US rail strike could pose some problems for food commodities and fuel.
America's railroads carry nearly 30% of the country’s freight, and a strike or a management lockout would cost the economy $2 billion dollars a day,...
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Industries from big retailers to utilities are bracing for disruptions if a strike of the nation’s railways cannot be averted this week.
America’s railroads carry nearly 30% of the country’s freight, and a strike or a management lockout would cost the economy $2 billion a day, according to the Association of American Railroads.
Companies increasingly rely on rail to move their products around the country, pushing the volume of containers and trailers being transported by rail to 14.1 million units in 2021, from 5.6 million in 1990, according to AAR data.
Railroads act as the nation’s vital artery, moving everything from chemicals to chickens. “They are a cost-effective way to move products ” more than 500 miles, says Michael Dominy, head of supply chain research at Gartner. He says the biggest impact of a strike will be to the food supply.
FMI, the Food Industry Association, said in an email to
Barron’s that while it is concerned with the potential effects of a rail strike, food retailers and suppliers are resilient. “We remain confident that the food industry will be able to adapt to these rapidly evolving circumstances and find solutions to keep goods flowing should a strike or lockout occur.”
The National Retail Federation warned Congress that an interruption in rail service now would be especially harmful. “We are in the middle of the peak import season as retailers bring in their holiday merchandise for the all-important fourth quarter,” said David French, the trade group’s senior vice president of government relations, in a letter to Congress. “Any rail network disruptions this month could have long-lasting negative effects on this important selling season.”
Retail giants including
Walmart (ticker: WMT) and
Amazon.com (AMZN) rely on BNSF Railway and
Norfolk Southern (NSC) trains to ship tens of thousands of containers domestically, the Journal of Commerce Online reported.
Railroads are also used to transport supplies and products for
Nike (NKE),
Coca-Cola (KO),
Procter & Gamble (PG), and auto makers, said Dale Rogers, a professor of supply chain management at Arizona State University. Rail shipping appeals to more companies because it helps meet their energy sustainability goals, he said.
Logistics companies such as
J.B. Hunt (JBHT),
Hub Group (HUBG), and
XPO (
XPO ) also have a stake. Spot rates would likely jump for truckload operators, which also include
Knight-Swift Transportation Holdings (KNX) and
Werner Enterprises (WERN), Cowen analysts wrote in a Monday note, as well as at brokerage operators such as
C.H. Robinson Worldwide (CHRW).
In energy, roughly 70% of ethanol produced in the U.S. is shipped by rail, primarily from the Midwest to coastal markets, according to the Renewable Fuels Association.
Patrick De Haan, GasBuddy’s head of petroleum analysis, notes that
ethanol is blended into much of the nation’s gasoline, and gas prices could jump
35 cents to 75 cents a gallon if a railroad strike lasts more than a few days.
Duke Energy (DUK), one of the biggest electric utility companies, has contingency plans that include relying more on gas-fired power generation where it needs to and trucking coal if a strike were to disrupt supplies.
“Continued rail transportation is a critical component to maintaining reliable operations however, in the event of a strike, we have contingency plans in place to mitigate a disruption,” said Duke spokeswoman Jennifer Sharpe.
The possibility of a strike increased on Wednesday morning, after one of the labor unions said its members
rejected the tentative deal its leaders had reached.
The International Association of Machinists and Aerospace Workers, representing 4,900 members, is one of the 10 labor unions that tentatively agreed to a compromise proposed by a presidential advisory panel.
Two other labor unions, the Teamster-affiliated Brotherhood of Locomotive Engineers and Trainmen, and the Transportation Division of the International Association of Sheet Metal, Air, Rail and Transportation Workers, which together represent over 60,000 engineers and conductors, have not reached agreement.
Representatives from carriers and unions met with Labor Secretary Marty Walsh on Wednesday, trying to reach agreement and avert a potential strike before 12:01 a.m. Friday deadline, The Wall Street Journal
reported.
The unions that have reached tentative settlements with the rail operators have said they would follow the engineers and conductors if they go out on strike.