let’s just start with 2,000. So the typical truck battery has got 350 kilowatt-hours.

Chris Shimoda:

Class 8s, we’re going to be above 500 kilowatt-hours.

Mark Taylor:

Okay. So is fair to say conservatively, what about the trucks doing the drayage from the port?

Chris Shimoda:

So trucks doing the drayage from the port, those are going to be in the 500 kilowatt-hour range. Yeah, the math, you basically divide the kilowatt-hours by two, roughly. Two to 2.8 depending on the efficiency, and that’ll get you the range.

Mark Taylor:

Okay.

Chris Shimoda:

So 500 kilowatt-hours is around 250 miles.

Mark Taylor:

And so what’s the average mileage in a day that those trucks are driving, you think?

Chris Shimoda:

It’s going to depend on the duty cycle of the truck itself. You could probably get away with much smaller battery size, if you’re doing, let’s say, near dock rail or just into facilities within Carson, Compton, if you’re talking about Southern California ports. For the guys that need to get from the ports into the Inland Empire or destinations further out, you are going to need more range. And it also boils down to how often do you want that driver to be sitting there having to recharge? It’s pretty complicated. It’s not as easy as just spec’ing your day cab or spec’ing your sleeper for the type of operation. Am I going to add a additional diesel tank so the driver doesn’t have to stop as often?
This is just going to boil down to how do I need to use the truck? How often do I need my slip seating? Is it an overnight charging situation? It’s going to vary a lot. But those 2,000 trucks that we were talking about that are going to fall off in 2025, we’ve done some of the math on what we think the charging needs are going to be in Southern California. We estimate somewhere between 100 and 200 megawatts of charging capacity have to be put in the ground between now and 2025. There is not anywhere near that installed today.
And we were just talking about the time horizons. You know when you involve the utilities, it can get into the 10 plus year range. The likelihood that the charging is going to be in place for these 2,000 truckers that got to turn over their fleet in just… It’s about a year and a half at this point. Really difficult to see where these startups and state of California and the port and everybody who’s concerned with getting that infrastructure in place, I don’t see it happening.

Mark Taylor:

So we are also looking at this in a vacuum. We’re looking at it just as trucks. We’re not looking at it as every gas stove that’s no longer… I mean, that’s not the real big deal, but I mean, still that electricity has to come from somewhere. That’s not theoretical. It’s not taking into account all of the cars, the new EVs that just people like you and me are buying. It doesn’t take into account any of that.

Chris Shimoda:

That’s correct.

Mark Taylor:

And so when you look at one to 200 megawatts charging stations, or one to two, what was it? One to 200 megawatt hours of charging capacity just to support those two. Is that-?

Chris Shimoda:

Correct.

Mark Taylor:

Okay. You’re talking about… That is one thing, but I mean, that’s not the entire picture.

Chris Shimoda:

That’s right. That’s right. So we were just talking about, okay, a megawatt equals about 1,000 households worth of electricity. So when you just talk about this initial first tranche of drayage trucks and what it’s going to take to charge them, you’re talking about 100 to 200, that’s 100 to 200,000 households worth of electricity. And what’s really frightening is-

Mark Taylor:

Just for trucks.

Chris Shimoda:

Just for trucks, just for those 2,000 drayage trucks. And so when you’re talking about all of the other demands that the utilities are under right now, it is pulling natural gas out of new housing construction. It’s just new housing construction period. The state has a goal of building 3 million new units within the next couple years to deal with escalating housing prices and everything else. You have mandates to move away from fossil fuel power generation to renewable energy sources.
So think about the fact that this transmission line that ran from this natural gas power plant, now that power needs to be provided by this industrial scale solar facility, offshore wind, all of that transmission. The lines from those new power sources back into residences and businesses need to be built brand new. We unfortunately have been experiencing a lot of wildfires in the state of California last several years, some of which were traced back to specifically PG&E’s, which is our… It’s the utility in Northern and Central California, covers about 48% of the state.

Mark Taylor:

It’s Pacific Gas and Electric.

Chris Shimoda:

Pacific Gas and Electric. They have been required to basically underground, get all of their aboveground lines underground so that there’s not continuous exposure to this wildfire risk that their existing infrastructure poses. So all of those priorities, in addition to electrification of trucks, are all hitting at once. And I’ve been watching the debate in our California legislature about it’s not just us that is concerned on the trucking side about the time it’s going to take for these infrastructure projects to get in place. The building industry is very vocal about their problems getting power to their projects. So there are stories about apartment complexes that are finished, ready to get tenants in, that they’re waiting years to get connected to the grid. So if you think about that in the context of 200,000 households worth of electricity, if you can’t get a apartment complex today that is built interconnected within a couple of years, that is why my skepticism about we don’t even have the people building it yet in place.
Even if we did have it, the utilities probably could not get all of that power hooked up to the grid within a year and a half. It’s just not going to happen. So that is really the practical reality, is the state of California is trying to lift several mountains all at the same time with utilities in an infrastructure that if you talk to the utilities, if you talk to the folks who regulate utilities, it’s called the California Public Utilities Commission. The way that a representative from the Public Utilities Commission phrased it at a hearing recently was, “The grid has changed more in the last 10 years than it did in the previous 100. And it has changed more in the last two years than it did in the last 10.” So it’s sort of like telescoping all of these new policies all at once. The electrical grid is just not used to transforming at the speed and at the scale. And that is really going to be a huge pinch point for all of these goals that the state of California want to accomplish.

Mark Taylor:

Right. Because the majority of electricity at this point is coal-fired, natural gas powered, that kind of thing.

Chris Shimoda:

Around the country, certainly. California, it’s my understanding, still does have some imported coal power. Lot of natural gas generation. Increasingly wind and solar. A little bit of nuclear power still on our grid. But again, you’re going to have to get away from most of those different power generation sources and just completely transform everything.

