A Railroad Strike For Christmas?

During the contentious Brexit negotiations, Britain’s then-Prime Minister Theresa May was fond of saying that “nothing is agreed until everything is agreed”.

A similar logic applies to the efforts of US rail carriers to secure new labor contracts with the several unions representing the nation’s railroad workers: no labor contract is done until all labor contracts are done.

This is taking on increased significance with yet another union rejecting the contract terms brokered by the White House back in September.

One of two of the country’s largest railroad unions said Monday their members voted to reject a new wage deal brokered by the White House, moving closer to a labor strike that could disrupt some supply chains as soon as early December.

The unions representing engineers and conductors, the Brotherhood of Locomotive Engineers and Trainmen, and SMART Transportation Division, were the final two out of the 12 unions reporting the ratification of votes in a protracted labor dispute.

Because none of the 12 unions are likely to cross another union’s picket line, if even one of the 12 goes on strike, all 12 unions are certain to join them in a labor stoppage.

Labor leaders had signaled Nov. 19, as a possible strike date, but that's since been extended to Dec. 9. While around half of the unions involved in the negotiations have signed off on the labor deal, a strike by any of the 12 freight rail unions would prevent others from crossing the picket line and usher in a nation-wide strike that could have an estimated $2 billion-per-day impact on the U.S. economy.

Thus, until all 12 unions have agreed to new contract terms, none of the 12 unions have agreed to new contract terms.

Perversely, while a nationwide rail strike would be devastating to the US economy, the roiling of rail freight could actually have some short-term benefits for freight carriers, who have been watching freight demand drop….and drop…and drop.

Container imports, rail intermodal shipments and truckload demand have fallen from their lofty peaks during the pandemic era and may be a better indicator of how inflation will be tamed in the coming months than the Consumer Price Index (CPI) itself.  

Container import bookings measured by FreightWaves’ Inbound Ocean TEUs Index (IOTI) are now only roughly 6% higher than they were in November 2019 after averaging 80% above pre-pandemic levels through most of 2021.

Loaded intermodal container volumes on the rails (ORAILL) are down 7% versus mid-November 2019 levels. 

The Outbound Tender Volume Index (OTVI), a measure of shipper requests for truckload capacity, is now only 9% higher than it was the week before Thanksgiving in 2019 after averaging nearly 50% above pre-pandemic norms from July 2020 to March 2022. 

In what would be a mini-replay of the supply chain disruptions that followed the 2020 pandemic lockdowns, freight demand and freight rates would very likely get a brief boost once the rail strike was resolved. While any such increases would only be short-lived and likely would not prevent further decline in freight demand, freight carriers would no doubt find a bit of silver lining in a rail strike that had as an after-effect even a brief uptick in freight demand.

However, for the rest of the economy, any uptick in freight rates would translate into yet another burst of consumer price inflation that would send the Fed into a rate-hiking frenzy. The damage both the strike and the Fed’s response to the ensuing inflation surge would do to the economy would be quite significant.

Not exactly the sort of gift anyone would want to see under the tree this Christmas, and yet the odds are rising that everyone will see exactly that gift.