Here’s how the freight rail strike could affect you


New York
CNN business

The US economy can continue to operate without freight trains, but not for long.

That’s why the risk of the first national rail strike in 30 years is worrying for economists and businesses.

A short work stoppage (some previous rail strikes have only lasted hours) is unlikely to cause major economic disruption. But a prolonged walkout of a week or more will disrupt the nation’s still-struggling supply chain, prompt widespread shutdowns and shortages, and likely push prices higher even as inflation nears 40-year highs.

“In one week, you see real damage to the U.S. economy,” said Patrick Anderson, an economist at the Anderson Economic Group, which estimates the impact of work stoppages.

Most people never think about the role of freight railroads in the economy. But in a week, the effects of a work stoppage will be felt by almost everyone.

A prolonged strike will result in reduced gas production, damaged crops, a choked supply of new cars and empty store shelves during the holidays. Even the daily commute can be snarled. And for factory workers, there could be layoffs in the near future.

To make matters worse, the strike may come at a time when the risk of recession is increasing. The Federal Reserve is working to slow the economy by raising interest rates to combat higher prices. Fresh inflationary pressures from a rail strike are the last thing the economy needs, said Mark Zandi, chief economist at Moody’s Analytics. “We’re in a pretty fragile place,” he said. “The supply chain is emphasized. The trucking industry is running on shoes. It’s not something you want to take a chance on. The timing couldn’t be worse. Inflation is very high, and the Fed is on the warpath.’

Railroads are still critical to the smooth functioning of the US economy. They carry nearly 30 percent of the nation’s freight, measured by distance traveled and weight of cargo, according to the Bureau of Transportation Statistics. And there really is no alternative if the trains stop.

“It would take more than 460,000 trucks every day to stop all 7,000 long-distance freight trains in the U.S., which is impossible given the availability of equipment and the current shortage of 80,000 drivers,” said Chris Spear, CEO of Americas. Trucking Associations in a letter urging members of Congress to act to prevent a strike. “As a result, rail service disruptions will wreak havoc on the supply chain and fuel inflationary pressures across the board.”

Anderson said it’s impossible to put a dollar estimate on the impact on the economy at this point, but he said the costs will grow geometrically the longer the strike goes on, starting at tens of millions of dollars and growing rapidly each day.

“It may only be in the millions, but that’s a lot if your job is being lost,” he said.

Anderson added that the $2 trillion a day hit to the economy by the railroad’s own trade group is a “gross overstatement” but that there will be significant costs spread across the economy.

“If we get to a one-week strike, we’re in uncharted territory,” he said.

Here are some important areas that would be affected by a strike in a relatively short period of time:

gasoline

The price of gas has been falling steadily for three months. But a rail strike could push prices back up due to limited supply.

Refineries get most of their crude oil by pipeline and most of the products they produce, such as gas, diesel and jet fuel, are also shipped by pipeline. But railroad tank cars are an essential part of the process of making the gas that ends up in your tank.

All the ethanol that goes into gasoline moves by rail. Without ethanol, gasoline would not meet certain environmental regulations. But even if those regulations are waived, the shortage of ethanol could raise the cost of a gallon of gasoline by about 16 cents due to the loss of tax credits, according to Tom Klozak, OPIS’s global head of energy analysis.

In addition to the crude taken by pipelines to refineries, about 300,000 barrels are moved by rail each day, a volume that could supply about two medium-sized refineries, according to data from the American Fuel and Petrochemical Manufacturers, a refinery trade group.

Many of the chemicals used in the refining process also arrive by rail, and some lower-grade products and waste materials must be shipped by rail.

“If rail cars don’t come in regularly to pick up the facility’s products, including the sulfur that refineries remove from crude oil, production will have to be cut,” the refiners’ trade group said.

Food

A strike would be a particularly bad time for the nation’s agricultural industry. Figures from the Bureau of Transportation Statistics show that trains cover 27% of the grain distance measured by weight.

“The September 16 rail shutdown would come in handy as fall harvest accelerates in many parts of the United States,” said Mike Seyfert, CEO of the National Grain and Feed Association. “The economic damage to the food and agricultural supply chain would be swift and severe.”

