Potential US rail strike could cost USD 2 Billion a day

Potential US rail strike could cost USD 2 Billion a day

Multiple rail unions, including the nation’s largest, have failed to reach a labor deal with freight railroads, raising the risk of a strike. The Association of American Railroads estimates that a nationwide shutdown could cause $2bn a day in economic losses. 

The alignment of the four unions that have voted not to ratify a labor deal has provided a clear timeline for strike prep plans among the freight railroads and with sensitive cargo including chemicals.

The Brotherhood of Railroad Signalmen (BRS) announced Tuesday it is extending its status quo period through December 8 to align with the BMWED (Brotherhood of Maintenance of Way Employees), SMART-TD, and the International Brotherhood of Boilermakers. If no agreement is reached by then, a coordinated strike could start on December 9. Railroad unions that voted for ratification have said they will not cross the picket lines and will support their fellow union workers, posing the risk of a nationwide freight rail shutdown.

According to federal safety measures, railroad carriers begin prepping for a strike seven days before the strike date. The carriers start to prioritize the securing and movement of security-sensitive materials like chlorine for drinking water and hazardous materials in the rail winddown.

The Impact

Consumers and nearly every industry in the US will be affected if freight trains grind to a halt next month. One of the biggest rail unions rejected a deal on Monday, joining three others that have failed to approve contracts over concerns about demanding schedules and the lack of paid sick time.

That raises the risk of a strike, which could start as soon as 5 December. It wouldn’t take long for the effects of a rail strike to trickle through the economy. Many businesses have only a few days’ worth of raw materials and space for finished goods. Makers of food, fuel, cars and chemicals would all feel the squeeze, as would their customers.

That’s not to mention the commuters who would be left stranded because many passenger railroads use tracks owned by the freight railroads.

The stakes are so high for the economy that Congress is expected to intervene and impose contract terms on railroad workers. The last time US railroads went on strike was in 1992. That strike lasted two days before Congress intervened.

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An extended rail shutdown has not happened for a century, partly because a law passed in 1926 that governs rail negotiations made it much harder for workers to strike.

The expected impacts of a rail strike:

Billions of dollars a day

The railroads, which haul about 40% of the nation’s freight each year, estimated that a rail strike would cost the economy $2bn a day in a report issued earlier this fall.

Another recent report put together by a chemical industry trade group projected that if a strike drags on for a month, about 700,000 jobs would be lost as manufacturers who rely on railroads shut down, prices of nearly everything would increase even more and the economy could be thrust into a recession.

Chemical stockpiles run dry

Chemical manufacturers and refineries will be some of the first businesses affected, because railroads will stop shipping hazardous chemicals about a week before the strike deadline to ensure that no tank cars filled with dangerous liquids wind up stranded.

Jeff Sloan with the American Chemistry Council trade group said chemical plants could be close to shutting down by the time a rail strike actually begins because of that.

That means the chlorine that water treatment plants rely on to purify water, which they might only have about a week’s supply of on hand, would become difficult to source. It would be near impossible for manufacturers to make anything out of plastic without the chemicals that are part of the production formula.

Passenger problems

Roughly half of all commuter rail systems rely at least in part on tracks that are owned by freight railroads, and nearly all of Amtrak’s long-distance trains run over the freight network. Main commuter rail services in Chicago, Minneapolis, Maryland and Washington state have all warned that some of their operations would be suspended in the event of a rail strike.

Fears of a Food Crisis

It would take about a week for customers to notice shortages of foodstuffs such as cereal, peanut butter and even beer at the grocery store, said Tom Madrecki, vice-president of supply chain for the Consumer Brands Association.

About 30% of all packaged foods in the US are moved by rail, he said. That percentage is much higher for denser, heavier items like cans of soup. Madrecki said big food companies don’t like to discuss the threat of a rail strike since worries about product shortages can lead to panic buying.

Retail risks

Jess Dankert, vice-president for supply chain at the Retail Industry Leaders Association, said retailers’ inventories are largely in place for the holidays. But the industry is developing contingency plans. Retailers are also concerned about online orders. Shippers like FedEx and UPS use rail cars that hold roughly 2,000 packages in each car.

“We don’t see, you know, canceling Christmas and that kind of narrative,” Dankert said. “But I think we will see the generalized disruption of really anything that moves by rail.”

Automobile angst

Drivers are already paying record prices and often waiting months for new vehicles because of production problems in the auto industry related to the shortage of computer chips in recent years.

That would only get worse if there is a rail strike, because roughly 75% of all new vehicles begin their journey from factories to dealerships on the railroad. Trains deliver approximately 2,000 carloads of vehicles a day. Automakers may have a hard time keeping their plants running during a strike because some larger parts and raw materials are also transported by rail.