Sep 12, 2022 - Economy

Possibility of railway and port strikes threaten supply chain recovery

Illustration of hands holding picket signs made from shipping containers.

Illustration: Allie Carl/Axios

Two huge labor disputes, in the railways and at the ports, threaten to re-tangle supply chains in the U.S. And the White House is pushing to avert disaster, engaged at a level not seen in decades.

Why it matters: The stakes are sky-high economically. A shutdown of the nation's rail system could cost $2 billion a day, according to an industry estimate, and we've already seen what backed up ports do to the economy. Politically, any work stoppage would spell disaster for a pro-labor White House determined to keep inflation in check and avert bottlenecks.

  • "A shutdown of our freight rail system is an unacceptable outcome for our economy and the American people," a White House official said in a statement to Axios over the weekend. "The Administration has been actively engaged, pushing for a resolution. All parties need to stay at the table, resolve outstanding issues and come to an agreement."
  • Driving the news: Over the weekend negotiations continued between the country's largest freight railroad companies — including Berkshire Hathaway's BNSF, Union Pacific and CSX — and the majority of the unions representing around 115,000 workers. They're racing to meet a Friday deadline, when a "cooling off period" runs out and workers could strike.
  • Meanwhile: Port workers on the West Coast have been in negotiations for a new contract; the last one expired in June.

Zoom out: The freight railway "serves nearly every agricultural, industrial, wholesale, retail and resource-based sector of the economy," explains the industry's trade group in a paper.

  • If the rails grind to a halt, it would be left to the nation's trucking system to pick up the slack — that'd be costly and there isn't enough capacity to handle all the extra stuff.
  • For example, a single trailer on a freight train can contain 2,000 UPS packages, notes the trade group. 75% of new cars are moved on the rails — at a time when the auto supply chain is just getting back on its wheels.
  • The American Trucking Associations, a trade group, is urging Congress to step in if negotiations fail, Reuters reported.
  • Separately, an 11-day lockout at the ports back in 2002 cost the U.S. economy $11 billion at that time, the New York Times noted recently.

Zoom out: In the modern era, the White House typically stays out of labor negotiations — maybe just swooping in at the last moment to help sides reach a resolution. But the Biden administration is working differently in these disputes — and not just because this president has been so vocal about his support for unions.

  • "The supply chain crisis put the ports and the railroads on the radar screen," says Geraldine Knatz, who was executive director of the Port of Los Angeles from 2006 to 2014.
  • The White House in May appointed a "port czar" to keep an eye on the supply chain. That's not something that's happened "during my time," says Knatz, now a professor of policy and engineering at USC.

What to watch: There's that looming Friday deadline. Longer-term, there's also a slim possibility of a shipping knot on the nation's highways.

  • UPS and its workers' union will start negotiating a new contract next year, raising the possibility of more transport turbulence in 2023.

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