Mark Taylor:

And as I understand it, nuclear seems to be one of the better options. We are not here to debate that part today. But even that being as good of an option as it potentially could be is a 10 year… I think we’re out 10 years if the project were broken ground on today.

Chris Shimoda:

Right.

Mark Taylor:

So, tall order to find even the power.

Chris Shimoda:

To say the least. Yeah.

Mark Taylor:

I mean, well, with just the chargers are going to probably take longer than 2025 just to get the delivery of, nevermind get installed.

Chris Shimoda:

Right, right. Yeah. And the regulation is extremely complex. And I’d say there’s several resources. If you’re just trying to figure out the basics of the regulation, I’d encourage folks, shameless plug here, visit www.caltrux, C-A-L-T-R-U-X.org. We’ve put up just some basic resources to understand the regulation. It’s on our front page. Your listeners can feel free to download and at least get the initial information. Beyond that, just a word of caution. This is going to be an extremely complicated, complex process even for the most sophisticated players, because the industry is just not regularly standing up these large capital projects that involve utilities. So get good advice, seek good consultants, feel free to reach out to folks like the California Trucking Association to get compliance and advice. That’s what we’re here for. And it’s going to be a process, that’s all I can say.

Mark Taylor:

What does the small operator do? Because if you’re Amazon, yeah, it’s going to cost some money and it’s unfortunate. But if your livelihood is dependent on three tractors or five tractors, what do you do?

Chris Shimoda:

I don’t think there’s a solution today, quite frankly. Like I said, this isn’t going to the dealership and getting a 2010 model year truck. I mean, this is an entire other beast. And since we don’t have this retail model figured out, I worry about the guy who is basically parking his truck in front of his house every night. The utility is not going to come into his house and drop a 150 kilowatt charger at the house. I’ve got, in the town I live in, owner operators, construction guy, and what I think is a over the road guy, parking out in front of an apartment complex. Same sort of situation. There is not a solution for anybody who is not in one of those two charging models. Either you’ve got the depot, you own the land, or you’ve got a cooperative landlord and you’re going to do your own project and that works for your operation. Or one of these startups that are doing the shared sort of charging solution.
But it’s going to be real hard to navigate for… It’s not an industry with a lot of big players. You have your big corporate fleets. That’s actually a small portion of the trucks on the road, I think. The statistic that I’ve seen is half of the trucks in California are registered to fleets with three or fewer trucks in their fleet. When you start looking at that, I think 75% roughly are 20 or fewer, to the extent that these people are doing ports and rail. I don’t know what the solution is today for them. And that’s part of the reason why the industry is pushing back. I don’t think anybody is opposed to getting cleaner, going to zero emissions. We’ve actually, as the association, we put a proposal in front of the Air Resources Board, which would’ve been really a final mile delivery yard tractor-type regulation. Those are the solutions that we see in the near term.
There’s technology where you could conceivably comply with that sort of regulation. Standard class A tractor, sort of charging speeds you’re looking at, the lack of retail charging infrastructure. That’s really why the industry is pushing back so hard is even the biggest, most sophisticated players who have been in this space for decades now, there are companies who have been trying to get zero emissions off the ground since the mid-2000s. Nobody really sees the solutions in a lot of these different duty cycles and use cases. So the small operator, all I can really say is hopefully you’re not in this current regulation. If you’re not doing ports and rail, if you’re in high priority fleets, conceivably you could fly under the radar. But everybody should be aware that as part of the action that the Air Resources Board took in April to move this thing along, they are directing their staff to bring back another regulation by 2028 that would apply to those under-50 truck fleets.
So this is coming, this day. Whenever it does occur, there will be a regulation on more or less every single trucking fleet in the state of California, that you were talking about, the landscaper that just has some heavy duty work trucks that may be above 8,500 pounds gross vehicle weight rating. They’re going to have a regulation at some point or another. And in addition, the Air Resources Board is also doing a sales mandate that is already in effect. The manufacturers and truck dealerships are under this certain percentage of everything they sell has to be zero emissions. That regulation was passed back in 2020. And most recently, the Air Resources Board is part of this current action. They’re doing a 2036 100% zero emission sales mandate. So whether you’re currently under the fleet rule or not, there is kind of a deadline set right now, 2036. You’re not going to be able to buy an internal combustion engine truck after that point.

Mark Taylor:

And that’s what they’re trying to say. I think it was 2035 or ’36 for normal cars as well.

Chris Shimoda:

That’s correct. That’s correct, yeah. 2035 for passenger cars, 2036 for trucks. The development of the zero emission truck market, it’s tailing passenger cars by at least 20 years when you look at the development. You’ll see Teslas, depending on the neighborhood, it’s just another car these days. I think from what I’ve seen, that the Model 3 is one of the best-selling cars in the country right now. So that market is going. We are at less than 500 zero emission trucks on the road.

Chris Shimoda:

We are at less than 500 zero emission trucks on the road in the state of California today. The vast majority of those, bean delivery vans. There’s a product out of GM, the Bright Drop, that’s being acquired quite a bit by the delivery fleets. There are only 80 to 90, let’s call it, Class 8 tractors that are zero emissions running around right now. That number is going to increase. Don’t get me wrong, but we are a far cry from where the zero emission passenger car market is right now, so we got a lot of catching up to do, and the complexity of doing trucks is just so much greater than cars. We’re going to have to come up with some solutions fairly quickly.

