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National Railroad Strike Deadline Draws Near

National Railroad Strike Deadline Draws Near

September 12, 2022670 view(s)

The negotiation deadline for a nationwide railroad union workers’ strike is September 16, 2022. The Association of American Railroads released a report stating a shutdown would have an economic loss of about $2 billion per day. The strike would have a compounding affect across the economy if the strike lingers. Millions of people work in industries relying on railroads to buy and sell their products. There would be layoffs in many sectors, shortages, higher prices, disruptions to GDP, and even more political divisiveness before the mid-term elections.

National Railroad Strike Deadline Draws Near

Only five of twelve unions have reached tentative working agreements with the railroads. The five unions represent about 21,000 of the 115,000 U.S. Class I railroad employees . If an agreement is not reached and a strike happens, it would take an additional 467,000 long haul trucks per day to compensate and keep the supply chain moving. 

There are not enough trucks or truck drivers available to deal with a shutdown. According to the American Trucking Associations, the trucking industry currently has a driver shortage of 80,000 to the current demand. Currently, the trucking industry moves about 9,000 ton-miles per day. The railroad industry moves about 4.20 billion ton-miles per day. The  trucking industry cannot even handle a fraction of the railroad workload. 

What Do the Workers Want?

The negotiations have been going on for years, but the complaints fall into a few categories. Workers are upset about working conditions and exposure to hazardous materials, rigid schedules that make time off almost impossible, and issues about compensation.

What is Being Offered?

What is a Ton Mile?

President Biden created a special mediation unit called Presidential Advisory Board (PAB) to avoid a strike. The PAB has recommended a 14.1% pay increase effective immediately, a 24% compounded wage increase backdated from 2020 to 2024, back pay, healthcare benefits and vacation time provisions. See the PAB proposal. The current average salary of Class I railroad workers is $95,700, and with existing benefits total compensation equals about $135,700 per year. If the 14.1% pay increase is approved, the average salary would immediately become $109,193.70.

What Would be the Impact of a Railroad Strike?

Many goods are transported intermodally, which means multiple transportation mediums. For example, an item may arrive in the U.S. via boat. It gets loaded into a railcar and transported across the country. It is then loaded on a semi-truck and brought to a warehouse. The final mile delivery happens in a van. Countless people will be affected by a railroad strike. There will be supply chain bottlenecks and workers who get laid off.

The most immediate effects would be felt in industries connected to food/agriculture, chemicals, coal, construction, automobiles, passenger trains like Amtrak, and delivered consumer goods like UPS. 

Food/Agriculture: Railroads ship more than 20% of all grain products and a much higher percentage over long distances. More than 6,300 railcars per day carry food and food products. One railcar carries enough wheat to make 260,000 loaves of bread. Railcars are also the primary means of transportation of bulk animal feed. One car carries enough to feed 36,000 chickens. 

Chemicals: According to the American Chemistry Council, railcars transport approximately 19% of all chemicals. Approximately 5,300 railcars transport chemicals daily. One of the primary chemicals transported by train is fertilizer. One rail car of nitrogen fertilizer is enough to treat about 4,500 acres of farmland. Fertilizer has jumped by 300%. The Russian invasion of Ukraine has already diminished both wheat and fertilizer imports. A railroad strike would be a double whammy for farmers and consumers.

Coal: In 2022, around 9,300 railcars daily are filled with coal. Coal produces more than 20% of American electricity, and railcars carry 70% of that. One rail car carries enough coal to power 7,300 homes. If there is a railroad strike, approximately 38,000 coal mine workers could be laid off.

Construction: About 1,600 railcars carry lumber and paper products daily. Most lumber used in construction comes from Canada, so railroads play a significant role in the American housing market. 

Automotive: 75% of finished new cars and light trucks are transported by railcar. More than 2,000 rail cars per day start the journey of a finished automobile. Even slight delays in parts delivery can translate into a much longer wait time for finished delivery because the assembly line comes to a screeching halt. The automotive industry uses a supply management strategy called "just in time" to manage inventory.

Passenger trains: Nearly 97% of the tracks Amtrak drives on are owned by the freight railroads. Amtrak relies on freight railroad workers for many services in different parts of the country. Some of those services are emergency repairs, dispatch, and communication capabilities. Approximately half of the commuter trains use tracks owned and operated by the freight railroads. Many people will not be able to commute to and from work.

Delivery Services: UPS is one of freight rail’s largest customers. Each railcar can carry around 2,000 packages. A UPS-loaded train with 100 cars could represent 200,000 potential Christmas presents daily. 

Economic Forecast: 100% Chance of Inflation

Let’s all hope the parties can come to a resolution and the strike is avoided. However, if the parties agree or not, inflation is the most logical outcome. If the strike happens, there will be severe supply chain interruptions. Supply chain issue inflation is called "demand-pull inflation.” The demand for goods will be much higher than the supply driving prices upward. If they achieve a contract, production costs across industries will increase. Since raising production costs are passed on to the consumer, this type of inflation is called "cost-push inflation." 

Seven unions still have not agreed to a 14.1% wage increase. Suppose 14.1% is the agreed-upon number. It grows exponentially, not linearly. The farther down the supply chain, the higher the percentage markup customers will pay. For example, fertilizer companies now have at least a 14.1% increase in transportation costs to receive their supplies. They will increase their prices accordingly. When they ship the fertilizer to the farmer, the farmer is now paying the fertilizer markup and the shipping increase. The farmer has his challenges forcing another markup. When the dust settles, the consumer will pay more than a 14.1% increase for the item. Business expenses will snowball downhill, which is why PPI is a good predictor of CPI. The current PPI is 9.8%. The current CPI is 8.5% (spoiler: Inflation isn’t over and hasn’t peaked. Numbers are heavily manipulated to change the narrative before the election. Be prepared. The “relief” politicians tell you that you have, to use their inflation word, is transitory.) 

No matter how this negotiation ends, economics and history say more of your purchasing power will be destroyed on the other side. Companies will have supply challenges, or they will have to pay more to receive those goods. Either way, profits go down, and prices go up. 

What do you think the predictable results in the stock market will be after the 16th?

Did you know you can get out of the way of this runaway, soon-to-be unmanned inflation train? Gold is a trusted store of value. Why not get out of the way of the people getting off the tracks?

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About the Author: Ryan Watkins


Ryan is proud to be an Army veteran. After honorably serving his country, he studied finance, marketing, and kinesiology and graduated Cum Laude. Sharing a professional, practical, well-rounded investment perspective is his primary objective. Ryan invests in many different assets but admits he likes tangible assets best. His sincere passion is educating people and helping them make the most informed choices.

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Ryan Watkins, Op-Ed ContributorbyRyan Watkins, Op-Ed Contributor
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