Railroads began refusing to accept new shipments of grain from Wednesday in preparation for a possible strike. If a work stoppage occurs, grain operators will load what they can into rail containers sitting in their yards. But they will not be able to extract or accept grain from farmers, and then they will have limited opportunities to sell their crops.

In recent months there have been improvements in the supply chain problems of farmers affected by the pandemic.

“The gains we’ve made over the last seven to eight months will be largely reversed if this strike happens,” said Terri Moore, a spokeswoman for the American Farm Bureau Federation.

Also, farmers preparing to plant for the fall season may see a shortage of the fertilizer they need, as railroads have already stopped accepting shipments that are classified as hazardous materials in many cases. This could affect the supply of future crops.

While gasoline prices are falling, food prices have continued to rise at a rate not seen since the 1970s. Supply shortages due to lost and damaged crops will fuel this inflationary pressure.

“It would certainly be a price hike for consumers,” said Max Fisher, chief economist for the National Grain and Feed Association. “If our processing plants are not operational, the food manufacturers who buy these ingredients will not have access to them for a long time. Depending on how long it’s going to last, we’re concerned about shortages, actually being able to get food.”

Beyond domestic food prices, the strike could affect global food markets, as the US is a major grain exporter. And with the war in Ukraine severely cutting off that country’s grain supply, a US supply cut will make a bad situation worse.

Cars and trucks

Production of cars and trucks has already been plagued by shortages of many vital parts, especially computer chips. This has created a shortage of vehicles for sale on dealership lots, which in turn has led to high car prices.

But that is nothing compared to what will happen with a long rail strike. About 75% of cars built in US factories or imported here are moved by rail. There are nowhere near enough trucks to transport that many vehicles.

Additionally, many of these parts are moved by rail between suppliers and car assembly plants. Production will quickly come to a halt if these rail links are cut.

Eventually, production would recover, but it would take some time to make up for lost production. This means more upward pressure on car prices.

Consumer goods

The clamor for containers arriving at West Coast ports is finally easing after years of delays and delays. And although things have gotten better, they are still not “normal” by any means.

On Tuesday the Port of Los Angeles, the nation’s largest, said it had 27,000 container ships waiting to be loaded onto trains. That’s roughly three times more than under normal conditions. Two-thirds of the current container inventory has been there for nine days or more, none of which were meant to be there that long.

“Efficient train operations are critical to the Port of Los Angeles,” said Port Executive Director Gene Seroka. “With two-thirds of our freight moving out of California by rail, the supply chain and the U.S. economy all have to work hard.”

Now is the peak season for imported goods targeting retailers ahead of the holiday shopping period. The National Retail Federation said last week it is concerned about year-end shortages if there is a rail strike.

“We are in the middle of the peak import season,” the trade group said. “Any disruption to the rail network this month could have negative consequences during this important selling season. Product delays and shortages are linked to inflation.”

Manufacturing

Most factories aim to deliver parts and raw materials before they are used on assembly lines, a process known as “just-in-time” shipments. And many factories depend on the railroad to get those parts and supplies, as well as ship them.

“For years, America’s manufacturing workers have suffered the effects of rapidly rising material costs and severe supply chain disruptions,” said a statement from the National Association of Manufacturers. A rail strike would “destroy the movement of manufactured goods on which families depend.”

A rail strike could lead to temporary factory shutdowns, as happened in the global auto industry due to a shortage of parts and computer chips caused by the pandemic.

Round trips

Although only the nation’s freight rail lines are expected to strike, many of the nation’s commuter trains travel on tracks maintained and operated by freight railroads. As a result, many passenger railroads expect to halt operations when the freight strike begins.

Amtrak has already cut service on many long-distance trains. The company has approximately 700 miles of track, primarily between Boston and Washington, DC, but about 97% of its 22,000-mile system runs on freight lines.

Many commuter rail lines are also preparing to shut down many of their operations for the same reason.

That means more commuters and more traffic and congestion, even for those who don’t normally take the train.