A crisis was recently averted when a massive railroad strike in the US was avoided in negotiations in the 11th hour. However, the threat could still return, as tensions remain high. And the US economy is already in a tenuous position should it occur. The reduced freight capacity in an already strained network could be disastrous for US manufacturers. These effects would compound existing problems in the supply chain, causing damaging effects to reverberate for months to come.
However, there are precautions manufacturers can take to mitigate the risk and minimize disruptions, should the threat of a labor strike reappear. Labor leaders have called off the strike for now, but the narrow miss should serve as a warning call to be prepared in the event of a massive strike like this, which is still very much in the realm of possibility.
In recent months, about a dozen labor unions representing the nation’s railroad workers have been calling for a national railroad strike to demand better working conditions. They have complained of strenuous schedules and even being penalized for taking time off for medical reasons.
According to negotiation proceedings in this looming strike, the unions allege that these systematically bad time-off policies and practices hurt the railroads’ ability to hire new employees and have already forced out thousands of employees. Union representatives have referred to the treatment as harassment and demanded better time-off policies. Short of reaching an agreement, a national strike was set to shut down the nation’s freight railroads on Friday morning, September 16.
In response, the National Carriers’ Conference Committee (NCCC), who represents US freight railroad companies in national collective bargaining, insisted workers already receive significant time off and fair pay raises built into their contracts.
Last month, the Biden administration assembled an emergency board to issue recommendations and reach a satisfactory compromise. While ignoring the demand for a new attendance policy, the board did recommend a pay-raise schedule to increase wages 24% by 2024 along with bonus increases.
Finally, a tentative deal has been agreed upon as of Thursday, September 15. While most of the unions struck deals with the railroads days or weeks ago, there were three significant holdouts: the Brotherhood of Locomotive Engineers Trainmen (BLET) the SMART Transportation Division (SMART-TD), and the International Association of Machinists and Aerospace Workers (IAM). These three holdouts represented nearly 62,000 workers – over half of the entire railway labor force.
This tentative agreement includes wage increases and bonuses with no increases to insurance copays and deductibles, as well as more time off for certain medical events. While the Biden administration is celebrating a win, this agreement is tentative and subject to ratification by the unions’ memberships.
Should the strike have continued as planned, the potential damage to manufacturers and the US economy as a whole are substantial. According to a recent report by the Association of American Railroads (AAR), the strike would:
The timing for the strike is incredibly inopportune. The US economy is already unstable and reeling from shortages and spiking inflation. Hiring problems continue to exacerbate the situation. And the supply chain is fragile and stretched thin for many industries. Freight railroads account for over 30% of all freight movement in the United States.
For now, the railroad strike has been averted. But the agreement must be ratified by the labor union memberships. And in this window of time, manufacturers should take stock to minimize risk should the threat of a strike return. There simply isn’t enough trucking capacity available to offset the amount of freight handled by rail. This is a wakeup call to take mitigation steps immediately.
Jenny Dobmeier, of the University of Denver, recommends researching raw material substitutes and preparing for a drawdown on inventory on the supply side. On the demand side, manufacturers can prioritize orders to first serve their most important customers and secondarily fulfill non-contractually obligated orders or delay them if called for.
Ideally, manufacturers should assess their shipment situation. How many of their shipments come directly from the port? How many of them are typically sitting in rail yards or on freight trains? If need be, arrange for alternative transportation. Shipments arriving from Asia should potentially be re-rerouted to Canadian or Mexican ports to circumnavigate rail entirely.
However, many if not most manufacturers do not receive freight directly from railroads and do not have the ability to re-route as needed. These companies should analyze their immediate and critical material needs and then discuss options with freight providers. During this window, it may be prudent to ask them to prioritize trucking for critical materials first.
Next, manufacturers should conduct preliminary research local suppliers, even if more expensive. Communicate with them about your needs should the negotiations break down and a railroad strike take place in the near future. Having an open relationship with these suppliers can be crucial, even if you pay a higher price to ensure you have what you need when you need it.
Lastly, in the long-term, consider recalibrating supply chains for a more local and more resilient base. While it has been profitable for decades to source materials from around the world, many are now re-thinking globalization and the risk exposure it comes with. Ensuring sustained productivity and flexibility even in crises is becoming more and more important in our new world.
