The Potential 2022 Rail Strike and Its Implications for the Economy

With a rail strike looming, we wanted to provide context for why this strike could happen, what this could mean for our economy, and how it plays into the broader theme of supply chain disruption.

Addison Holmes

and

Melanie Vujovich

Dec 02, 2022

Key Points

On 11/21, the country's biggest railroad union rejected the tentative agreement proposed by the Biden Administration in September between major carriers like Union Pacific Corp and a dozen unions representing 115,000 workers.
Four freight rail unions have voted down the five-year contract agreement. Eight other unions have ratified the deal, but they too could be pulled back into this labor dispute. If one union decides to strike, all of the unions will honor the picket lines.
Unions and railroads have until 12/9 to resolve differences. If they do not, workers could strike or railroads could lock out employees - unless Congress intervenes. But railroads would halt hazardous materials shipments at least four days ahead of a strike deadline.
Railroads begin preparing for a strike seven days ahead of that date. Chemicals take priority in rail strike preps, with transport of this sensitive cargo stopped 96 hours before a strike.
The U.S. Chamber of Commerce, National Association of Manufacturers, National Retail Federation, American Petroleum Institute, National Restaurant Association, American Trucking Associations, American Farm Bureau Federation and other groups warned impacts of a potential strike could be felt as soon as Dec. 5.
More than 400 groups have called on Congress to intervene, using its power through the Constitution’s Commerce Clause to introduce legislation to stop a strike or a lockout, and to set terms of the agreements between the unions and the carriers.

Case Study: The Life of a Rail Worker

To set the stage for our discussion on rail strikes, we first want to provide a case study on the life of a rail worker.

Source: Network Rail Media Centre

The Job

At the highest level, rail workers ensure that passenger and freight trains safely run on time. They may drive trains, coordinate the activities of the trains, or operate signals and switches in the rail yard. Railroad workers generally require a high school diploma or equivalent and several months of on-the-job training. Typical roles include: locomotive engineer, conductor, and yardmaster.

Locomotive engineers typically monitor speed, air pressure, battery use, and other instruments to ensure that the locomotive runs smoothly.

Conductors travel on both freight and passenger trains. They coordinate activities of the train crew, passengers, and cargo.

Yardmasters similar work to conductors, except that they do not travel on the trains. Yardmasters oversee and coordinate the activities of workers in the rail yard.

Work Environment

Schedule: Because trains are scheduled to operate 24 hours a day, 7 days a week, many railroad workers sometimes work nights, weekends, and holidays. Most rail employees work full time and are required to be on call 24/7. Federal regulations require a minimum number of rest hours for train operators. Workers on passenger trains with short routes tend to have more predictable schedules, while workers on freight trains tend to have more irregular schedules.

Travel: Locomotive engineers and conductors whose trains travel long routes can be away from home for long periods of time. Because of the on-call nature of railroad work, irregular schedules, and required travel – it can be difficult for rail workers to maintain familial and social relationships.

Risk of Injury: Railroad conductors and yardmasters have one of the highest rates of injuries and illnesses of all occupations. Common injuries include sprains, strains, and bruises.

Hierarchy: For engineers and conductors, seniority (the number of years on the job) usually dictates who receives the most desired shifts. Some engineers and conductors are hired on a temporary basis and get an assignment only when a railroad needs a substitute worker on a certain route.

Salary: The median annual wage for railroad workers is $64,150.

Why is there a threat of a rail strike?

The unions are in dispute with the government and rail companies about pay, job cuts and changes to terms and conditions. Unions say train companies have not made any offer on pay, which they say should increase to reflect the rising cost of living.

What do the unions want?

Rail workers are discouraged and upset with working conditions, compensation, and quality of life. The main sticking points for many union members have been attendance policies, sick time, fatigue, and the lack of family time.

In September, the two largest rail unions, SMART Transportation Division and the Brotherhood of Locomotive Engineers and Trainmen, came to Washington to try to resolve their differences with the railroad companies. The negotiation, led by U.S. Labor Secretary Marty Walsh yielded a deal that the union leaders thought their members would accept. The deal gave workers a 24% raise over five years, an additional personal day and caps on health care costs. It also included some modifications to the railroads' strict attendance policies, allowing workers to attend to medical needs without facing penalties for missing work. President Biden described it a win for all sides and the U.S. economy. The railroads called it the most generous contract in modern history and noted that upon ratification, workers would see an average payout of $16,000 in back raises and bonuses.

The Brotherhood of Locomotive Engineers and Trainmen, representing roughly 23,000 workers, voted to ratify the deal with 53.5% of the vote. But SMART Transportation Division, representing 28,000 conductors, brakemen, yardmen and others, rejected the agreement, with 50.87% voting no. The unions acknowledge that the agreement sent to the rank-and-file to vote on fell short of what they'd hoped for. While the deal did include substantial raises that puts workers slightly ahead of inflation, it did not deliver any paid sick days. Union leaders said they pushed for 15 paid sick days, but the proposed deal included only one. Rail workers are also seeking the right to take unpaid sick days, and the deal did not address this issue.

What would a rail strike mean?

Railroads haul about 30-40% of the nation’s freight each year. A rail strike could cost the U.S. economy $2 billion a day and result in interruptions in the delivery of fertilizers, chlorine, and other products essential to clean water, our food supply, and electricity generation. It could disrupt up to 7 million travelers a day and interrupt the supply chain for retailers and the auto industry.

Economic Impact: The railroads estimate that a rail strike would cost the economy $2 billion a day in a report issued earlier this fall. Although some businesses would try to shift shipments over to trucks, there aren’t nearly enough of them available. The Association of American Railroads trade group estimated that 467,000 additional trucks a day would be needed to handle everything railroads deliver.

