By Chris Isidore, Vanessa Yurkevich and Matt Egan, CNN Business
So once again the nation and its economy is facing the risk of a massive freight railroad strike, this one as soon as Dec. 9. But about the only thing you don’t need to worry about it is whether it will affect your holiday shopping plans. (It won’t.)
A prolonged rail strike could create all types of shortages, from gasoline to food to automobiles, and cause a spike in the prices of all types of consumer goods. It can screw up the commutes of tens of thousands of workers who take the train to work, slow the delivery of parts and force factories to shut down. But one area that most likely won’t see immediate or severe disruptions will be Christmas.
“The stuff that needs to move for the holidays has already moved by rail,” said Balaji Guntur, vice president in global consultancy Kearney’s transportation practice and a logistics veteran. The goods that retailers are counting on for the holidays are already in stores or nearby warehouses.
“Christmas is not canceled,” Brian Dodge, president of the Retail Industry Leaders Association, told CNN in a phone interview earlier this week. His group includes Walmart, Target, Home Depot and dozens of other major brands.
A previous strike threat in September risked causing greater problems with goods slated for holiday sales, but that strike threat was averted by an 11th-hour tentative labor deal. But that strike threat is back, worrying shippers, after rank-and-file members of four rail unions rejected the earlier tentative deals. Negotiators for the two sides are back at the table.
A strike would “would utterly upend the supply chain,” Dodge said, adding that concern among retail CEOs is “high” because of the increasing risk of a national rail strike. About 30% of the nation’s freight, when measured by weight and distance traveled, moves by rail, and there just isn’t enough capacity on trucks or other modes to move those goods if the railroads grind to a halt.
And a freight rail strike could cost the US economy $1 billion in its first week alone, according to a new analysis from the Anderson Economic Group. “Calculations show a first-day impact of approximately $60 million, including $30.9 million for lost freight, $3.8 million for long-term passenger rail disruption and $25 million in lost railroad industry wages,” the analysis revealed.
Second and third day strike losses would increase to $91 billion per day because of lost agricultural goods and food spoilage. The costs would escalate from there.
Many people expect Congress to intervene, either to order rail workers to stay on the job or quickly return to work if there is a strike, because of such severe economic ramifications.
The unions oppose Congressional intervention, saying the risk of a strike is the only way to get the railroads, many of which reported record or near record profits last year and will do so again this year, to make meet workers’ demands for better working conditions, including sick pay policies common for most workers in other industries.
But if a strike starts, and stretches on, here’s how it could affect other sectors, and many Americans:
Refineries get most of their crude oil via pipelines and ship most of the products they produce, such as gas, diesel and jet fuel, via pipelines. Still, railroad tank cars are a key part of that process.
Just about all ethanol that goes into gasoline moves by rail; gasoline wouldn’t be compliant with some environmental regulations without it. But even if those regulations could be waived, the cost of a gallon of gas without ethanol would jump by about 16 cents due to the loss of tax breaks, according to Tom Kloza, global head of energy analysis for OPIS.
Pipelines carry most of the nation’s crude oil to refineries, but each day about 300,000 barrels move by rail, a volume that would supply about two mid-size refineries, according to data from the American Fuel and Petrochemical Manufacturers, the refineries’ trade group. Numerous chemicals used in the refining process also are transported via rail, as do some lower-grade products and waste materials.
“If rail cars aren’t coming in regularly to pick up facility products, including the sulfur that refiners remove from crude oil, production will have to curtail,” the refineries’ trade group said earlier this fall.
Food prices might not be as negatively affected by an early December strike date,as they would have been in September amid the fall harvest. But grain and other food products still need to move by rail.
That, coupled with low water levels on the Mississippi that have slowed barge traffic amid a Midwest drought, has the nation’s agricultural industry very worried about possible strike.
“Any additional disruption of rail service would immediately impact the nation’s food and agriculture and broader supply chains,” said Mike Seyfert, CEO of the National Grain and Feed Association. “The risk in both domestic and international markets is real.”
December is a major month for auto sales. But car and truck production is currently hampered by a shortage of numerous essential parts, most notably computer chips that in turn has created a dearth of vehicles available for sale on dealer lots. That’s why car prices are now at record highs.
But that’s nothing compared to what would happen with a prolonged rail strike. About 75% of completed cars built in US factories or imported here move by rail. So do many of the parts used to build vehicles, moving between suppliers and car assembly plants, and production will quickly halt if those rail links are severed. It would take time to make up for lost output, creating upward pressure on car prices.
Most factories aim to have parts and raw materials delivered right before they’re used in assembly lines — a process known as “just-in-time” delivery. Many factories depend on rail to receive those parts and supplies and then ship out them out for delivery.
“We already face economic turmoil with rising costs, product shortages and high inflation. Any nationwide rail strike or shutdown will cause even more economic pain,” said a statement from the National Association of Manufacturers earlier this month, adding that it’s crucial that a strike be avoided.
A lengthy rail strike could result in temporary plant closures, which is what happened across the global auto industry in recent years due to the shortage of parts and computer chips.
Only the nation’s freight rail lines face a pending strike, but commuters would likely be affected, too. Many commuter trains travel on tracks maintained and operated by the freight railroads and passenger railroads expect they’ll have to shut down their operations once the freight strike starts.
Amtrak cut service on most of its long distance trains in the days leading up to the earlier Sept. 16 strike deadline deadline. The company owns roughly 700 miles of track, mostly between Boston and Washington, DC, but about 97% of its 22,000 mile nationwide system runs on freight lines.
Many commuter railroads also move over freight rail lines and could not operate if a strike was called. That could mean more commuters driving to work, and more traffic and congestion even for those who don’t normally take a train.
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