Shippers are asking Congress to keep trains running

Increasingly nervous about the possibility of a railroad workers’ union strike in December, retailers are making logistics contingency plans, saying a rail shutdown could cause “enormous disruption” to the nationwide flow of goods and the US economy at large.

Railroad companies and their employees came closer to the brink of a walkout this week when a fourth union group failed to ratify a September jobs agreement after eight other rail unions backed it. The tentative agreement had struck a balance between better pay and improved working conditions after negotiations mediated by Biden administration officials.

At the time, the deal served as a temporary solution to years of collective bargaining, but now the clock is ticking towards a possible strike again, even though 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 normally generate a large part of their annual sales during the winter holiday peak but could be sold out without rail transport. Despite this threat, the post-Covid landscape is different from years past, and most US stores have stockpiled large inventories in their distribution centers to hedge against pandemic-related supply chain turbulence. But a rail strike could still threaten other sectors, according to the Retail Industry Leaders Association (RILA).

“Fortunately, this year’s Christmas gifts have already landed on store shelves. But a disruption in rail service poses a significant challenge to the timely delivery of items such as perishables and e-commerce shipments, and will no doubt add to the inflationary pressures already hitting the U.S. economy,” RILA’s vice president of supply chain Jess Dankert said in a press release. “Retailers are urging policymakers to use all means at their disposal to avoid a self-inflicted economic disaster. Without an agreement by December 9, Congress must act quickly to codify the tentative agreement reached in September to ensure the rails and larger supply chain remain operational and open for business.”

Congressional intervention also called for the Consumer Brands Association (CBA), which noted that rail isn’t the only mode of freight transportation — goods also flow via barges, planes and trucks — but said its member companies couldn’t easily switch to other options.

“The companies that manufacture and distribute everyday items such as peanut butter, cooking oil, breakfast cereals, soap, canned vegetables and household cleaning products use rail to transport high concentrations of both raw materials and finished goods,” said Tom Madrecki, vice president of CBA supply chain and logistics , according to a press release. “Rail freight transport accounts for approximately 30 percent of all CPG transport, but rail-centric operations rely almost exclusively on rail due to bulk freight requirements, historical distribution patterns and production efficiencies. These operations cannot be easily switched to other modes of transport, nor is there the capacity to handle large fluctuations in demand.”

Despite this warning, some industry analysts said that in the event of the strike, the trucking sector could potentially absorb some of the stuck rail freight, although the sheer volume of goods transported by rail would quickly consume available trucking capacity and result in higher shipping costs.

Faced with this challenge, some shippers are already working at emergency locations to shift volume to avoid cargo getting stuck in the process, Spencer Shute, principal adviser at Proxima, said in a statement. “The truckload market has slowed and the truckload ratio is at its lowest since the pandemic began, making the initial rerouting of cargo fairly easy to manage. However, the current truckload market and fuel demand cannot compensate for the volume moving through the rail network on a daily basis. Shippers who act quickly can avoid massive increases in costs and limit disruption,” Shute said.

Because truck capacity could not cover the full amount of rail shipments being laid, industry leaders are likely to settle the debate without major disruption to avoid the worst effects of a strike, said Glenn Koepke, general manager of network collaboration at FourKites. “Commodities could hit catastrophic lows, shutting down production of oil, packaging, automobiles and agriculture. This would really be hit the hardest on January 1st as many manufacturing plants come back from a holiday shutdown. US trucking capacity could never fully cover the amount of rail freight moved daily, which would roil the trucking market and put the upper hand back on the carrier and 3PL side,” Koepke said in a statement.

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