Mark Taylor:

When Governor Newsom passed the 2035 combustion engine rule for cars, I did some looking up, and this of course would be stale at this point, it was probably stale when I looked at it, but the latest data I could find, which I think was for 2021 or 2022, was there are 14 million passenger cars registered in the state of California. Around, I think it was 1.14 or 1.4 Million of those cars are EVs. So when you think that by 2036 or 2035, that’s still 12 years out, and then whatever combustion engine cars that are sold prior are going to probably have another useful life of at least a decade, you’re effectively talking about, it was something like an 11 times pull on the power grid just from passenger vehicles.

Chris Shimoda:

That’s right. That’s right.

Mark Taylor:

And that’s within 20 something years. I mean, math can be theoretical, but not this math.

Chris Shimoda:

Right, right. The numbers are with the numbers. There’s only so many electrons, right? And what is fundamentally different about passenger cars is, you plug in into the wall, you can get a level two charger at home these days, but you’re drawing two to three kilowatts from the wall charger overnight. No big deal. Charge while you’re working. People do not appreciate how much trucks are just out there working, and the fact that we’ve got, in some use cases, a really limited amount of time to charge, I keep hearing from our construction folks, “Hey, I’m not in the same place at any given time. We’re at work sites. There are places we can’t even get diesel, so we’re having to haul it out there to the work site. Where are we supposed to get charging?”
I mean, just the complexity of the variety of ways the trucks are used. If anybody thought, “Well, we did the cars. We can do the trucks. It’s going to be just as easy,” they’re just sorely mistaken. I mean, this is a massive challenge, and so to sort of close out advanced clean fleets, I just encourage anybody that’s either in the industry or on the 3pl side, anybody who relies on trucks to get inbound or outbound deliveries done, you’ve got to read up on what’s going on right now. It is the biggest change in transformation in the industry, probably since we went from teamsters on horse and carriage to the internal combustion engine truck. It is that level of change that we’re facing right now.

Mark Taylor:

Yeah. I mean, it almost feels like we’re going to have to go back to the Pony Express to continue the efficiency. It’s like it’s going to be with the ponies now.

Chris Shimoda:

They haven’t regulated the horses yet. Yeah.

Mark Taylor:

Well, I meant the model of ride 10 miles and then get on a fresh horse.

Chris Shimoda:

Yes, there you go.

Mark Taylor:

It’s almost going to be drive 250 miles, and then get on in a fresh truck, and then just swap out the trailers, which is wildly-

Chris Shimoda:

Yeah, there’s going to be a lot of create creative models that emerge from this. And just as a citizen of the state of California, I’m shuttering to think about my grocery bill in 15 years. Just to pivot a bit, we’re in Southern California right now.

Mark Taylor:

Before we pivot.

Chris Shimoda:

Sure.

Mark Taylor:

There’s a couple questions I wanted to ask. I mean, me looking in nooks and crannies for opportunities, I feel like this is creating this thing where, in the next eight months, trucks that are certified engines are less than 13 years and less than 800,000 miles are going to be moved to California, and then they’re just going to flood the market with these things, and then your used truck market’s going to pop right up.

Chris Shimoda:

So with the way that the regulation works, there are people looking at doing that right now, but they got to be fast, right?

Mark Taylor:

Right.

Chris Shimoda:

So some of these registration requirements, it kind of freezes whatever you had in place January 1st, 2024, is what will survive through this useful life period. The problem is, I don’t think anybody foresaw the last two or three years in the truck market happening, which if you’ve been trying to acquire a new diesel truck, new truck of any kind, supply chain issues, I’ve heard that the orders from most of the major OEMs were cut by about two thirds.
So the fleets are getting about a third of the trucks that they ordered for the year, so that’s a real problem. I mean, if you’re trying to build up capacity in the lead up to this issue that everyone sees coming, the trucks just are not available in the quantities to really stuff the market. People are still playing catch up from the last several years. I think guys are still getting the trucks that they thought they were going to get in 2021 right now. So it’s not as simple as it would’ve been if not for these supply chain issues.Mark Taylor:

Just on the passenger side, if you look at Ford just redesigned their big heavy duty, super duty truck, the F250s and 350s, 450s, et cetera, they haven’t even released. So they opened up ordering for these things last October, and come now, they only just started shipping their three highest level of trims, because they said, “Look, we have to do everything we can to get the lower level trims serviced first.”

Chris Shimoda:

That’s right.

Mark Taylor:

So it’s likely they’re not even taking orders for your higher end 2023s right now. They’re just going to wait until your 2020 fours are up, and then people can start ordering them again and then get them in a year.

Chris Shimoda:

Right, right.

Mark Taylor:

And that’s just for a passenger vehicle.

Chris Shimoda:

Yeah. The capacity issues, not to dive too far into the weeds with what I’m hearing on compliance strategies, but it’s basically leverage that useful life period, try to write things out. See there’s some sort of miracle on the technology side that’s going to make this doable, but even the biggest players that I’m talking to, it is a mitigation strategy. It is not a, “We’ve got the silver bullet.”

Mark Taylor:

No, no. Not at all.

Chris Shimoda:

“Yeah. We’re going to move forward on X, Y, and Z compliance strategy,” and that’s the unfortunate part, is I’ve never been involved in a regulation where I went to the [inaudible 00:57:26] resources board and told them, “Look, I think the noncompliance rate with this rule is going to be close to 100 percent, because nobody has the solution right.” Now, that may change. You never know. Technology is moving very fast, but some of these problems are intractable. When you start talking about 10 to 13 years for a utility to build the substation, there’s nothing much that a fleet can do about that. That’s out of their hands.
And so I just shudder to think, trying to make investment decisions, multi, tens of millions, hundreds of millions of dollars in capital infrastructure and business planning around your knowledge of nascent technology that you may not get your charging for 10 to 13 years. What is the world going to look like in 2025? Is it going to be, “Hey, I entered into this big old contract to get this power, and now suddenly it’s hydrogen fuel cells are the thing,” right? That’s the kind of risk that you’re facing as a business right now, subject to this regulation. And why I say seek good consulting, really be strategic about the way you approach this. The chance of huge losses and making wrong decisions is very high.

