If freight trains stopped running, how would it affect your business? As companies across all industries braced for the potential railroad strike of 2022, many wonder what it could’ve meant.
With the trucking industry operating near capacity, the effects of a railroad strike could devastate the economy. Learn why rail workers threatened to strike, how it was avoided, and what this means for the future of logistics.
Why Did the Railroad Go on Strike?
In early September 2022, rail workers across the United States planned to strike. Rail freight companies and railroad labor unions had long disagreed over labor conditions in the industry.
For years before the COVID-19 pandemic, railroad companies had reduced their workforces. However, demand for freight services across the entire transportation and logistics industry skyrocketed as a result of the pandemic.
Increased supply chain pressures led to the strict penalties for workers taking time off, even for funerals and doctors’ appointments. Workers also reported forced overtime, excessive on-call shifts and dangerous working conditions due to being overworked.
Eventually, they reached an agreement that prevented the railroad strike from happening. The compromise was certainly welcome, because a strike would’ve cost over $2 billion per day in economic output.
What Agreement Was Reached To Stop the Rail Strike?
Hours before the railroad strike was planned to begin, rail union leadership and freight rail companies came to accord. The agreement brokered by President Biden includes compromises from both sides to improve conditions for rail workers.
If the agreement is ratified, railway workers will get:
- 24% wage increases over five years, stretching back to 2020
- Backpay averaging $11,000 per worker
- More freedom to take unpaid leave for appointments
Could a Railroad Strike Still Happen?
As negotiations are in process, the rail union has agreed not to go on a worker strike. But until the agreement between rail union leadership and management is in effect, a railroad strike still could take place.
Grievances within the railroad industry are a global issue, with labor strikes planned throughout the U.K. for October 2022. If working conditions within the industry do not improve significantly, railroad strikes remain a serious supply chain risk.
How Would a Rail Strike Affect the Country?
With nearly 30% of U.S. freight transported by train, a strike could devastate the supply chain — and the U.S. economy. Prices would rise for most commodities, including fuel and consumer goods. Food insecurity is an enormous part of the risk, given that most farm products are moved by train.
For most goods carried by train, the only alternative is trucks. In the event of a railroad strike, trucking companies would try to absorb as much of the demand as possible. However, there is already a shortage of 80,000 truck drivers in the U.S. As such, many loads could get stuck within the supply chain.
How Railroad Strikes Could Impact the Supply Chain
In the event of a railroad strike, the train freight loads would have to be moved in a different way. This impact on the supply chain would be felt by nearly every business that relies on shipping, including the trucking and cargo ship industries.
Imbalanced Truck Routes
Freight trains are a vital part of the shipping industry, and a railroad strike would cause a significant imbalance in trucking routes. This imbalance would largely stem from the fact that a large percentage of cargo moved by train is intermodal freight.
Intermodal freight refers to loads that are transferred between different areas of the country by train and then transported a much shorter distance by truck. Without being able to rely on cargo trains for long-haul shipping, there would be a much greater demand for long-haul trucking.
Need For Larger Truckload Capacity
Did you know that one railroad car has the same capacity as three to five semi trucks? Freight trains are built to move massive volumes of cargo, including goods that are more difficult to transport via truck, such as chemicals, coal and grain.
If all long-distance freight trains in the U.S. were to stop running, the supply chain would require an additional 460,000 long-haul trucks to keep up with demand. With the current truck driver shortage and the subsequent lack of available equipment, the trucking industry must find ways to immediately increase truckload capacity. This is especially apparent for tanker and hazardous materials trucking, as seen by the current gas truck driver shortage.
Increased Port Congestion
Since mid-2020, the largest U.S. ports have been experiencing significant congestion. This port-related congestion started with an increased demand for imported consumer goods, but it was compounded by recent labor union negotiation disagreements, which were similar to what is currently occurring with railroad unions.
If freight trains stop moving and truckers cannot increase loads to keep up with the sizable demand, companies would have to find other ways to ship their goods. The only option left for many shipments is via cargo vessel.
However, this added stress would cause additional congestion in the largest U.S. ports, including Savannah, Houston and New York. As a result, even more shipments would then be delayed.
Lack of Workers
Not only would a rail worker strike cause an increased demand for larger truckloads, but it would also mean more demand for trucks and truck drivers alike. According to the American Trucking Association’s chief economist Bob Costello, the current truck driver shortage has risen to an all-time high, with a shortage amounting to 80,000 drivers.
The industry will need one million new drivers to meet trucking demands. With the added stress of a railroad strike, trucking companies must recruit even more new drivers to avoid running into supply chain issues.
Shortage of Fuel Supplies
On average, cargo trains are three to four times more fuel efficient than trucks. With current fuel shortages, a sudden shift to moving loads by truck when they were previously moved by rail would drastically impact fuel demand. This could not only force fuel prices to skyrocket, but it could also increase greenhouse gas emissions by up to 75%.
Hurt Businesses
Without reliable rail shipping as the result of a labor strike, businesses in practically every industry would feel the effects. Shipments that would typically travel across the country by rail would need to be moved in a different way, causing delays and shortages of goods across the country.
Farmers would especially struggle if a rail strike were to occur. Essential commodities, like fertilizers, are moved almost exclusively by train, as are bulk food products, like grain. Without freight trains, these hard-to-move goods would cost far more due to transportation costs, but that’s only if there are enough trucks to keep up with the heightened demand in the first place.
The Railroad Strike, The Supply Chain and Your Business
Although an agreement has been reached to avoid the railroad strike in 2022, small businesses can learn from the potential problems it would have caused. Supply chain issues would quickly become noticeable, and prices would soon rise. By staying informed about current shipping risks, such as railroad strikes, and keeping up to date with supply chain technology, you can be better prepared for problems that could affect your business.
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