US Supply chain: Rail strike threat dredges up new fears of US supply chain havoc

In a short time, a critical cog of the American economy could come to an abrupt halt.
Unions and freight railroads that transport about 40% of all long-haul cargo in the US have until the end of Thursday in Washington to agree to a labor deal. If they fail, more than 100,000 railroad workers could walk off the job or be locked out, paralyzing a linchpin of the country’s supply chain.
The risk of a work stoppage has producers of everything from airplanes and autos to diapers girding for yet another shock that will only add to the supply-chain chaos, inflation and labor shortages that they’ve contended with for the last two years.

Executives are drawing up contingency plans to move goods by truck or air. But neither consumers nor businesses would be spared in a shutdown that could cost the world’s largest economy about $2 billion a day.
More containers could pile up at major seaports without trains to haul away arriving cargo. Grain wouldn’t flow to bread factories and manufacturers would see the chemicals used to make everyday products cut off. Even reliable electricity could be threatened, since freight rail hauls most of the coal that still generates 22% of the nation’s power.
Railroads have already stopped taking some products for shipment, including bulk commodities, automobiles and hazardous chemicals. And for chemical manufacturers, idled rail lines could swiftly curb output at their own facilities that stock just a few days of raw material on hand. A lack of key inputs could in turn knock out production across a broader swath of industries not long after.
“That’s why we’re so concerned,” said Chris Jahn, chief executive officer of the American Chemistry Council. “It’s a matter of days before those impacts are felt.”
To be sure, if a work stoppage does occur, it’s likely to be short lived, Morgan Stanley analysts said in a Wednesday note. The Railway Labor Act gives Congress the authority to intervene and force holdout unions to accept the terms set this summer by a panel appointed by President Joe Biden. The last national rail strike, in 1991, lasted just one day after lawmakers intervened.
Still, that’s been cold comfort for companies and industry groups of all stripes, who’ve urged both sides to get a deal done. Here’s just some of what a railworker strike would mean for American commerce.
Automakers were among the first companies to be touched by the contentious labor talks after Norfolk Southern Corp. began refusing to accept newly-built vehicles for shipment Wednesday afternoon. Warren Buffett’s BNSF Railway Co. said it too will curtail its auto in-gate ahead of a potential strike.
With rail carrying some 75% of cars once they leave the factory, a freeze could slow deliveries and keep prices high for customers, said Carlos Tavares, CEO of automaker Stellantis NV. Even without the impact of a strike, logistics snarls have been holding up vehicle deliveries, so much that Stellantis invited dealers to pick out cars from yards where they are stuck, he said.
“A pity of this situation is the lead time to deliver on the orders is not going to be reduced,” Tavares said at the Detroit auto show. “Customer satisfaction is not going to be where it should be in terms of respecting the delivery date.”
Toyota Motor Corp., the world’s largest automaker by sales, is readying contingency plans such as shipping more cars by truck and temporarily storing them at sites across the US, said Andrew Gilleland, Toyota’s North American senior vice president of automotive operations.
A rail shutdown could also risk idling some of the most expensive, complex and biggest products made in the country.
Boeing Co. relies on freight railroads to ship wingless 737 jetliner frames more than 1,800 miles (2,896 kilometers) from a supplier’s factory in Wichita, Kansas, to the planemaker’s final assembly lines south of Seattle. The narrowbody jet is a critical source of revenue and profit for the aviation titan.
Representatives of Boeing and Spirit AeroSystems Holdings Inc., which builds the 737 fuselages, didn’t immediately comment on strike preparations.
Trains carry the overwhelming majority of the 100 billion pounds (45 billion kilograms) of plastic granules produced in the US each year that manufacturers turn into everyday goods ranging from diapers to menstrual-care products, bottles and shopping bags.
Pellet makers can at most hold a day or two of output in storage, so if they can’t move the plastic out of their facilities, they’d be forced to halt production, said Howard Rappaport, a plastics consultant at financial services firm StoneX Group Inc.
Some of the plastic pellets could be moved by highway, but by Rappaport’s math it would take about four trucks to haul the equivalent of what a train’s hopper car can carry. And there’s no guarantee there will be enough trucks to make up for the lost rail capacity.