Mark Taylor:

And something I wish I had pointed out earlier is why the listener in Texas, Kentucky, or wherever else should be really paying attention to this is, because what happens here typically bridges over to the East coast, and then slowly it starts to fill into the middle.

Chris Shimoda:

That’s right. That’s right.

Mark Taylor:

And so I think this is important and should be on everybody’s radar. One thing I do want to, before we, and we’ve been going an hour just on this first topic-

Chris Shimoda:

Sure.

Mark Taylor:

And so my question, I just want to briefly talk about what is at stake, excuse me, for the state of California right now.

Chris Shimoda:

Oh, boy. Yeah. I mean, let’s talk about, at a high level, I was just on a panel at this international conference on electric vehicles, and the title of the panel was Lead in the Way on Medium and Heavy Duty Electrification. My tagline was, “You can’t be a leader if nobody follows, and if we get this wrong, we’re not going to be a leader. We’re going to be a cautionary tale,” and I’m close enough to this whole process where I’m leaning towards the latter, rather than us being the leader. The world is really watching what California is doing, and I think the average person would be a little shocked by the behind the scenes lack of preparation to get ready for this transition.
So at the highest level, California, for decades, has been the leader in leading transitions to cleaner energy sources, new emission standards, really pushed the zero emission car market with its regulatory standards. This one, I’m afraid the state may have bitten off more than it can chew. When you talk about a third of the state’s economy and jobs being tied to goods movement, one in nine jobs in southern California tied to the ports of LA, you’re talking about working class people that are going to get hurt in multiple ways, their jobs, the cost of living.
I think about what this is going to do to the cost structures, the loss of efficiencies, our drivers sitting there two to four hours every day on duty, charging. It’s incalculable to the citizens of the state of California. I pay my bills here in the state. I’m worried as a private citizen as far as, like I said, I was joking about my grocery bills, but it’s true. We’ve had a lot of inflation in the state, just from everything happening in the last couple of years. The general public doesn’t understand business regulations unless it’s right in front of their faces. When I started my career at the trucking association, and I’d have discussions with friends that are in rail, warehousing.
We used to always say, “People don’t really understand what we do. Supply chain’s underappreciated,” and then the pandemic happens. People can’t get toilet paper, and suddenly everyone’s a supply chain expert. But that is really, I think, an illustration of when things break down and the costs are getting pushed to the consumer, they are starting to notice, right? Supply chain, I think, was tagged as 1% inflationary driver during the depths of the pandemic. I saw that statistic from the White House. This is not something that the general public is not going to, they’re just going to say, “There was some regulation.
People complied with it. It’s fine.” You start looking at what it takes to transition to zero emission on the trucking side. You’re going to see it in every conceivable aspect, and not just the Amazon package. I keep trying to educate any audience I go speak to that doesn’t understand the supply chain. Supply chain is housing. It’s agriculture. It’s the food that you get in your grocery store. It’s the health of your agricultural markets getting to their export partners in other countries. It is things like, there was a supply chain manager from the biggest hospital system in the state of California, who was at one of these conferences I was speaking at.
He said he gets truckloads at his hospitals every single day for the supplies that the surgeons needed, that they only ordered two to three days prior to the procedure. They’re sending truckloads into hospitals with medicines and all sorts of supplies every single day. It is in every walk of modern life, and when you disrupt that system, I have my good friend, Fran Inman, from Majestic Realty always says, “It’s a system of systems, and when one part starts breaking down, you’re going to see it in everyday life.” That’s what’s at stake. I mean, The voters and the consumers in the state, if this thing does not work, it is not going to go unnoticed.

Mark Taylor:

Well, not only will it not go unnoticed, you’re talking about, I think in 2021, ’22, a lot of the containers got re-diverted, got diverted over to the east coast.

Chris Shimoda:

Right.

Mark Taylor:

And the east, in my opinion, many of the ports probably, hopefully they learned, but I think they squandered an opportunity. I mean, they just weren’t ready, and they don’t have the capacity. We were speaking before we started recording, but you’ve got the natural deep water aspects of the port of LA and Long Beach, coming in the Pacific side, and just the incredible infrastructure of highways that were built. The East coast just doesn’t have that quite yet, but they’re dumping a lot of money in to get it there. And so at current, you have about 40% of everything imported into the United States, coming Port of Long Beach and LA, and even a couple percentage points off that changes things in a big way.

Chris Shimoda:

It does.

Mark Taylor:

I mean, it has a very disproportionate effect for the most populous state in the union.

Chris Shimoda:

Yeah, and this is actually a great segue into, it’s not just this advanced clean fleets regulation. The state of California seems to be doing as much as it can to scare away the cargo. One of the other examples, we are actually in active litigation over a piece of one of these regulations, so I can’t dive too deep into the subject of warehouse indirect source rules. But there is another proposal. Actually, a suite of proposals on both rail yards and ports. It would behoove your listeners to get familiar with the phrase “indirect source rule,” and what this really is, just to put this into plain English, is so federal EPA and California via this waiver process are supposed to be the only actors who can regulate mobile sources, as they’re called. So trains, trucks, anything that moves is supposed to be the domain of federal EPA in California if they submit this waiver.
So, back in 2020, was it 2020, 2021 timeframe, where we’re sitting here in Southern California, the local air district where there are local air regulators whose responsibility is predominantly stationary sources, your large industrial emitters. Think, refineries, cement plants, those sorts of facilities. Their traditional domain was to regulate those stationary sources. Now, the regulatory agency in Southern California decided, “We want to get into the business of regulating mobile sources. Truly, trucks were their first target.” And they came up with this novel strategy to say, “No, we’re not regulating the truck. We’re regulating the warehouse, and trucks just so happen to visit the warehouse, so we’re going to make the warehouse responsible for cleaning up the truck.”
It was a neat slide of hand that is currently subject to litigation. We are actually waiting for a decision out of a judge on a motion for summary judgment, as we speak on that. But where that has spread is we are seeing other states trying to follow suit, adopting similar warehouse rules. I think this is of the theme, due to the success and greater visibility of the supply chain, and specifically warehousing, you’re starting to see a lot of these attacks. It’s moratoriums on new buildings. It is indirect source rules, trying to extract money and using warehouses as a method of regulating trucks. You’re starting to see this spread into other areas.
New York had a bill in two consecutive legislative sessions. I was made aware that Oregon was considering one today. The state of Colorado, and then the Air District down in San Diego actually just had a hearing on this last week, so you’re seeing this concept spread, number one. You’re also seeing the same concept being applied to the ports, where the air district actually just announced their plans for regulating the ports of LA and Long Beach, where they want to do this port indirect source rule that would impose an emissions cap both on, both port authorities as a whole. Then, it would also do terminal specific caps. Those caps would be in place for the years 2031 and 2037. I won’t bore the audience with the details about why those are the years.
They’re special years for the air regulators, where they need to submit plans to the federal EPA. But the level of reductions that you would need to get in this regulation, what I’ve been told by my counterparts at the Pacific Merchant Shipping Association, the cuts are so deep, it would become a defacto, basically, a limit on throughput through the ports, which is an extremely frightening proposition. When you say one in nine jobs tied to the ports of LA and Long Beach in southern California, you’re talking about just devastating impacts to the working class here in Southern California. We’re sitting in the Inland Empire right now, a whole infrastructure that’s been built up to get cargo from Asia to destinations around the United States.
I mean, it’s almost unfathomable that any regulator would be looking to move in this direction, but they are. And so, again, what’s keeping me up at night right now is, it just does not seem to matter how much emission reduction we achieve. The ports of LA and Long Beach are a great example. Through largely voluntary measures and working with the industry, they’ve got the numbers. They will show you, diesel particulate matter from trucks reduced by 96%. Nitrous oxide emissions, 90 plus percent reductions. Greenhouse gas is falling. But that just does not seem to matter. The regulators seem to be getting more aggressive the closer we get to these clean air goals, not less aggressive. And so we really need to, as an industry, be able to navigate through this.
I think we need to be more vocal about telling the story about how supply chain and logistics, especially in the state of California, it is not a dirty industry. There is a 20-year history of pretty astounding environmental achievements, just massive cuts in emissions over that time period, but to get to this next phase, where it’s now no longer cleaner internal combustion, we’re trying to go zero emissions. It’s the law of diminishing returns and all things. We’re going to be reducing a very small amount of emissions for, name the multiplier of cost and complexity and difficulty, and that’s the tension that we have right now, as an industry, is getting to the last little increment is going to be real tough. There’s even some indications that some of the opposition is not even just to the emissions, but that there just seems to be an anti-industrial development sentiment period, is what you’re seeing.

Mark Taylor:

I think I would be remiss also to mention that the mining of the minerals that goes into these batteries-

Chris Shimoda:

Right.

Mark Taylor:

Not so great.

Chris Shimoda:

Yeah.

Mark Taylor:

I mean, not only in terms of, I guess if it’s ruining somebody else’s air or it’s somebody else’s teenage, child labor, or whatever.

Chris Shimoda:

Right, right.

Mark Taylor:

But I guess it’s certainly not here. Again, we’re not talking about there today.

Chris Shimoda:

Yeah, yeah.

Mark Taylor:

Can you go a little bit and describe the actual, the ISRs? Let’s actually kind of get into the weeds a little bit about what does that mean for an operator that’s got more than 100,000 square feet, and then I believe, as it always is, the plan is never going to be to just stop at that threshold. It’s also going to be to move down to the operator that’s got 5,000 square feet, eventually.

Chris Shimoda:

Right? Yeah, the concept now that it’s in place, anybody who’s operating any sort of warehousing space needs to be familiar with these rules, but the current rule in place in Southern California, what’s being battered around in San Diego and others, it is a rule that would apply to 100,000 square foot facilities and more, and at least, I believe that the threshold is like 50,000 feet of that facility needs to be dedicated to warehousing, so if it’s predominantly an office building with a little bit of warehousing, it’s not going to apply. But if you are above 250,000 square feet, you’ve been subject to the rule since, let’s see, it would’ve been 2022. This year, the folks who need to start, it’s basically, if you’re in one of these facilities, you need to be tracking truck trips in and out of the facility, there is this menu of options where you can get, it’s basically a point system by taking certain actions.
You need to be tracking all of that already if you’re in a facility above 250,000 square feet. We crossed the year threshold, where if you are 150,000 square foot or larger facility, you also now became subject to the rule. This coming January, January of 2024, the 100,000 plus square foot facilities will fall under the regulation. So if you’re in Southern California, it’s basically the air basin runs all the way up to the Ventura County line, as far south as Orange County, out into Imperial. You need to be paying attention to what you need to do for this regulation. It’s already in effect, subject to litigation. Don’t get me wrong, but there needs to be somebody who is tracking the regulation for the purposes of compliance, at least until these legal issues get hashed out.

Mark Taylor:

And so I want to bring up a couple of things here.

Chris Shimoda:

Sure.

Mark Taylor:

Tracking, at what level, because as I understand it, we are all supposed to be tracking the VIN numbers of the truck that comes into the yard?