Chemical Supply: Chemical manufacturers and refineries will be some of the first businesses affected. This is because railroads will stop shipping hazardous chemicals about a week before the strike deadline to ensure that no tank cars filled with dangerous liquids end up stranded. Some areas impacted include:

Chlorine: Chlorine would become hard to get, which would impact water treatment plants that rely chlorine on to purify water.
Plastics: It would be hard for manufacturers to make anything out of plastic without the chemicals that are part of the formula.
Gasoline: Consumers will also pay more for gasoline if refineries shut down either because they can’t get the ingredients they need to make fuel or because railroads aren’t available to haul away byproducts.
Soda and Beer: The supply of carbon dioxide that beverage makers use to carbonate soda and beer would also be restricted, as chemical manufacturing (which creates carbon dioxide as a byproduct) is halted.

Food and Feedstock Shortages: About 30% of all packaged food in the U.S. is moved by rail. According to the Consumer Brands Association, it will take about a week for customers to notice shortages of things like cereal, peanut butter and beer at the grocery store. A disruption in rail service will also threaten the health of chickens and pigs, which depend on trains to deliver their feed, and contribute to higher meat prices.

Interrupted Travel: About 50% of all commuter rail systems rely on tracks that are owned by freight railroads. A strike could halt passenger railroad Amtrak and commuter rail services that could disrupt up to 7 million travelers a day.

Supply Chain Issues: While retailers’ inventory is largely in place for the holidays, a rail strike could lead to generalized disruption of anything that moves by rail. In the auto industry, manufacturers have experienced a shortage of computer chips in recent years, which have lead to record prices and long wait times for new vehicles. 75% of all new vehicles travel from factories to dealerships via the railroad, with trains delivering up to 2,000 carloads a day filled with vehicles. A railroad strike would disrupt the already stressed supply chain for automobiles.

Have there ever been rail strikes before?

Because stakes are so high for the economy, Congress is expected to intervene and impose contract terms on railroad workers. Congressional intervention has a historical precedent, with Congress forcing an end to the 1992 Railroad Strike. An extended rail shutdown has not happened for a century, partly because of regulations passed in the 20th century, limiting the ability of labor unions to strike. Below, we are providing a quick overview of the largest railroad strikes in American History.

Source: Washington Post

1877: The Great Upheaval

Strike began when railroad bosses announced a 10% pay cut, the second in 8 months
Eventually, the strike involved 100,000 workers
100 were killed by militias and the National Guard
The strike collapsed in weeks due to lack of organization, and little was accomplished

1894: The Pullman Strike

Solidarity strike with the factory workers who manufactured Pullman Palace train cars
George Pullman, who was also their landlord, cut wages 25% while refusing to lower rents
250,000 railworkers and switchmen responded by refusing to touch trains that had Pullman cars
First strike to be ended by court injunction
Historians agree that President Grover Cleveland made Labor Day a federal holiday as a concession

1916: Adamson Act

Established the 8 hour workday and overtime compensation for interstate railroad workers
Unions representing 94% of railroad workers were prepared to strike after railroads refused to grant 8 hour workday

1922: Railroad Shopmen’s Strike

Nationwide strike of railroad workers in the United States
Launched by seven of the sixteen railroad labor organizations in existence at the time
A sweeping judicial injunction by Judge James Herbert Wilkerson effectively brought the strike to an end on September 1, 1922
At least ten people, most of them strikers or family members, were killed in connection with the strike
The collective action of some 400,000 workers in the summer of 1922 was the largest railroad work stoppage since the American Railway Union's Pullman Strike of 1894 and the biggest American strike of any kind since the Great Steel Strike of 1919

1928: Brotherhood of Sleeping Car Porters

Brotherhood of Sleeping Car Porters (BSCP) was a labor union organized by African American employees of the Pullman Company in August 1925
Threatened to strike in 1928, but ultimately didn’t
The union won its first contract in 1937, giving members the highest pay increase they had ever received

1945: Strike wave

In the years following the end of World War II, more than 4 million workers participated in strikes, including approximately 250,000 railway workers
In 1947, Congress passed the Taft-Hartley Act, limiting the rights of labor unions to strike

1992: U.S. Railroad Strike

Included only CSX transportation workers, but the effects quickly spread
This strike cost the economy $1 billion in a day ($2.1 billion in today’s value)
Congress forced the end to the strike

How does this play into the theme of supply chain disruption that we’ve seen over the last couple of years?

Source: USA Today

Starting with the emergence of the COVID-19 virus in 2020, supply chain issues have increasingly made headlines over the last two years. According to a study by McKinsey, global container shipping rates have more than quadrupled since 2019, and schedule delays have risen. Five critical challenges facing global supply chains now include:

The rising cost of living
Labor unrest
Energy shortages
Geopolitical uncertainty
Extreme weather

Several of these challenges are relevant to the looming threat of a rail strike in the U.S. First - skyrocketing inflation has hit households hard, with rising food costs. The rise in the cost of living resulted in workers demanding wage increases to counteract the impact of inflation. It is clear given the negotiations in September, that compensation is a critical consideration for rail workers.

Next, labor unrest is perhaps the most critical element in a labor strike. As described above, rail workers are upset with working conditions, compensation, and quality of life. American rail workers are not the only members of the global supply chain that are uneasy. Truckers in South Korea, rail workers in the UK, dock workers in Germany, and freight workers in Ireland have conducted strikes over the last two years.

Inflation has not only been a problem for food prices, but also energy costs. Rising gas prices and reduced supply from Russia has put strain on global energy supply. As described above, a rail strike in the U.S. could impact the supply of chemicals required for oil and gas refining, which could reduce supply and drive up prices.

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