A railroad strike remains a possibility in the days leading up to the end of ‘cooling off’ periods

The late, great New York Yankees Hall of Fame catcher Yogi Berra once said, “it is getting late early.” That same sentiment could very well apply to the prospects of a national railroad strike, too, it seems.

The primary reason for that stems from the most recent round of voting by 12 United States-based railroad labor unions in ratifying new labor agreements with United States Class I freight railroads.

As previously reported, these agreements are based on recommendations made by Presidential Emergency Board (PEB) appointed by President Biden, which were released on August 16, and 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 the National Carriers’ Conference Committee (NCCC), an organization representing the nation’s freight railroads in national collective bargaining, noting that a portion of the lump sum payments are retroactive and will be paid out promptly upon ratification of the agreements by the unions’ membership.

So, what happened with the aforementioned most recent round of railroad labor voting? Earlier this week, BLET, a railroad labor union representing engineers and trainmen, has ratified its collective bargaining agreement with U.S. freight railroads, concluding bargaining for more than 20,000 rail employees. That can be viewed as a positive development.

But voting results for SMART-TD were split up, with its first contract, covering roughly 28,000 employees—comprised of conductor, brakemen, engine service, and yardmen groups (with around two-thirds of membership participating)—not ratifying its contract, coming up less than 1% short. NCCC said that the second agreement, which covers around 1,300 yardmasters, was ratified.

In terms of where this leaves things, for those keeping score at home, the Association of American Railroads stated that eight of the 12 railroad labor unions, including a portion of SMART-TD’s membership, have agreed to the terms outlined in the PEB’s recommendations.

AAR said that the four unions without a contract include: BMWED, BRS, IBB, and SMART-TD, adding that the end of the their “cooling off” periods is getting closer, with December 5 marking the end of the period for BRS.

In a statement issued yesterday, AAR President and CEO Ian Jefferies said: Today, the BLET joined the majority of our unions in approving the largest wage increases in nearly five decades and also paved a path toward greater scheduling predictability for its members. Railroads stand ready to reach new deals based upon the PEB framework with our remaining unions, but the window continues to narrow as deadlines rapidly approach. Let’s be clear, if the remaining unions do not accept an agreement, Congress should be prepared to act and avoid a disastrous $2 billion a day hit to our economy.”

That $2 billion a day tally was the centerpiece of a report issued by the AAR in September, making the case for what is at stake should deals not be struck with the remaining unions that have yet to reach new labor deals.

The AAR’s report puts a firm onus on the need for all 12 rail labor unions to reach deals by the September 16 deadline, explaining that a nationwide rail service interruption “would dramatically impact economic output and could cost more than $2 billion per day of a shutdown.”

What’s more, it added that should deals not be reached by the deadline, Congress will need to step in and act to prevent a service interruption that will harm and impact every rail-served economic sector. Examples of this highlighted in the report include: idling more than 7,000 trains per day; triggering retail product shortages and widespread manufacturing shutdowns; job losses; and disruptions to hundreds of thousands of passenger rail customers.

AAR officials have said that for freight rail employees, the PEB's guidelnes “could significantly improve scheduling predictability. Among other things, the agreement requires the parties to work on a railroad-by-railroad basis to address critical issues relating to work schedules and job assignments, with an interest arbitration backstop to ensure mutually beneficial agreements can be achieved.”

Many freight railroad stakeholders have made it clear that should the remaining deals not come to fruition and lead to a strike, that, while it clearly would not be welcome, its duration is likely to be brief.

Tony Hatch, president of New York-based ABH Consulting, recently told LM that railroad labor union leadership strongly want these agreements approved.

What’s more, Hatch said that if a strike were to occur, there would likely be a subsequent impact on many other industries that run on a just-in-time basis, like automotive and steel, with workers in those sectors being laid off, albeit not likely for a long time. And he added that when a deal is ultimately reached, it is likely to be very close to the PEB’s recommendations.

“There will be some people like Bernie Sanders, who want to interfere,” he said. “But will Congress, really, in an election year, want to interfere on behalf of rail workers in a way that's more complicated? They don't really understand all the rules, in a way that could potentially be hurting other workers and hurting the economy. Do they want to be viewed as hurting the economy. Behold the unions when they go back to the votes. A strike like this could very well last only one day or even less. All the things labor is saying and the AAR’s report saying that a strike could cost the economy $2 billion a day is to make sure Congress does its job, which is to basically do nothing and rubber stamp the PEB’s recommendations.”

Hatch makes some excellent points here as usual. But the potential of a railroad strike, as to be expected, has received a fair amount of national attention from the mainstream press, as well as other concerns, too.

National Retail Federation (NRF) President and CEO Matthew Shay said that millions of hardworking Americans rely on the freight rail system for their jobs and for the nation’s economic security.  

“A nationwide rail strike during the peak holiday season will be devastating for American businesses, consumers and the U.S. economy,” said Shay. “American businesses and families are already facing increased prices due to persistent inflation, and a rail strike will create greater inflationary pressures and will threaten business resiliency. Congress must intervene immediately to avoid a rail strike and a catastrophic shutdown of the freight rail system. Smooth and stable operations on the rails is absolutely crucial this holiday season and should not be derailed by a rejection of the contract. Eight of the 12 unions have ratified the agreement, while four have rejected it. The parties must work out the issues and ratify the contract without a disruption to the system. If not, Congress must step in to prevent a strike before the end of the cooling off period on December 8.”

Analysis provided to LM by Chicago-based FourKites, a provider of real-time tracking and visibility solutions across transportation modes and digital platforms, observed that the timing of rail unions coming back to the table to negotiate has two major implications.

“The first is peak holiday season and what could significantly impact sales in the final month of the calendar year,” according to Glenn Koepke, FourKites, GM, Network Collaboration. “Second would be a major blow to the economy, which remains in extreme uncertainty.”

Koepke outlined various potential effects a rail strike could have, including:

• In retail, there will be initial chaos as every CFO, CEO and sales and marketing leader sees how exposed their company is as they anticipate the domino effect of what happens next. But what is most likely to occur for major retailers is realizing they already have the inventory and that they’ll be okay; and
• Raw materials could reach catastrophic lows, shutting down manufacturing from oil, packaging, automotive, agriculture. This would really hit hardest come January 1 as many manufacturing plants return from a holiday shutdown. The US trucking capacity could never fully cover the amount of rail cargo moved on a daily basis so this would send the trucking market into a frenzy and put the upper hand back on the carrier and 3PL side.

“It’s difficult to predict the future, but if I were to take a guess, I’d say this will get settled without a major disruption—though continued threats and noise will loom,” he said.

From a shippers’ perspective, Spencer Shute, Principal Consultant for spend management firm Proxima, noted that, in the event of a railroad strike, shippers are already working on contingency places to shift volume to avoid getting cargo stuck in the process.

“The truckload market has been slowing down and the truck-to-load ratio is at its lowest point since the pandemic began, making the initial diversion of freight fairly easy to navigate,” said Shute. “However, the current truckload market and demand on fuel cannot offset the volume that moves through the rail network on a daily basis. Shippers who act quickly will be able to avoid massive cost increase and limit disruption. Should a full-strike go into effect, the US economy could be severely impacted right as we hit the holiday season and as we go into 2023.

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 ~30% of the U.S. freight movement.”

What happens from here remains to be seen, of course. But let’s hope, as Yogi Berra noted, that it is not already getting late too early and that freight is able to keep rolling down the tracks without a strike getting in the way.