A potential strike by railroad union workers would cause such significant economic disruption — estimated $2 billion a day in losses across many sectors — that analysts at Little Rock-based Stephens Inc. believe Congress will take action is used to prevent strikes.
Strikes among rail workers could make the supply chain disruptions of recent years look like a walk in the park and likely exacerbate inflation, particularly in fuel prices. The Association of American Railroads (AAR), a trade group that works on behalf of railroad companies, said strikes could cost more than $2 billion a day.
Negotiations between railway companies and unions have been going on for months, with unions saying they will call strikes beginning Friday morning (September 16). Some unions reached tentative agreements on Wednesday (September 14). The International Federation of Machinists and Aerospace Workers rejected an agreement but agreed to postpone a strike until September 29.
A Presidential Emergency Board (PEB), recommended by President Joe Biden in his effort to avoid strikes, would offer workers a 22% wage increase over a five-year contract period and $5,000 in “service recognition bonuses.” AAR President and CEO Ian Jefferies said the PEB would award workers an average payout of $11,000 upon contract ratification. The AAR and railroad companies have agreed to the PEB terms.
“Failure to act could leave more than 7,000 trains idling every day, leading to retail product shortages, widespread production shutdowns, job losses and disruption for hundreds of thousands of passenger rail customers,” the association noted.
Don’t rely on the trucking industry to make up for idle trains.
“Idling all 7,000 daily freight trains in the US would require more than 460,000 additional long-haul trucks each day, which is not possible due to equipment availability and an existing shortage of 80,000 drivers,” said Chris, President and CEO of the American Trucking Association’s spear. “Therefore, any disruption to rail service will wreak havoc in the supply chain and add to inflationary pressures across the board.”
Bentonville-based Walmart declined to comment on the potential disruption to its operations, instead referring the media to the National Retail Federation (NRF). The NRF said potential disruptions would come as the US retail sector prepares for the holiday shopping season.
“The timing coincides squarely with the peak shipping season for the winter holiday, and a rail strike at this time would be just another significant inflation shock to an economy already suffering from historically high inflation,” NRF President and CEO Matthew Shay said in a statement . “Railway is critical to the retail supply chain and retailers of all sizes rely on it to move freight every day. Retailers are deeply concerned about the situation and the impact a disruption would have on business operations across the country.”
Springdale-based Tyson Foods also declined to comment, referring the media to the National Chicken Council.
“Our members rely on approximately 27 million bushels of corn and 11 million bushels of soybean meal each week to feed their chickens. Much of it is transported by rail. Any disruption in service could negatively impact bird welfare and ultimately impact production at a time when Americans are already grappling with record food inflation. We are urging a speedy resolution to this issue,” said Tom Super, spokesman for the National Chicken Council, in a statement.
Fort Smith-based ArcBest, one of the nation’s largest shipping and logistics companies, has a network of 80,000 contract carriers ready to respond.
“We are closely monitoring this situation and are actively working with our customers who may be affected to minimize this as much as possible. … Our operations teams have contingency plans in place, and we communicate with our frontline workers and directly with customers so we are as prepared as possible to help them navigate or avoid disruptions in their supply chains,” the company noted a statement.
Justin Long and Brady Lierz, a Stephens analyst and associate respectively, said as of September 9, five of the 12 unions had approved the proposed PEB contract terms, and Congress was likely to block the other unions from striking.
“We continue to view this as a low probability event and would like to note that the American Association of Railroads (AAR) issued a press release this week estimating that a strike could cost the US economy $2 billion a day would cost. Given this potential macro impact and increased regulatory/government focus on rail travel, if no agreement is reached in the next week, we think it is likely that Congress will intervene,” Long and Lierz wrote in their Sept. 9 report Industry Notice.
However, Amtrak said Wednesday it would begin canceling long-distance travel on Thursday. The National Grain and Feed Association reported on Wednesday that some grain and other agricultural rail transport will be suspended starting Thursday as some railroads prepare for a possible strike.
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