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Here’s what you need to know about a potential rail shutdown in USA

If a nationwide rail shutdown comes to fruition this week as some experts anticipate, it could have disastrous consequences for both passengers and freight across the United States.

Should union and rail representatives fail to reach a labor agreement by Friday, it would be the first time in 30 years that a full-scale rail strike took place. A total shutdown of the nation’s railroads could cost the U.S. $2 billion in lost economic output every day.

Suffice it to say that if a strike goes into effect, the impacts could be disastrous. But what exactly will they look like? How did we get here? Who will be affected? And most importantly — what can be done to stop it? We’re answering all of those questions and more below:

How did we get here?

A new labor deal between railroad unions and management has been in the works since January 2020. But contract negotiations stalled, prompting a federal mediation board to work on finding an agreement between the parties. Still, the two sides failed to come to a compromise, and the board ceased those efforts in June.

The next step was for the White House to get involved. President Joe Biden appointed a three-person panel called the Presidential Emergency Board (PEB), which gave the unions and railroads a 124-page report with recommendations on how to solve the impasse. According to a survey released last month by Railway Workers United, an interunion caucus, 93% of 3,165 survey respondents said they would vote “no” if the PEB’s recommendations were offered to them in a contract “as is.” In the same survey, 95.8% of respondents said that railroaders should be allowed to exercise their right to strike after the monthlong decision-making period — which ends Friday at 12:01 a.m. EDT. When will the strike go into effect?

If union and railroad representatives fail to settle the contract dispute by the deadline, the door will be open for a strike to take effect immediately. It’s still unclear whether it will actually happen, and most experts are hesitant to hazard a guess. But John J. Brennan III, a retired chief counsel for the Federal Transit Administration and former senior counsel for the Union Pacific Railroad, gave FreightWaves his take:

“A rail strike is not a certainty at this point, but here is my own prediction:

  • 50-75% likelihood of a strike or lockout that lasts up to seven days.

  • 25-50% chance of a strike or lockout that lasts more than seven days.

  • 25% or less chance of avoiding a strike or lockout.”

If a strike or lockout does happen, though, it could be as early as the following morning. That was the case the last time a shutdown happened in 1992. How many unions and members does it affect?

There were about a dozen major unions that needed to sign agreements with freight railroad representatives ahead of a possible strike. By last Thursday, five of them had reached agreements and sent them to members for ratification, followed by another three on Sunday and one on Monday. But there are still a few key holdouts. Two of the largest, the Brotherhood of Locomotive Engineers and Trainmen (BLET) and the International Association of Sheet Metal, Air, Rail and Transportation Workers – Transportation Division (SMART-TD), are still at the negotiating table. Together, the two unions have a combined 182,000 members.

A third group, the International Association of Machinists and Aerospace Workers (IAM) on Wednesday voted to reject an agreement brokered by labor and freight rail representatives. However, the IAM agreed to extend negotiations with the National Carriers Conference Committee, the group representing the railroads, to Sept. 29. What will happen to supply chains?

Experts believe that a prolonged shutdown of the country’s railroads could have a devastating economic impact. A report by the Association of American Railroads estimates that for each day a strike is in effect, it would cost rail stakeholders an astounding $2 billion in economic losses.

That’s because until the railroads are running again, shippers will have to rely on an already-stretched-thin trucking industry. The AAR predicts that an additional 467,000 long-haul trucks would be needed every day to handle the freight that would have traveled by rail. Simply put, the transportation system won’t be able to contend with a shutdown of this magnitude without putting a serious dent in the economy.

“Over the long term, most firms that use rail transportation could modify their distribution patterns or production processes so they would not have to use railroads as much as they do today,” the AAR said in its report. “For most of those firms, though, switching on short notice to trucks or barges, or changing their production processes to reduce or eliminate the need for rail service, would, at best, be extremely costly and disruptive.” What can be done to stop it?

A strike could still be averted. But it’s going to take the country’s largest lawmaking body to do it.

Congress is the only entity with the power to halt a shutdown, and that’s exactly what it did during the most recent rail strike in 1992. Typically, Congress has three options:

  • It could impose contractual terms on both the labor and management side, but this option could be difficult. Given their willingness to push the dispute this far, unions appear to expect a generous deal from the left-leaning Democrats, but experts believe the railroads have enough sympathizers in Congress to veto any conditions they deem excessive, like inflated wages.

  • Congress could also choose to punt on negotiations for now if there’s a stalemate in the Capitol building. It can extend the negotiating time further, but the longer it does, the more likely this option is to be opposed by union members. If power were to shift toward the Republican side in the future, it’s likely the lawmaking body would be less generous to union demands. Extending negotiations increases the chance that happens.

  • Congress can play ball. Rather than extend the status quo, it could freeze things and send negotiations to independent third-party arbitrators. This is the method lawmakers used to end the 1992 rail shutdown. In that case, Congress appointed one representative each from labor and management and a third that was jointly selected by both parties. Arbitrators were told to pick between the unrevised final offers of labor and management. The strategy worked, spooking the unions and railroads into settling rather than risking the arbitrator voting against them.

With midterm elections looming in November, chances are that representatives on either side of the aisle will have little desire to compromise. That makes the third option, also referred to as “baseball arbitration,” the most likely path Congress will take to avoid a shutdown.

Of course, that’s no guarantee Congress will take action. But if it doesn’t, factories could close, food and other supplies could dwindle and inflation could go through the roof.

Credit Freightwaves by Jack Daleo

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