What an impending rail strike could mean for the American economy

What an impending rail strike could mean for the American economy

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  • November 23, 2022
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American consumers and nearly every industry would be impacted if railroad unions and railroads don’t agree on a new contract soon, an outcome that would bring freight trains to a halt next month.

One of the biggest rail unions rejected its deal on Monday, joining three others who have not approved contracts over concerns about demanding schedules and a lack of paid sick time. That increases the risk of a strike that could start as early as December 5 – just before the busy Christmas holidays. All 12 rail unions must agree to the contracts to prevent a strike.

President Biden helped finalize the deal, which has been accepted by seven unions but rejected by four so far. White House press secretary Karine Jean-Pierre said Monday the president thought a shutdown was “unacceptable” because it “would harm jobs, families, farms, businesses and communities across the country.”

“A majority of unions voted to ratify the tentative agreement, and the best option is still for the parties to resolve this themselves,” she told reporters on Air Force One Monday. “And we will continue to demand that.”

Congress is expected to intervene and impose contract terms on railroad workers if an agreement cannot be reached. The last time the US railroads went on strike was in 1992. This strike lasted two days before Congress intervened. The nation has not seen a lengthy railroad shutdown in about a century, partly because a 1926 law regulating railroad negotiations made it much harder for workers to go on strike.

It would not be long before the effects of a rail strike seeped through the economy. Many factories only have raw materials and space for finished goods for a few days. Food, fuel, car and chemical manufacturers would all feel the pressure, as would their customers.

Commuters would be left behind because many passenger trains use freight railway tracks.

Transport Secretary Pete Buttigieg said a rail strike would be “not good”.

“Our goal now is to make sure that doesn’t happen,” Buttigieg said in an interview with NewsNation. “And we call on the parties to sit down and do everything possible to prevent a shutdown.

On Tuesday. US Chamber of Commerce President and CEO Suzanne Clark called on Congress to intervene.

“Congress must now enforce the deal that President Biden negotiated and that the railroads and union leaders agreed to,” Clark said. “Unless Congress does so, a rail strike would greatly exacerbate inflation and the economic challenges Americans face today.”

Here are some of the expected effects of a rail strike:

$2 billion a day

Railways move about 40% of the country’s goods each year. The railroads, in a report released earlier this fall, estimated that a railroad strike would cost the economy $2 billion a day. Another recent report compiled by a chemical industry trade group predicted that a month-long strike would see around 700,000 jobs lost as manufacturers that rely on railroads shut down, prices of almost everything would continue to rise and the economy could falter be driven into a recession.

And while some companies would try to shift deliveries to trucks, there aren’t nearly enough available. The Association of American Railroads trade group estimated that 467,000 additional trucks per day would be needed to handle everything the railroads are supplying.

Chemicals run dry

Chemical manufacturers and refiners will be among the first to be hit, as railroads halt shipments of hazardous chemicals about a week before the end of the strike period to ensure tank wagons filled with hazardous liquids are not stranded.

Jeff Sloan, of the American Chemistry Council’s trade group, said chemical plants could be on the verge of closure if a rail strike on this ground actually begins.

That means the chlorine that water treatment plants depend on to purify water they might only have available for a week or so would be hard to come by. Without the chemicals that are part of the formula, it would be difficult for manufacturers to make anything out of plastic. Consumers also pay more for gasoline when refineries close, either because they can’t get the ingredients needed to make fuel or because railroads aren’t available to haul away by-products like sulfur.

Chemical plants also produce carbon dioxide as a by-product, so the supply of carbon dioxide that beverage manufacturers use to carbonate soda and beer would also be restricted, although the gas is typically transported via pipelines.

passenger problems

About half of all commuter rail systems rely, at least in part, on railroad-owned track, and almost all of Amtrak’s long-distance trains run on the freight network.

Back in September, Amtrak canceled all of its long-distance trains days before the end of the strike period to ensure passengers aren’t stranded in remote parts of the country while still en route to their destinations.

And major commuter railroads in Chicago, Minneapolis, Maryland and Washington state all warned at the time that some of their services would be shut down if there was a rail strike.

food scares

It would be about a week before grocery shoppers began to notice shortages of things like cereal, peanut butter and beer, said Tom Madrecki, vice president of supply chain at the Consumer Brands Association.

About 30% of all packaged food in the US travels by rail, he said. This percentage is much higher for denser, heavier items like soup cans.

Some products, such as cereal, cooking oils, and beer, have entire operations based on rail shipments of raw materials such as grain, barley, and peanuts, as well as shipping of finished products.

These companies typically only stock raw materials for two to four days because storing them is expensive, Madrecki said, and grocers also stock a limited supply of products.

Marecki said major food companies are reluctant to discuss the threat of a rail strike because concerns about product shortages can lead to panic buying.

hungry herds

Any disruption to rail service could endanger the health of chickens and pigs, which rely on trains to deliver their feed, and contribute to higher meat prices.

“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,” said Tom Super, a spokesman for the National Chicken Council, a trade group for the industry that raises chickens for meat.

The National Grain and Feed Association said a rail strike now would hit hog and chicken producers in the U.S. South hardest, as their local supplies of corn and soybeans from this year’s crop are likely to be depleted and they would have to truck the feed out at dramatically rising costs .

“They only have limited storage capacity. They can’t go without rail for too long before they have to shut down the feed mills and run into problems,” said Max Fisher, NGFA’s chief economist.

retail risk

Jess Dankert, vice president for supply chain at the Retail Industry Leaders Association, said retailers’ stock levels are largely in place for the holiday season. But the industry is developing contingency plans.

“We’re not looking at, you know, canceling Christmas and that kind of narrative,” Dankert said. “But I think we’re going to see the general disruption of really everything that moves on the rails.”

David Garfield, chief executive of consultancy AlixPartners, said a rail strike could still affect holiday items being delivered to stores later in December and would definitely hamper the stocking up of next season’s goods.

Retailers are also concerned about online orders. Shippers such as FedEx and UPS use cars that hold approximately 2,000 packages in each car.

car scared

Due to the production problems in the auto industry in connection with the shortage of computer chips in recent years, motorists are already paying record prices and often waiting months for new vehicles.

A rail strike would make this even worse, because around 75% of all new vehicles begin their journey from the factory to the dealer by rail. The trains deliver around 2,000 wagon loads loaded with vehicles every day.

And automakers can struggle to keep their plants running during a strike because some larger parts and raw materials are transported by rail.

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