Shippers plead with Congress to keep trains rolling

Retailers are growing increasingly nervous about the chance of a December strike by rail workers’ unions, making logistics contingency plans as they say a rail stoppage could cause “enormous disruption” to the flow of goods nationwide and the U.S. economy at large.

Rail companies and their employees stepped nearer to the brink of that work stoppage this week when a fourth union group failed to ratify a September employment deal, after eight other rail unions had approved it. The tentative agreement had set a balance between better pay and improved working conditions, following negotiations mediated by Biden Administration officials.

At the time, the deal served as a temporary solution to years-long labor talks, but the clock has now started ticking again toward a possible strike, even as both sides have agreed to extend a “cooling off” period until December 8.

The union votes come at a sensitive time of year for retailers, which typically make a large chunk of their annual revenue during the winter holiday peak, but could be out of stock without rail transport. Despite that danger, the post-covid landscape is different from past years, and most U.S. stores have large inventories of goods stocked in their DCs as a hedge on pandemic supply chain turbulence. But a rail strike could still threaten other sectors, according to the Retail Industry Leaders Association (RILA).

“Fortunately, this year’s holiday gifts have already landed on store shelves. But an interruption to rail transportation does pose a significant challenge to getting items like perishable food products and e-commerce shipments delivered on time, and it will undoubtedly add to the inflationary pressures already hitting the U.S. economy,” RILA’s Vice President of Supply Chain, Jess Dankert, said in a release. “Retailers urge policymakers to use every tool at their disposal to avoid a self-inflicted economic disaster. Absent an agreement by December 9, Congress must act quickly to codify the tentative agreement reached in September to ensure rails and the larger supply chain remain functional and open for business.”

Also calling for Congressional intervention was the Consumer Brands Association (CBA), which noted that rail was not the only freight transportation mode—goods also flow via barges, planes, and trucks—but said its member companies could not easily transition to other options.

“The companies that manufacture and distribute everyday items like peanut butter, cooking oil, breakfast cereal, soap, canned vegetables, and household cleaners utilize rail to transport high concentrations of both raw input ingredients and finished products,” Tom Madrecki, CBA’s vice president of supply chain and logistics, said in a release. “Freight rail constitutes approximately 30 percent of total CPG transportation, but rail-centric operations rely almost exclusively on rail due to bulk commodity shipment requirements, historical distribution patterns, and manufacturing efficiencies. These operations cannot easily transition to other transportation modes, nor is there available capacity to handle huge swings in demand.”

Despite that warning, some industry analysts said that the trucking sector could potentially absorb some of the stuck rail freight if the strike occurred, although the sheer bulk of goods moved via rail would quickly use up available trucking capacity and lead to higher shipping costs.

In the face of that challenge, some shippers are already working on contingency places to shift volume to avoid getting cargo stuck in the process, Spencer Shute, principal consultant at Proxima, said in a statement. “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. 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,” Shute said.

Since trucking capacity could not cover the full amount of transferred rail shipments, industry leaders will probably settle the debate without a major disruption in order to avoid the most dire implications of a strike, said Glenn Koepke, general manager of network collaboration at FourKites. “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 U.S. 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,” Koepke said in a statement.