Deadline to Avoid a National Rail Strike Which Could Cost Economy $2 Billion a Day Is Near

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  • The Association of American Railroads has released a report projecting the economic impact of a nationwide railroad strike could be more than $2 billion a day.
  • A cooling-off period for negotiations expires September 16, when unions can strike.
  • Five of the 12 unions have reached voluntary agreements with the railroads.
  • Wage increases proposed by an emergency board appointed by President Biden would be the most substantial in at least 40 years of rail labor negotiations.

On the heels of the latest round of labor negotiations between the National Mediation Board, unions, and freight railroads, the Association of American Railroads has released a report projecting that the economic impact of a nationwide railroad strike could be more than $2 billion a day.

So far, five of the 12 unions, representing 21,000 employees, have reached voluntary agreements with the railroads. The expiration of the 30-day cooling-off period when unions can walk off the job is midnight on September 16. There are just under 115,000 Class I railroad employees in the U.S., according to August data. 

If a strike happens, the report from the AAR’s policy and economics team — which uses historical data from the Federal Railroad Administration — states that the 140,000-mile network of rails across 49 states and 7,000 Class I trains would be idled, and the impact would cripple both the movement of trade and commuters.

There are not enough trucks or truck drivers to move the rail bound containers, according to the report, with an additional 467,000 long-haul trucks per day needed to handle the freight.

Logistics CEOs tell CNBC the impact of a nationwide rail strike would impact the economy far more than a port strike on the West Coast.

"Depending on the length of any service interruption, the overall impact would double each day the interruption continued," said Alan Baer, CEO of OL-USA. "As we experienced with the ports, delays mounted quickly and it is now taking weeks to unwind. Domestic trucking rates would surge as capacity disappears. Overall a nightmare scenario."

Wage increases the railroads are offering

The details of the deal were recommended by the Presidential Advisory Board appointed by President Joe Biden in July to avert a strike. They are non-binding, but if implemented, would see employees receive a 14.1% wage increase effective immediately, and a 24% compounded wage increase during the five-year period from 2020 through 2024. Service recognition bonuses would also be given to employees over the duration of the contract and would total $5,000. Combining the lump sum payments and the retroactive wage increases, employees would receive an average immediate payout totaling more than $11,000.

The average pay of a rail employee if the deal is ratified would be approximately $110,000 per year by the end of the agreement. Combined with benefits like retirement, and health care, employees would earn $160,000 a year. If agreed upon, industry insiders tell CNBC the general wage increases will be the most substantial in at least 40 years of rail labor negotiations. According to the industry report, the average U.S. Class I freight rail employee earned wages of $95,700 and fringe benefits of $40,000 in 2020, for total compensation of $135,700.

Terms of the deal have to be agreed upon between the unions and railroads.

The National Carriers' Conference Committee, which represents freight railroads, declined to comment to CNBC, citing the sensitivity of active negotiations. A spokesperson for the Transportation Trades Department of the AFL-CIO — a federation of 37 leading transportation worker unions in the U.S. — also cited the ongoing negotiations in declining to comment.

Some holdout unions have recently issued strong statements about their position. The leaders of the BLET and Smart-TD unions said in a Labor Day statement that they had been "carved out" from the rest of rail labor as "we were the only Unions that the Carriers insisted upon work rule changes from throughout the PEB hearing."

"It has become clear in our post Presidential Emergency Board ("PEB") negotiations with the Rail Carriers that they are counting on the Federal Government to come to their aid if we are unable to reach a Tentative Agreement, and so far, we have not reached an Agreement," BLET President Dennis Pierce and SMART-TD President Jeremy Ferguson stated. "The same rail carriers that complain about government intervention when the Federal Railroad Administration proposes a rulemaking on crew size, and also shudder at the thought of the Surface Transportation Board issuing regulations that would help shippers, now all but hide behind Congress, refusing so far to negotiate terms our members would accept and ratify."

In a statement, AAR President and CEO Ian Jefferies said, "As the freight sector heads into peak shipping season, a nationwide rail work stoppage would result in an unnecessary $2 billion daily economic hit. President Biden's PEB recommended terms that would maintain the highest quality health care coverage and result in compounded wage increases of 24%, bonuses totaling $5,000 — the highest pay increases in nearly 50 years."

"Like those unions that have already tentatively agreed to the PEB deal, each of the remaining unions can still enter into agreements based on these recommendations. However, should negotiations fail and result in a work stoppage, Congress must act to implement the PEB recommendations — rewarding employees and stopping unnecessary economic harm and uncertainty for rail customers."

Industries call on Congress to intervene

Several major industries including the Fertilizer Institute and Retail Industry Leaders Association have sent letters to Congress urging intervention.

"Over half of all fertilizer moves by rail year-round throughout the United States and the timeliness and reliability of fertilizer shipments is absolutely critical," TFI said in its letter. "If farmers do not receive fertilizer, it results in lower crop yields, higher food prices, and more inflation for consumers."

RILA members, which account for more than $1.5 trillion in annual retail sales, wrote, "Failure to reach a reasonable agreement could result in significant disruptions to the rail network, the retail industry, and ultimately the American consumer."

According to the AAR report, the industries heavily relying on rail to move their products include e-commerce, agriculture, chemical, automotive, construction, and coal.

"UPS, for example, may be the single largest rail customer," the report stated. "A single intermodal container or trailer railroads carry for UPS could contain 1,800 to 2,000 packages. A train with 100 containers or trailers could have 200,000 UPS packages headed for our doorsteps."

The report noted the U.S. supply chain would also be disrupted by raw materials delays, such as lumber from Canada used for home building and construction, to autos and auto parts.

Commuters, Amtrak impact

Amtrak would also be significantly impacted, according to the AAR report, because the passenger railroad service owns a very small fraction of its rail system, with the remaining 97% running on tracks owned and maintained by freight railroads. In addition to the rails itself, the freight railroads also offer services to Amtrak ranging from station maintenance, train dispatching, and emergency repairs to security.

Both the union and railroad negotiators will meet again with the National Mediation Board on Thursday and Friday. The negotiations between the 12 railroad worker unions and the National Carriers' Conference Committee have been going on for years.

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