Chris Shimoda:

On a per-truck-trip basis, so there is sort of two facets to this. Your compliance obligation is based upon the truck.

Chris Shimoda:

So your compliance obligation is based upon the actual truck trip volume in and out of your facility. There are technology providers who are coming in with solutions. Yard management systems will track all this stuff for you. You can do representative samples. That’s in the regulation as well. So that will create your compliance obligation. How many trucks are coming in and out of the yard? To get the points, it doesn’t matter that the truck visited. One of the compliance options, the main one that the district is really after, is, they want to see low NOx, it’s natural gas trucks, 0.02 gram certified engines, or zero emission trucks coming in and out of the yard in order for you to get points against your compliance obligation.
There are other options, solar mitigation fee option, you just pay your way out. But again, very complex. They’re really after the turning over of the trucks, or you pay, is the bottom line with this thing. So again, if you are a facility, I’d say, people with even 100,000 square feet, you need to start figuring out what you’re going to do for compliance now.

Mark Taylor:

Right.

Chris Shimoda:

Given the fact that you’re going to actually have to start taking actions on January 1st, 2024, so another one of those seek good consultants. There are some people trying to provide technological solutions, at least for the tracking portion. But truly, again, in our view, just from the association level, this is just an authority and money grab by the air district. This is upending 50 years of the federal EPA in California being the ones who regulate mobile source emissions. So we are challenging it at the moment. This is not something that we want to see spread to the rest of the country.

Mark Taylor:

I have heard. But of course, as you know, it’s like a group of kids playing telephone. One person says something, then it comes to the next, and by the time it gets back to you, that’s not what it started as. Is it such that, for instance, I think one of the things that you get is if you have an electric forklift fleet, but if you had it before the rule went into effect, you don’t get the points unless you switched over? Is that?

Chris Shimoda:

Yeah. Boy, this starts getting really complicated. The state of California, and this is why we argued with the Air District, is just so redundant. The state of California, at the Air Resources Board level, they’re adopting zero-emission forklift regulations, they’re adopting zero-emission truck regulations. So what’s required to get the points is that you must go above and beyond whatever the regulatory authority is by the state or federal government. If they required you to do it, you can’t get the points. So it becomes unmanageable at a certain point, especially if you’re just a pure 3pl. You don’t own-

Mark Taylor:

You don’t own any of the trucks.

Chris Shimoda:

… any of the power to know whether or not you’re supposed to be taking credit for the truck visit. The other complexity is, you can’t use publicly funded trucks. So if these trucks are subject to, the truck owner got a grant from the state to buy the truck, I don’t know how you’re supposed to know that as the person receiving that truck. But those are also not supposed to be used for compliance obligations. It’s basically double counting of emissions because they already gave credit in the grant for the emission reduced. So this is a classic example of why we don’t regulate these pieces of equipment in this way. It just becomes almost impossible to manage for the guy that’s just trying to get the freight in and out of their facility. It’s again,-

Mark Taylor:

You also end up, I know some of the point or the points you can earn back is if you put solar up, if you put a charging station in your yard, and things like that. But the vast majority of operators do not own their building.

Chris Shimoda:

Right.

Mark Taylor:

It’s not on the construction.

Chris Shimoda:

Right.

Mark Taylor:

It’s not on the construction team.

Chris Shimoda:

Right.

Mark Taylor:

It’s not on the building owner.

Chris Shimoda:

Right.

Mark Taylor:

So here I am, and they don’t care.

Chris Shimoda:

Right.

Mark Taylor:

So if I put a charger out there, that’s on me,-

Chris Shimoda:

Right.

Mark Taylor:

… and I’m not pay to uproot it.

Chris Shimoda:

Right.

Mark Taylor:

It’s a weird one.

Chris Shimoda:

To get into at least one technicality that I think that I can, the intent of the district, and it’s throughout the record as they were adopting the rule, was we wanted to get into the business of regulating trucks. A lot of these other options were done simply so it wouldn’t look like a truck regulation. So to the extent there are complexities with the landlord-tenant relationship, I know there’s a lot of rooftops that don’t even support solar. That was always the intent. It was like, “We’re going to get the trucks. We’ve got to put this other stuff in there to make it look like we’re not trying to get the trucks. Also, wouldn’t it be nice if we could extract fees out of these facilities?”
Again, the curse of our success, the industry is just a big target right now. It’s something that I don’t think this is an exclusively California phenomenon. I think that you’re going to see a lot of attacks as the logistics industry grows in other areas. Because the same advocacy groups that we battle with on a frequent basis, they’re in every state, so the playbook that they play here is going to be played out identically in other areas.

Mark Taylor:

Somebody once told me it’s like you’re a leader, and whether you use that trade as good or bad, people are going to watch and mimic.

Chris Shimoda:

Right.

Mark Taylor:

So the whole world is watching, as you pointed out, California, for how we’re rolling out the emissions thing. The whole world is also watching how to do the play-by-play to enact this in their home state.

Chris Shimoda:

That’s right.

Mark Taylor:

So it goes both ways. Those powers can be used for good or not less good,-

Chris Shimoda:

Right.

Mark Taylor:

… anti-business good.

Chris Shimoda:

There you go.

Mark Taylor:

I think it is important, and you’ve mentioned it earlier, nobody wants nasty air. We all live here. We do the same. We work here, we live here, we have families, those sorts of things. Nobody’s advocating for, “We want a rollback.”

Chris Shimoda:

Not one bit.

Mark Taylor:

I think it’s really important to look at these things, and eventually, one of the things that makes the United States such a great country is the ability to start a business here. The ability to have that thread of entrepreneurship, and for the American dream, an everyday Joe can get a house and have two cars, that kind of thing, and a family. Entrepreneurship plays such a big part of that. So many people go the route of never becoming an Amazon, a Walmart, or anything like that. Not that that’s a bad thing, but of just providing for themselves, being active in their community, being able to raise their children, that kind of thing. Invariably, every single one of these things we’ve talked about today is cost prohibitive for the small business owner.

