What a National Rail Strike Could Mean for Business and the Economy

Executive Summary

  • In total, there are 12 unions with 13 different labor contracts with 30 different rail management companies covering around 124,500 employees.
  • Unions and management have been in negotiations for a new labor agreement since 2020.
  • In July 2022, President Biden appointed a Presidential Emergency Board (PEB) to recommend contract terms.
  • In September 2022, a tentative agreement between union leadership and rail management was reached subject to the individual membership ratification votes of each of the unions.
  • Nine of the unions have voted to ratify the tentative agreement, and 4 have voted it down.
  • Differences include union member requests related to staffing, scheduling requirements and paid sick leave.
  • The “cooling off period” expires at 12:01am December 9, 2022, after which any one or more of the unions that voted down the tentative agreement may call a strike.
  • If one union strikes, all other unions — even those that have voted to ratify the agreement — have promised to honor the strike, effectively resulting in a nationwide and system-wide work stoppage shutting down rail freight (and most passenger rail service) in the U.S.
  • If the parties are not able to reach an agreement to avoid a strike, Congress can legislatively impose a longer “cooling off period,” end any called strike, or end any called strike and impose contract terms on the parties.

Detailed Report

The U.S. is facing a labor standoff at the nation’s major freight railroads. Despite President Biden’s intervention in September to help reach a tentative labor deal to avert a strike, members of four of the nation’s 12 railway unions have voted “no” on its ratification. The result is a potential nationwide rail strike that could start at 12:01 a.m. on December 9, 2022. If one of the four unions that have rejected the tentative agreement calls a strike, then all unions, even those that have ratified the agreement, have pledged to honor the strike and refuse to work.

If a strike were to occur, the impact on the economy could be enormous. According to recent studies, a strike could cost the economy billions in the first week. In the U.S., rail moves large amounts of our nation’s energy and agriculture resources, where rail accounts for approximately 28% of the total U.S. freight movement. The strike would also impact passenger travel via Amtrak.

How Did We Get Here?

The tentative agreement reached in September between President Biden, railway companies, and the unions, provided for an additional cooling-off period should the agreement be voted down. This status quo/cooling off period is in effect until December 8, 2022.

In total, four of the nation’s 12 rail unions have rejected the agreement. On October 26, the Brotherhood of Railroad Signalmen (the rail signalmen labor union representing the rail signalmen) voted down the tentative agreement. Earlier in October, the Brotherhood of Maintenance Way Employees voted to reject the tentative agreement.

On November 20, the two largest rail unions, accounting for about half of the 125,000 unionized workforces on the nation’s largest freight railroads, reported their membership vote on the September tentative labor agreement contract. The Brotherhood of Locomotive Engineers and Trainmen (BLET) union accepted the contract, but the Transportation Division of the International Association of Sheet Metal, Air, Rail, and Transportation Workers (SMART-TD) train and engine service members rejected the agreement.

According to the BLET union, a record number of eligible BLET members participated in the ratification vote with 53.5% voting in favor and 46.5% voting against.

The SMART-TD (Train and Engine Service) members reported a high turnout among the more than 28,000 eligible members, with 50.87% of train and engine service members voting to reject the tentative agreement. The SMART-TD (Yardmaster) members voted to accept the agreement with 62.48% voting to ratify.

Absent Congressional intervention or an agreement among the parties to extend the cooling-off period, a national rail strike could occur as early as December 9. If there is a strike by SMART-TD or any of the other three rail unions that have rejected proposed contracts with the carriers, all of the rail unions – including those that have ratified agreements – have pledged to lawfully honor their picket lines and join the strike.

The Tentative Agreement

The September tentative agreement brokered by the White House between the railway unions and companies included:

  • An immediate 14% pay raise,
  • Pay increases of 24% over the five-year term making the average wages $110,000 by 2024,
  • Annual bonuses of $1,000 each year during the five-year term,
  • Employee contributions to health care will not increase during the contract,
  • One paid sick day,
  • Ability to take time off for routine doctor appointments, hospitalization, or surgical procedures without being penalized under attendance policies, and
  • A $11,000 ratification bonus

At Issue

The stalemate is over paid sick leave. The expired contract did not provide for any short-term paid sick leave. During negotiations paid sick leave had become a primary union demand with a specific request for 15 days of paid sick leave per year. The railroad companies estimated the union’s demand of 15 paid sick days each year would cost $688 million each year of the five-year contract.

The tentative agreement offered employees one paid sick day. The railway companies have indicated they would not accept any union proposals for additional paid sick time.

The workers were also seeking the right to take unpaid sick days. The September tentative agreement did not address this proposal.

Impact

The National Carriers' Conference Committee (NCCC), the group representing the freight railroad companies, said in a statement, “A national rail strike would severely impact the economy and the public.” The NCCC further warned, “the continued [and] near-term threat of one will require that freight railroads and passenger carriers soon begin to take responsible steps to safely secure the network in advance of any deadline.”

