How California's aesthetic regulation created a supply-chain crisis in US

It could be the tweetstorm that saves Christmas.

Last Thursday, Ryan Petersen, the chief executive of logistics company Flexport, rented a boat to get a close look at what was happening at the port of Long Beach, California. Friday, he took to Twitter to report what he’d learned about why two of the nation’s largest ports — Long Beach and Los Angeles — have come to a virtual standstill.

“In a full 3 hour loop through the port complex, passing every single terminal, we saw less than a dozen containers get unloaded,” he wrote. There were plenty of cranes, he observed, but nearly every spot holding containers was filled. With empties clogging the available space, new containers carrying goods from sea or land had nowhere to go.

The result was a supply-chain logjam on an epic scale. “The ports shutting down is worse than Lehman Brothers failing,” Petersen warned in a follow-up tweet. “Both can lead to catastrophic failures of all counter parties depending on them.”

It turned out that the main problem wasn’t an absolute space constraint but a local zoning regulation. Long Beach prohibits companies from stacking off-loaded containers more than two high. The law is not a safety regulation but an aesthetic one. City officials decided that stacks of containers more than eight feet high were too ugly to tolerate.

The situation exemplifies why the formerly can-do state of California has become such a difficult place to build anything, including an upwardly mobile life. In the name of protecting local vistas, a seemingly minor rule got enacted that exacted enormous aggregate costs far beyond the immediate area. The voters in Long Beach gained a modest improvement in the view while the entire national — indeed global — economy suffered from less efficient shipping. (The Port of Los Angeles is two nautical miles from the Port of Long Beach, and the two account for about 40% of U.S. container traffic.)

It’s a classic example of a well-recognized issue in political economy. The benefits of the policy are concentrated while the costs are dispersed, spread out among tens of thousands of businesses and millions of consumers. Under ordinary circumstances, most of those hurt have no idea what’s happening. Only in a crisis does anyone beyond a few industry insiders recognize the harm.

Petersen’s tweetstorm made that inside information public at a moment when political leaders, including President Joe Biden and California Governor Gavin Newsom, had issued executive orders aimed at alleviating supply-chain problems. Instead of a self-interested corporate chieftain, Petersen came off as a voice of common sense speaking for the public interest. Almost immediately, Long Beach’s city manager waived the stacking restriction for 90 days, allowing four or, in some cases, five containers in a single stack. (Petersen had recommended a limit of six.)

Although people elsewhere may think so, Californians don’t hate business. But they’re myopic, especially if they’ve lived in the state for decades. They love California’s lifestyle so much that they tend not to think about the consequences of even seemingly small restrictions — especially if those affected aren’t already in the neighborhood.

How could it be bad to require a new apartment to include a couple of parking places? Or to limit the heights of buildings on commercial boulevards to 45 feet?

The California Environmental Quality Act, better known as CEQA, was designed to protect air, water and open space. But it has become a tool for blocking new urban housing and even construction designed to get homeless residents off the sidewalks.

It didn’t take long for Southern California housing advocates to draw the parallels to the port debacle. “I’m still laughing about how a key contributing factor in the global supply chain crisis is a local ordinance meant to protect people from seeing the boxes that all of our junk from Amazon arrives in,” tweeted Culver City Mayor Alex Fisch, an advocate of easing restrictions on housing construction.

Venture capitalist Andrew Reed drew a more direct comparison. Atop a drawing of two men arm wrestling, he posted a meme reading: “Stacking more than 2 units on top of each other can solve a lot of our problems.” One arm was labeled “Shipping containers,” the other “Housing.”

What California needs now is the equivalent of a boat tour of the entire regulatory harbor — and the public willingness to heed its lessons. It shouldn’t take a national supply-chain crisis to remind us how destructive Nimbyism can be.