Chris Shimoda:

Right.

Mark Taylor:

I’ve heard guys joke at an IWLA meeting. It’s like, “Oh, if somebody operates 100,000 square feet,” I heard the joke, like, “I barely believe that they’re able to afford to even come to this conference.”Chris Shimoda:

Yeah.

Mark Taylor:

Because it takes a certain scale before you start to make any kind of money.

Chris Shimoda:

Right.

Mark Taylor:

So I think even depending on your work, you could be operating a 250,000-square-foot facility and just be barely scraping by.

Chris Shimoda:

Right.

Mark Taylor:

So those are considerations that I don’t think it’s practically thought of. It goes back, walk a mile in my shoes, kind of thing. So we’ve covered a lot of good, excellent stuff. I really appreciate that. I want to talk about one more thing and maybe speak to AB5 a bit. Because during times when the broader public wants to protest and do something in spite of mask mandates and six-foot laws, it’s embraced. But when a small group of truckers affected by AB5 does it, they’re shut down.

Chris Shimoda:

Right.

Mark Taylor:

I don’t want that to push it too far one way or the other, but that’s the way it seems.

Chris Shimoda:

Right.

Mark Taylor:

I think even I’m ignorant exactly as to what does AB5 really mean.

Chris Shimoda:

Sure.

Mark Taylor:

Why have all these other industries are not… Why have all these exceptions been carved out? But why are the truckers still in there?

Chris Shimoda:

It boils down to there have been efforts to try to unionize drivers in certain areas of the industry for a long time. The regulations around, again, not to bore the audience, National Labor Relations Act, and owner-operators are not subject to the rules of unionization. It’s actually considered an antitrust issue to collectively bargain rates if you are an independent business operator. So this is a very longstanding struggle within the trucking industry. Goes back decades. This was not a new fight for us. What happened around the passage of AB5 was, when you saw the proliferation of the gig economy model through the gasoline on the fire of the whole debate, a bill ends up getting introduced, ultimately passed.
AB5, it imposes this A, B, C test on worker classification that basically makes it impossible for an independent contractor to be in the usual course of business of their potential employer. So why the carveouts? I think the bottom line is, there were certain industries that the political powers that be were really targeting, with that rule, gig economy being probably 1A, trucking, I’d say, I’d argue it was 1B. Again, this is a struggle that has gone on in the industry for a very long time.

Mark Taylor:

Just really quickly, what does AB5 do?

Chris Shimoda:

So what AB5 does… So the A prong basically says, in determining whether or not a worker is an independent contractor or an employee-first test, the A prong is right to direct and control the work. That’s not a new test. It’s been part of all worker classification tests for a long time. The C prong is basically the ability to operate as an independent entity. The B prong is always the one that is cited as the one that basically makes this a de facto employment mandate because an independent contractor has to be operating outside the usual course of the hiring entity’s business. If you go back and read the decision that started this whole mess, it’s dynamics. In the dynamics decision, the court actually cited the ability to pass that B prong, the usual course of business. They cited the electrician coming into a retail storefront, the plumber going into a lawyer’s office. That’s how far afield they interpreted the B prong, how far the relationship has to be between the two entities.
So if you look at the practical fallout just last week, and there’s a whole history of the California Trucking Association litigated the issue, received a preliminary injunction, which was lifted after the Supreme Court denied our petition for review last summer. The fallout has just been slowly rolling out. There was a group of owner-operators who have been contracting with the city of Los Angeles to do public works for what they say is a 130-year-old program. Those owner-operators received notice that the City of Los Angeles was going to be suspending that program due to AB5. So it’s an example of, apparently, the city of Los Angeles felt that this was in the usual course of their business, that they had legal exposure by continuing on hiring these independent truckers. So they have discontinued the program of hiring those folks.
So it’s really just, again, for the 70,000 roughly owner-operators, there’s not an exact number out there. That’s our best guess based on some of the OOIDA published numbers. We think it’s in that neighborhood. Based on that, in vehicle registration, that’s 70,000 out of 470,000 out of roughly 400,000 class A trucks. It’s a good chunk of the capacity.

Mark Taylor:

Sure.

Chris Shimoda:

We’ve seen, these are not anecdotes. These are real stories. There was an owner-operator from the Sacramento area actually who was part of the American Trucking Association’s road team. She has moved out to, I believe, it was Missouri, to continue operating as an owner-operator. One of our co-plaintiffs in the litigation is a guy by the name of Tom Odom, a lifelong Californian making the move to Texas to continue being an owner-operator. You just talked about entrepreneurship, the American dream of owning your own business. What gets lost in a lot of these debates is, you don’t start big. You start small with the investment you can afford and you build yourself up. That’s really been the history of trucking for as long as trucking’s been around. Some of the biggest fleets in the country started from a single owner-operator.
Fascinating crossover with the port industry. The shipping container was, if you believe the story, invented by an owner-operator trucker. The history of trucking is replete with all of these stories of these guys that started with one truck, worked hard, built up these big enterprises. Our member president of the association last year was an owner-operator who actually worked for our member president, that was the president about three or four years before him.
So that’s the tale of the industry, and it’s really unfortunate that what I really observe is that, and it’s no knock on college-educated people. I went to a four-year university, live in a classically progressive California town. But it’s the disconnect between that class of folks and really understanding where entrepreneurs in small business, and especially working-class entrepreneurs, how they come to be. They’re not being exploited. The Owner-Operator Independent Driver Association is now, they’re not complaining if they’re intervener in our litigation against AB5 because owner-operators do not want to be employees of trucking companies. They could get company driving jobs at the drop of a hat.

