Why a Possible Railroad Strike Would Cripple the Supply Chain and Encourage Inflation Fears

National Railroad Strike

A possible national railroad strike is looming over the U.S. supply chain and adding to the inflation fears that have rocked markets this week.

Major freight railroad operators have already warned that they are preparing for a possible strike and halting some services, creating network slowdowns.

Railroad stocks such as Union Pacific Corp. and CSX Corp. as well as shares of the iShares Transportation Average ETF IYT, fell on Wednesday, continuing a downdraft that has brought losses for the ETF of nearly 4% so far this week.

Wall Street expects Congress to intervene and head off a work stoppage. In the meantime, Labor Secretary Marty Walsh continued “to lead discussions” Wednesday between railroads and unions, a DOL spokesperson said.

“The parties are negotiating in good faith and have committed to staying at the table today,” the spokesperson said.

If a strike happens, the big question will be for how long.

“If we were to have a prolonged strike, let’s say two weeks or more, it would be incredibly debilitating for economic activity,” Jason Miller, a Michigan State University professor who follows the supply chain, told MarketWatch.

“Depending on how you want to measure it, the railroads at some point touch between about a third to about 45% of all freight in the U.S. at some point or another.”

Railroad Strike Averted As White House Reaches Tentative Agreement with Workers (Video)

Yahoo Finance’s Kevin Cirilli joins the Live show to discuss the White House’s five-year tentative agreement with railroad strikers.

U.S. Rail Strike Averted, But Labor Deal Faces Tough Union Votes

President Joe Biden's administration secured a tentative deal on Thursday to avert a railway strike that could have wreaked havoc on the U.S. economy, but union members angered by tough work conditions have yet to ratify the agreement.

A deal between major U.S. railroads and unions representing tens of thousands of workers was reached after about 20 hours of talks brokered by Labor Secretary Marty Walsh. “It’s Important That They’re Respected”: Labor Secretary Marty Walsh On Averting Railroad Strike Video.

Workers agreed not to strike while votes are tallied over the next several weeks, avoiding a stoppage that could have started on Friday.

Walsh told Reuters it was a “very nice contract, good contract for workers” and for employers. It had provisions that “have never been in contracts before” for rail workers.

Delivering remarks in the White House Rose Garden, Biden called the deal a “big win for America” and promised more worker-company agreements in the future. Averting a strike helped the Democratic leader avoid fresh supply chain shortages and inflation hikes ahead of November's midterm elections.

4 Unions Represent Approximately Half of Rail Workers in the USA

Heather Hoffman, Marketing & Sales Specialist at LEGACY Supply Chain Services told Supply Chain 24/7 that prior to Biden's administration securing a tentative deal on Thursday, the Multiple North American rail carriers were expected to implement contingency plans to shut down their networks this week in preparation for an upcoming labor stoppage. Rail providers such as Norfolk Southern have announced preparation to begin shutting down services starting as early as Tuesday, September 12.

Despite negotiations and federal intervention, A Pending Deadline of September 16 Looms for 4 of the 12 rail worker unions that have not yet reached a new agreement with rail carriers. These 4 unions represent approximately half of rail workers in the US.

Approximately 40% of the nation’s long-distance freight moves by rail and the stoppage of 7,000 trains daily would trigger retail product shortages and widespread manufacturing shutdowns. This would also put tremendous strain on over-the-road truck capacity in an environment already facing significant driver shortages. It is estimated this shutdown due to a strike could cost the economy up to $2 billion per day.

Per a railroad spokesperson, “The railroads remain in active discussions with the unions that have not yet reached tentative agreements and will continue making every effort to reach agreements based on the PEB (Presidential Emergency Board) recommendations.” However, attendance policies and other quality of life provisions remain a barrier in negotiations.

Disruption will be felt on rail capacity, all domestic trucking capacity, as well as international containers moving to interior points. Depending on the timeframe it can also create issues at the ports themselves. We do expect transportation market costs to increase as a result. I urge you to plan ahead with your service providers to try and mitigate the impact of this looming disruption.

Halting Freight Trains Could Cost the U.S. Economy More Than $2 Billion per Day

It was the Association of American Railroads that had warned halting freight trains could cost the U.S. economy more than $2 billion per day. If a shutdown were to last more than a few days, the impact would likely be felt by millions of consumers, as it would disrupt shipping of virtually all retail products, coal, other fuels, and manufacturing components.

Commuters would also be out of luck, as many passenger trains run on the freight tracks that would be idled in a strike, experts say.

In the past, most recently in 1986, Congress has acted to end railroad strikes. If no agreement had been reached this week, both houses could have passed a joint resolution - that the president would have had to sign - effectively forcing the rail workers to keep working under terms laid out by an emergency board established by the White House earlier this year. The U.S. Chamber of Congress had urged Congress to stand by and be ready to intervene before Thursday morning's agreement was announced.

In a statement lauding Mr. Biden and the labor secretary for their roles in the negotiations, Speaker of the House Nancy Pelosi confirmed that Congress had “stood ready to take action… to ensure the uninterrupted operation of essential transportation services.”

“Led by the Transportation and Infrastructure Committee, the House prepared and had reviewed legislation, so that we would be ready to act, pursuant to Section 10 of the Railway Labor Act,” said Pelosi. “Thankfully this action may not be necessary.”

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