The possibility of renewed negotiations under the looming threat of a national strike before the holidays is putting additional pressure on a supply chain already dealing with now growing inflation stress as well as capacity issues.

A strike could have a significant impact on retailers who rely on freight rails to transport inventory from the ports to warehouses and distribution centers. A strike would shut down 40% of the country’s long-distance freight transport capacity and be massively disruptive to the economy that is already suffering from supply chain issues and inflationary pressures. The shutdowns would cause a domino effect – retailers will miss their shipping and pickup dates, leaving cargo in limbo without a place to go. The American Chemistry Council estimates that a month-long strike would result in the loss of some 700,000 US manufacturing jobs on top of increased prices of nearly all consumer products.

Energy suppliers and food manufacturers will be significantly impacted, as the transport of mined materials (i.e., minerals and coal) accounts for nearly 50% of the tonnage moved by rail, and feed (i.e., corn and soybean) for meat producers is primarily moved via rail. Railroads transport over 3 million carloads of coal and 1.5 million carloads of grain each year. According to the National Mining Association and the Agricultural Retailers Association, there is not enough alternative capacity to replace rail transport.

A strike would disrupt passenger traffic as well. Most Amtrak service would stop, as would commuter train operations in many metropolitan areas since the trains operate on tracks owned by the freight rail companies. For example, previously when the threat of a September strike was imminent, Metra rail service, which operates in the Chicago area, said it would suspend operations on four of its 11 lines if a work stoppage occurs.

Congressional Intervention

Congress has the power to keep workers on the job. The Railway Labor Act, passed in 1926, put specific restrictions on strikes by rail workers and provided Congress with the power to ultimately block a strike and order union members back to work.

Congress last voted to end a railroad strike 30 years ago. While a strike is possible, many believe it is not probable since lawmakers from both parties are aware that a strike would be crippling economically and politically.

Republicans say they are ready to impose the Presidential Emergency Board (PEB) contract recommendations made in August, which included pay increases but did not weigh in on workplace attendance policies. Democrats have signaled they will get involved but are pushing railroads to make concessions as it would put them at odds with union members.

With a December 9 deadline looming, there is a short window after Congress’ Thanksgiving recess for lawmakers to avert a work stoppage. The issue will be the difference of opinions between the political parties as to the contract terms that should be imposed.

Speculation is that labor unions are attempting to force intervention and a better deal than the tentative agreement while the more labor-friendly Democratic party still controls House. Democratic leaders have been pushing railroads to even make concessions around scheduling and time-off policies beyond those offered by the Presidential Emergency Board, in addition to the concessions contained in the tentative agreement.

Strategic Considerations for Response

Media Engagement: In writing stories about the impacts of the strike, reporters are likely to reach out to many companies for comment, especially those that rely on rail to transport their products. To show the tangible impact of the strike, reporters will look to highlight comments by companies – either in direct response to inquiries or via SEC filings – demonstrating both the impact of the strike on business and the impact on everyday consumers. Companies should carefully consider public comment, as doing so will make you a “face” of the issue and lead to additional requests for comment when supply chain issues arise in the future. If commenting, statements should focus on the impact a strike could have on your specific company and the solutions you’re considering in response.

Customer Communications: Depending on the likelihood of an extended strike and the potential for significant delays in manufacturing or shipping, companies may need to proactively communicate with customers to set expectations. Manufacturers may consider communicating directly via email or phone with corporate customers, retailers and resellers to set expectations about any anticipated delays. Retailers may consider communicating with consumers at the point of purchase regarding anticipated delays, so they’re not caught off guard by shipping timelines. If there is a significant or widespread impact, retailers may consider also putting information about shipping delays on their website and preparing reactive customer service responses (via social and call centers). Messaging should express empathy for impacted customers/consumers and focus on steps taken by companies to blunt the impact of the work stoppage, including contingencies and workarounds implemented.

Employee Communications: Given the potential impact on commuter rails like Amtrak, companies must consider how to support employees who may experience difficulties commuting into the office. This may include asking those employees to work remotely, providing travel credits on rideshare apps (i.e., Uber and Lyft), or creating a temporary shuttle service. For companies also on heightened alert for unionization, they should be prepared for labor organizers to use this high-profile strike as another leverage point for raising issues involving wages, benefits and safety, among others.

Recommended Considerations for Internal Conversation

  • Are your company’s products shipped via US railways or ports? If so, what percentage?
  • How long would it take for a strike at ports/rail to create delays or adverse impacts on your customers?
  • Is this strike likely to have a material financial impact?
  • What contingencies have been put in place to prepare for a strike?
  • Have you already received questions from consumers on social media or via a call center? How many?
  • Have you prepared responses for customer and media inquiries and gathered relevant data points on the impact on our company?
  • Are you likely to receive questions from the media about the strike?
  • Do any of your employees use Amtrak or other affected commuter rails to commute to work?
  • Could this increase the risk of unionization in your workforce or heighten scrutiny of your labor practices?