This Time, US Railroad Strike Sparks Supply Chain Crisis... "It Will Be an Economic Disaster"

A freight train is on the tracks in Framingham, Massachusetts, USA, on the 14th (local time). The railroad union has warned that if wage negotiations between railroad workers and management are not settled, they will go on strike nationwide for the first time in 30 years on the 17th. [Image source=Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] The U.S. railroad system is on the brink of a shutdown due to a labor union strike starting on the 17th (local time). If the operation of freight trains, which handle over 30% of domestic logistics, is halted, the supply chain issues that had recently shown signs of recovery will worsen, leading to massive economic turmoil. As the strike deadline approaches, Amtrak, the passenger railroad, has begun canceling long-distance route schedules in preparation.

According to local media including The Washington Post (WP), as of the 14th, two of the largest among the 12 unions representing U.S. railroad workers have yet to reach an agreement with management on working conditions. These unions have warned that if no progress is made by the negotiation deadline of the 16th, they will strike starting at 12:01 a.m. Eastern Time on the 17th.

There are approximately 120,000 railroad workers in the U.S., with over 60,000 belonging to these two unions alone. For a railroad strike, the first in about 30 years, to be averted, all 12 unions must agree. However, the risk of a strike has increased as another union that had previously reached a tentative agreement saw its members reject the deal in a vote on the same day.

Railroads account for about two-fifths of long-distance freight in the U.S., playing a crucial role in the supply chain. If a railroad strike occurs, it is estimated that the U.S. economy could suffer damages exceeding $2 billion (approximately 2.8 trillion KRW) per day. Considering that the average daily production scale in the U.S. last year was $63 billion, this amounts to over 3% of that figure.

With transportation costs soaring and labor shortages severe since the pandemic, a railroad shutdown would inevitably increase companies' cost burdens. Global companies that transport export cargo via rail are already on high alert. Japanese automaker Toyota has confirmed it is preparing contingency plans.

The U.S. Chamber of Commerce expressed concern, stating, "The strike would deal a fatal blow to logistics supply chains for food, steel, coal, lumber, fertilizer, auto parts, crude oil, and more, leading to shortages of consumer goods, manufacturing shutdowns, and causing major disruptions for millions of train passengers," adding, "It would be a national economic disaster." WP reported, "The conflict between railroad companies and unions could escalate into a logistics crisis by Friday, affecting not only train commuters but also the national economy, posing a political challenge for the president who has prioritized resolving supply chain disruptions since the COVID-19 outbreak."

The impact is already evident. On this day, Amtrak announced the cancellation of long-distance route schedules known as transcontinental railroads across the U.S., considering the effects of the railroad strike. Although Amtrak is not directly involved in the negotiations or strike led by the railroad unions, it made this decision due to potential impacts on the tracks. Commuter rail systems in major metropolitan areas such as Chicago and Los Angeles also announced possible disruptions due to the railroad union strike. Shipments of ammonia, fertilizer, and other scheduled cargo are also being delayed. Ethanol prices and others surged this week amid strike concerns.

The Biden administration, facing the November midterm elections, is in a state of emergency. The White House confirmed it is exploring alternatives in case of a strike. However, the industry estimates that replacing halted railroads would require an additional 467,000 trucks across the country, making substitution with other transportation modes practically impossible.

Rubella Faruki, Chief Economist at High Frequency Economics, predicted, "If the strike begins, the supply chain will plunge into chaos once again," adding, "Both sales and factory operations will be affected due to product shortages, ultimately leading to price increases." This is expected to further fuel inflation in the U.S., which is at its highest level in about 40 years. The U.S. Consumer Price Index (CPI) for August, released the previous day, rose 8.3% year-over-year, spreading concerns about prolonged high inflation across the market. Meanwhile, the August Producer Price Index (PPI) released on the same day showed a slowdown from the 9% level in July but did not alleviate inflation worries.

The railroad unions are demanding wage increases, expanded paid leave, and improved working conditions. The Chamber of Commerce argued that if labor and management cannot reach an agreement voluntarily, Congress should implement the recommendations of the Presidential Emergency Board. Earlier, the Presidential Emergency Board, formed by the Biden administration in mid-July to resolve the dispute, recommended a tentative agreement including a 24% wage increase and a $5,000 bonus through 2024.

This content was produced with the assistance of AI translation services.