A Railroad Stoppage Before Christmas Could Cause Over $2 Billion In Economic Damage, Driving Inflation Even Higher

In September, the nation's largest rail unions began negotiating with rail companies to establish better schedules, more pay and paid sick time for its track maintenance workers.

Now, four out of the 12 rail unions are yet to ratify the tentative agreements, as SMART - Transportation Division (SMART-TD), one of the largest railroad labor unions, rejected ratification on Nov. 21.

What Happened: SMART-TD, Brotherhood of Maintenance of Way Employees (BMWED) and the Brotherhood of Railroad Signalmen (BRS) represent more than 50% of all rail labor.

The International Brotherhood of Boilermakers (IBB), BRS and BMWED are set to vote to ratify the tentative agreement on Dec. 4, with a strike deadline that could start on Dec. 9.

According to the Association of American Railroads, a nationwide rail shutdown could cost more than $2 billion every day in lost economic output.

If the strike does in fact take place, a nearly 140,000-mile network of rails in 49 states and more than 7,000 long-distance Class I trains per day would be idled, which could be devastating to the transportation industry and the U.S. economy during the holiday season.

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Why It Matters: If a railway strike does take place, the U.S. would need an additional 467,000 long-haul trucks per day to move all the railroad freight and roughly 80,000 more truck drivers, according to the report.

The American Chemistry Council stated the chemical industry is a $517 billion enterprise that supports more than 25% of U.S. GDP and creates more than half a million American jobs, which would be deeply affected by a railroad shutdown.

A letter sent on Sept. 7 from the Fertilizer Institute (TFI) to Speaker of the House Nancy Pelosi, Majority Leader Chuck Schumer, Senate Minority Leader Mitchell McConnell and House Minority Leader Kevin McCarthy stated, “Over half of all fertilizer moves by rail year-round throughout the United States and the timeliness and reliability of fertilizer shipments is absolutely critical,” adding that, “If farmers do not receive fertilizer, it results in lower crop yields, higher food prices, and more inflation for consumers.”

Firms such as United Parcel Service, Inc. UPS and FedEx Corporation FDX also rely on railroads to ship freight and could also experience slowdowns and price hikes.

The Union Pacific Corporation UNP CEO Lance Fritz said on CNBC that its BMWED employees were not completely aware of the terms of the agreement in the first vote and he is confident a new agreement can be made.

Fritz said this does not mean a strike was not possible, but he does think a strike is less probable.

In August, President Joe Biden released the framework for the tentative deal formed in September between major carriers such as Union Pacific and a dozen unions representing 115,000 workers, reported Reuters. On Monday, more than 400 groups called on the U.S. Congress to intervene in the railroad labor strike that could drive inflation higher and cause significant economic damage to the economy.

A railroad labor stoppage would also negatively impact Norfolk Southern Corp NSC and CSX Corporation CSX, which rely on domestic transportation. 

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