“If the rail cars don’t move, on a scale of one to 10, this would probably be a nine or nine-and-a-half,” Rappaport said.
A long rail strike would also crimp the flow of coal, which could make it harder for power companies to keep the lights on.
“An extended outage would have implications for reliability,” said John Verderame, Duke Energy Corp.’s vice president of fuels and systems optimization.
Duke, one of the biggest US power companies, has enough coal stockpiled to weather a “limited disruption” and has backup plans to limit the impact of a rail strike, Verderame said in an interview Wednesday. The company could burn more natural gas or fuel oil and could also move coal using trucks instead of trains — although it would take about 450 trucks to move as much coal as a single train, he said.
The risks to reliable power have been telegraphed for months, after the nation’s main utility trade group warned the White House in July that a railroad strike could threaten the reliability of the power grid.
“As you know, supply chains remain constrained, and any additional delays, particularly to coal deliveries and coal generation-related consumables, could affect the generation capacity and operations of electric companies across the country,” Thomas Kuhn, president of the Edison Electric Institute, wrote in a July 13 letter to Biden and Vice President Kamala Harris.
The group hopes Congress will act to extend the negotiations if no agreement is reached by the deadline, a spokesman said Wednesday.
Like autos, farm products were among the first sectors to see railroads dial back service. Norfolk Southern plans to halt unit train shipments of bulk commodities on Thursday and other freight railroads are likely to follow suit, according to one agriculture group.
“We are hearing several rail carriers are tentatively planning to wind down shipments,” said Max Fisher, chief economist at the National Grain and Feed Association, which represents most US grain handlers.
A rail car could carry enough wheat to produce 260,000 loaves of bread or enough corn for 480,000 bags of Frito’s, said Tom Madrecki, vice president of supply chain and logistics at the Consumer Brands Association. Processed foods that rely heavily on one commodity or another — think peanuts for peanut butter and oats for cereal — could be among the first to be in short supply on store shelves, he said.
“There’s certain types of products where you see that high level of concentration of a particular commodity,” he said. “And that’s, I think, where your consumers will see that impact the soonest.”
The strike would have long-term effects because any resulting price increases are likely to kick in only months later, said Katie Denis, vice president of communications at the Consumer Brands Association.
Apparel giant Gap Inc. moves less than 1% of its inventory by rail, and uses other forms of transportation exclusively for any critical freight, a spokesperson said. A Macy’s Inc. spokesman said the department-store chain is monitoring the situation and working with partners on potential mitigation strategies.
Still, retailers are already ramping up imports for the holiday season. Even if a strike only lasts one day, that would potentially back up shipments and exacerbate supply-chain delays for weeks, said Jeff Bergmann, executive director of the International Housewares Shippers Association.
Some companies would probably turn to trucks to move their cargo inland if there’s a strike. But that’s a much more expensive option than rail, and truckers have signaled that they wouldn’t have the capacity to handle a surge in demand.
“We’ve seen over the past few years that once gridlock hits, it’s a mess,” Bergmann said.
The impact on consumers will depend on how much inventory retailers and manufacturers are holding, said Jonathan Greenway, global leader of the consumer products practice at consulting firm AlixPartners.
“If there’s two weeks worth versus eight weeks worth of supply, that’ll make a big difference,” he said.
Shipping by truck isn’t an option for a commercial airliner. Trucks also can’t replace the huge volume of chemicals used to make plastics and other products, grain that helps stock grocery store shelves and coal that illuminates homes.
There aren’t enough specialized trailers required for hauling coal, tankers to carry chemicals and grain can’t be hauled by truck, said Avery Vise, vice president of trucking at FTR Transportation Intelligence. He said trucking could help keep other supply lines — such as retail and consumer goods — running during a work stoppage of a few days, but there simply isn’t enough capacity to absorb a lengthy shutdown.
“There’s no way the transportation community writ large could handle a work stoppage of a week or longer,” he said.
(With assistance from Jen Skerritt, Gabrielle Coppola, Julie Johnsson, Daniela Sirtori-Cortina, Jeannette Neumann, Josh Saul, Mark Chediak and Olivia Rockeman)