Industry observers examine the ramifications of a potential U.S. freight railroad strike

With uncertainty swirling in regards to the possibility of a national railroad strike, as the 12:01 A.M. September 16 deadline marking the end of a 30-day cooling off period between the 12 United States-based railroad labor unions and six largest freight railroad carriers (even though 10 of the 12 unions have reached tentative labor agreements) continues to get closer, the ramifications of a potential strike are weighing heavily on supply chain stakeholders.

As previously reported, 10 of 12 railroad labor unions have reached new deals with U.S.-based Class I freight railroad carriers. These agreements followed the announcement of the recent appointment of the Presidential Emergency Board (PEB) appointed by President Biden, which is focused on resolving this ongoing labor dispute. The August 16 release of the PEB’s recommendations, which include a 24% wage increase over the five-year period from 2020 through 2024, coupled with a 14.1% wage increase that is effective immediately, as well as five annual $1,000 lump sum payments, with a portion of the lump sum payments are retroactive and will be paid out promptly upon ratification of the agreements by the unions’ membership, according to the National Carriers Conference Committee.

Brooks Bentz, LM contributing editor and supply chain consultant, said the current situation represents complex issues—not just in this current round—for the entire time unions have represented employees, explaining that there is “inevitable tension” between management and labor, with each party having different motivations and goals like reducing costs versus improving earnings and dues.

“The timing for a potential strike is not auspicious,” said Bentz. “The economy is wobbly, inflation is higher than anyone wants, and supply chains will be hard-pressed to sustain themselves without rail service, both carload and intermodal.  Adding to that, a pivotal election on the horizon, so both sides would be well-served to find a way to avoid the disruption this will cause, even if it means more compromise than desired in this round. A strike, if it occurs—and it looks like it will—is likely to be of short duration.  Politically and economically, it would be harmful to many and beneficial to few.  The President would like order the workers back to duty, with a cooling off period of some duration, typically about 90 days. Statesmanship, at any level, is becoming a lost art, but if there ever were a time for it, that time is now, on all sides—labor, management and political.”

Josh Brazil, VP of Supply Chain Insights for Chicago-based supply chain visibility services provider project44, agreed with Bentz, in that a strike may not last for too long.

“A full-blown strike is not too likely for two reasons,” said Brazil. “Firstly, a strike would be a major blow to the U.S. economy, so the Biden administration and Congress will do everything in their power to ensure that both sides reach an agreement before Friday’s deadline. Secondly, if an agreement is not settled, congress still has the authority to stop strike action via the Railway Labor Act.”

As for actions shippers could take to hedge their operations and rolling stock should a strike come to fruition, Brazil noted that presents a difficult situation, with nearly 30% of the nation's freight transported by the freight rail system, adding that other modes—truck, and air freight—would not be able to take up the capacity of even containerized rail freight let alone all of the commodity, grain, fuel and chemicals.

When asked about the short-term and long-term impacts of a strike related to rail service, Brazil said short-term impacts are already being seen as some services carrying hazardous material and expensive cargo are being taken offline as a precautionary measure, as well as Amtrak commuter trains also being delayed. 

“In the long term, this should be a wake-up call that the rail freight industry desperately needs to make rail jobs more attractive to the next generation,” he said. “Rail employment numbers have plummeted more than 20% in recent years and all the while U.S. ports are handling record-breaking amounts of trade. The two trends are simply not compatible. Now more than ever, companies will need to be armed with accurate, accessible data to make informed decisions if challenges such as this one occur. In order to stay current with industry standards and modernize the rail industry, real-time visibility and data sharing are essential components.”

Looking at the impact of a railroad strike on supply chain throughput, Spencer Shute, Principal Consultant at Proxima, a Chicago-based strategic team of procurement specialists, said that it would have a significant impact on the nation’s supply chain in short order.

Some examples of this he cited included the likelihood of increasing trucking rates, as well as delays that he said could become quite extensive as a backlog begins to build.

“We’ve already seen embargos announced to prevent freight from getting stuck in the intermodal network,” he said. “This could be catastrophic for the U.S. economy which is why the government is working to prevent any type of shutdown. Businesses are going to see rates increase quickly and capacity drop significantly. Automotive, fertilizer and food (primarily dry goods) companies move a significant portion of their volume via rail. Any strike could result in shutting down around 30% of the U.S. freight movement.”

What’s more, Shute said that given the state of supply chain there is little that could have been done as an alternative to alleviate the challenges a strike will present.

“Rail moves a significant amount of product every day, roughly the equivalent of what 467,000-plus long-haul drives can move,” he said. “The shortage of truck drivers already occurring in the U.S. means a solution would have been started long ago. Congress has the power to block or delay a railroad strike and can vote to appoint a panel to resolve the remaining unions agreement discussions. However, any action by this administration will likely face criticism as they would likely go against unions to resolve the strike but already facing a struggling economy heading into the mid-terms which puts the pro-union administration in a bind.”