By Victoria Cavaliere

Freight railroads and labor unions are working through the weekend to hammer out a new contract to avoid a strike that could snarl supply chains, disrupt agricultural deliveries and cost the U.S. economy more than $2 billion a day, rail officials said. 

Railroads have advised customers of some potential service disruptions starting on Monday if talks don’t progress ahead of a potential walkout on Sept. 17. Six Class I freight railroads will begin to take steps to “manage and secure” shipments of some hazardous or sensitive materials starting Monday, the Association of American Railroads, a trade group, said in a statement.

“Railroads will continue meeting throughout the weekend with the remaining unions to work toward tentative agreements,” the association said. “The railroads want, and continue to advocate for, a prompt resolution that would provide historic wage increases to rail employees – and allow the railroads to continue servicing customers and prevent further disruption to the struggling supply chain.”

With freight railroads serving agricultural, industrial, wholesale, retail and other parts of the U..S economy, a nationwide shutdown could cost up to $2 billion a day, the group predicts. At a time of elevated inflation, the stoppage could result in plant shutdowns, lost jobs and higher costs for consumers and businesses, it said. 

The two sides have been urged to continue working on an agreement that would avoid any negative impact on the economy, according to a White House official. 

Challenging Negotiations

Railroads and workers have faced years of challenging negotiations, which began in January 2020, shortly after the labor contract froze at 2019 levels. After the National Mediation Board failed to carve out an agreement earlier this summer, the Biden administration appointed a team that issued recommendations including wage increases and expanded health coverage. 

While 10 of 12 railroad workers’ unions have struck new labor deals, the two holdouts — the Brotherhood of Locomotive Engineers and Trainmen and the International Association of Sheet Metal Air, Rail, and Transportation Workers — account for more than 90,000 rail employees.

The two union groups have said they “remain committed” to negotiating a contract that meets the most important demands of its members, including wages and time off. 

A freight rail shutdown ahead of the midterm elections could also carry a political risk for President Joe Biden and the Democrats as they struggle to rebuild their historic ties with union and blue-collar voters. 

Any stoppages would “drastically make inflation worse” for Americans, said the Agricultural Transportation Working Group, a collection of 31 agricultural organizations. In a letter to lawmakers Thursday, the group urged Congress to prepare to intervene, if necessary, to prevent a strike from taking place. 

Perishable Goods

A stoppage would occur as America’s farmers harvest their crops and would exacerbate global food insecurity, likely contributing to further geopolitical instability in regions that experience famine, the letter added.

Peter Friedmann, executive director at the Agriculture Transportation Coalition, said any sort of labor disruption would hurt mostly those transporting perishable goods. “If the supply chain slows and the ship is going to be delayed getting to the foreign country, our exporter is forced to direct the temperature to drop from chilled, to frozen. And the sale price of the contents drops from maybe $175,000 to $50,000. What perished? About $125,000 perished - all the profits.”

The timing could force lawmakers to invoke their power to block or delay railroad strikes, according to experts.

“In this moment where there’s so much public concern about supply chain and inflation I think there’s going to be a lot of pressure on Congress to step in,” said Sharon Block, a former senior adviser to the Biden transition team and current executive director of Harvard Law School’s Labor and Worklife Program. “It’s a tough call because the economy is in such an unusual posture right now.”

The American Bakers Association, a Washington-based trade group representing more than 300 companies, said it was “very concerned” about a rail stoppage and its effects on an “already fragile” supply chain. 

“Even a temporary interruption would create a devastating ripple effect” that would create a shortage of materials and ingredients for baked goods, the group said in a press release.

© 2022 Bloomberg L.P.