Mark Taylor:

Right.

Chris Shimoda:

Every single employee-based fleet is always looking for experienced drivers. Typically, your owner-operators are going to be guys who started as company drivers, gained experience in the industry, and then went out and did their own things. So again, it’s just very unfortunate that the voice of the workers themselves continues to be ignored. From the guys that protested down at the ports of Oakland and port of LA and Long Beach last year to these guys honking their horns in downtown LA on that public works issue, repeatedly the owner-operators are showing up saying, “We don’t want this.”

Mark Taylor:

Right.

Chris Shimoda:

Hey, reform it. Get some of the bad practices out. We’ve tried to work on those sorts of compromises with the state, but do not foreclose the ability. Again, as a fan of fascinating, we got lumped in with some of these other industries because I say an Uber driver’s probably not going to start the next Uber, but an owner-operator driver may start the next Knight-Swift or other big company. That is the history of trucking. So upward mobility for the working class guy who’s willing to work hard and put his own assets at risk. Something gets lost when you foreclose that opportunity, and it’s just really unfortunate.

Mark Taylor:

Yeah. I think with that, what can people do? How can people get involved? And I think you’ve repeatedly very smartly said, “Talk with people who know.” So consultants, those sorts of things. But how else can people get involved?

Chris Shimoda:

I’ll just put a plug in for the California Trucking Association.

Mark Taylor:

Absolutely.

Chris Shimoda:

Obviously, we’re a membership-based organization. We’re out there fighting for the industry. That is one way to get involved. But also, I just say, for anybody involved in supply chain logistics, goods movement, we really have this moment of opportunity where we’re at the center stage that came out of the pandemic, and we’re in the center stage for less beneficial reasons these days. The regulators are getting very aggressive on us. But have discussions with friends and family. Get involved with your local legislators. If you want to understand how all this stuff comes to be, join your trade associations and get active. That’s really what we do, connect the industry’s stories and individuals with policymakers to try to influence these things. Without the involvement of the industry, without the time and investment, none of this stuff is going to change because, again, there is this disconnect between, let’s call it, the college-educated young professional crowd who does not understand how the Amazon package actually shows up on their doorstep, how food gets stocked in their store.
That’s really our role in the industry to say, “We are not just an environmental problem. We are jobs for the working class. We’re opportunity for entrepreneurs. This is an industry that, as many other industries have been outsourced to other countries, we’re still the big player on the working class side of the equation. We can’t be outsourced. Supply chain logistics is never going to go away.” So tell that story. Get involved. Don’t hide out in your offices and in your homes. Be your own advocate and storyteller. Hey, you starting this podcast is a great example of getting the story out. That’s the only way that things are going to get better.

Mark Taylor:

Do you have suggestions for when people start to engage with their local legislators and things like that? Do you find people are going to gain more to really write into the governor’s office, show up to town hall meetings? What are some of the best practices to get more of these conversations out there?

Chris Shimoda:

That is a phenomenal question because a lot of times you can become a drive-by political commentator, which you really don’t want to do. Think about engagement with policymakers. I am talking to business people all the time, and I say, “If you’re trying to make a sale with a customer, you don’t write a letter to them or go yell at the guy to, ‘Please give me your business at a town hall.'” It’s a relationship-based thing.

Mark Taylor:

Right.

Chris Shimoda:

Politics and policymaking is no different. It really is a matter of building a relationship. Start at the local level. If you’re more comfortable getting engaged in city council, board of supervisors, get to know your local assembly. In state of California, we have the Assembly and Senate. Show up, show your face, let them know what you do. The fact that you employ X amount of people in their district, bring X amount of taxes, it’s really just starting very simple and building that relationship.
Just like, again, a businessperson trying to make a sale, bring in a new account. Those investments in time matter. They pay off. Just like with sales, it may not happen next week, it may not happen in five years, but maybe six years down the road, all of a sudden, that investment pays off. Think of it very much in the same way. Just spend the time, build the relationships, make sure that you’re putting your story in front of these folks in a really calm, rational way, speak to them in their language, and that’s really how you gain political influence. They don’t know your problems. They’re hearing everybody’s problems every day. So you’ve got to invest the time and effort to make sure that they know what you do.

Mark Taylor:

Yep. So once again, any plugs you want to throw out there? You’ve already said a couple. How do people find you? How do people stay in touch, or how do they follow what you’re doing and what’s really on there?

Chris Shimoda:

Yeah, absolutely. So I’d suggest, again, our website, www.caltrux.org. I’m also on LinkedIn. I’m very active there, Chris Shimoda. If you search, you’ll find me active on Twitter as well. My handle is @chrisshimoda. Just feel free to reach out and get engaged. I’m always happy to talk to folks in the industry about what’s going on and just want to put a plug that we can’t do it alone out here. Don’t abandon the state of California. We really need the folks in the industry to come out and say, “Hey, look, this is who we are. This is what we do. We’re not this faceless industry.” Your friends and neighbors, everybody knows a trucker. Everybody orders stuff off of Amazon. We just need to humanize what it is that we do if we’re going to mark change, even in a state like California.

Mark Taylor:

For any warehouse operators out there, I will also plug the IWLA,-

Chris Shimoda:

Absolutely.

Mark Taylor:

… International Warehousing Logistics Association, or Warehouse and Logistics Association. A great organization works closely with you guys as well.

Chris Shimoda:

Absolutely.

Mark Taylor:

So thank you, everybody, for listening, and thank you, Chris, so much for being here. It’s like overload in the brain right now.

Chris Shimoda:

Thanks for the invite, Mark.

Mark Taylor:

Absolutely. Bye-bye.