By Chris Isidore and Vanessa Yurkevich, CNN Business
The US economy can continue to function without freight trains, but not for long.
That’s why the risk of the first nationwide railroad strike in 30 years is so worrisome to economists and businesses. A brief work stoppage – some previous rail strikes have lasted only a few hours – is unlikely to cause much economic disruption.
But an extended walkout of a week or more will cripple the country’s still-struggling supply chain, cause widespread shutdowns and shortages and likely drive prices higher even as inflation remains near a 40-high. year.
“A week from now, you’re seeing real damage to the US economy,” said economist Patrick Anderson of Anderson Economic Group, which does work stoppage impact estimates.
If it lasts a week, a strike will mean reduced gas production, spoiled crops, a stifled supply of new cars and empty shelves in stores during the holidays. Your ride may be scolded. And for factory workers, there could be temporary layoffs in the near future.
America’s railroads remain crucial to the smooth functioning of the US economy. They carry nearly 30% of the nation’s freight, measured by distance traveled and cargo weight, according to the Bureau of Transportation Statistics. And there really is no alternative if the trains stop.
“Idling the 7,000 daily long-haul freight trains in the United States would require more than 460,000 additional long-haul trucks each day, which is not possible due to equipment availability and a shortage current 80,000 drivers,” said Chris Spear, CEO of the American. Trucking associations in a letter to members of Congress asking them to take action to prevent a strike. “So any disruption in rail service will create havoc in the supply chain and fuel inflationary pressures at all levels.”
Anderson said it was impossible to offer a dollar estimate of the impact on the economy at this point, but he said the costs would increase geometrically the longer the strike lasted, starting in the tens of millions of dollars and increasing quickly every day.
“It may only be millions, but that’s a lot if it’s your work that’s lost,” he said. “If we get to a week-long strike, we’re in uncharted territory,” he said.
The price of gas has been falling steadily for three months. But a railway strike could push prices up again due to tight supply.
Refineries get most of their crude oil through pipelines and ship most of the products they produce, such as gas, diesel, and jet fuel, through pipelines as well. But tank cars are a key part of the process of making the gas that ends up in your tank.
Almost all of the ethanol that goes into gasoline is transported by rail. Without ethanol, gasoline would not comply with certain environmental regulations. But even if those regulations could be lifted, the lack of ethanol could raise the cost of a gallon of gasoline by about 16 cents due to the loss of tax breaks, according to Tom Kloza, global head of analytics. energy for OPIS.
Although pipelines carry most crude oil to refineries, about 300,000 barrels are moved by rail every day, a volume that could supply about two medium-sized refineries, according to data from American Fuel and Petrochemical Manufacturers. , the refineries business group. Many chemicals used in the refining process also arrive by rail, and some lower quality products and waste products must be shipped by rail.
“If railcars do not come regularly to pick up products from the facilities, including the sulfur that refiners remove from crude oil, production will have to be curtailed,” the refinery trade group said.
The strike would come at a particularly difficult time for the country’s agricultural industry. Data from the Bureau of Transportation Statistics shows that trains account for 27% of the distance grain travels when measured by weight.
“A Sept. 16 railroad shutdown would be timely as the fall harvest gathers pace in many parts of the United States,” said Mike Seyfert, CEO of the National Grain and Feed Association. “Economic damage across the food and agricultural supply chain would be rapid and severe.”
The railways began refusing to accept new shipments of grain from Wednesday in anticipation of a possible strike. If the work stoppage occurs, grain operators will load what they can into rail containers that are in their yard. But they will not be able to move them or accept additional grain from farmers, who will then have limited options to sell their crops.
In recent months, improvements have been made to farmers’ supply chain issues suffered during the pandemic.
“The gains we’ve made over the past seven to eight months will be largely reversed if this strike occurs,” said Terri Moore, spokeswoman for the American Farm Bureau Federation.
Additionally, farmers preparing to plant for the fall season could see shortages of the fertilizers they need, since the railroads have already stopped accepting shipments because they are classified as hazardous materials. in many cases. This could affect future crop supply.
“There would definitely be at least some price increase for consumers,” said Max Fisher, chief economist at the National Grain and Feed Association. “If our processing plants aren’t working, food manufacturers who buy these ingredients won’t have access to them for a long time. Depending on how long it would last, we worry about scarcity – being able to actually get the food.
Beyond domestic food prices, the strike could affect global food markets, since the United States is a major grain exporter. With the war in Ukraine cutting off much of that country’s grain, an interruption in US supplies will only make a bad situation worse.
Cars and Trucks
Car and truck production has already been hampered by a shortage of many critical parts, including computer chips. This created a shortage of vehicles available for sale on dealership lots, leading to record car prices.
But that’s nothing compared to what would happen with a prolonged rail strike. About 75% of the cars built in American factories or imported here travel by rail. There are not enough trucks to transport so many vehicles.
Additionally, many of these parts move between suppliers and car assembly plants by rail. Production will quickly stop if these rail links are cut.
Eventually production would resume, but it would take some time to make up lost production. Which means more upward pressure on car prices.
The rumble of container ships entering west coast ports is finally easing after years of backlogs and delays. And while things have improved, they are by no means “normal” at the moment.
On Tuesday, the Port of Los Angeles, the nation’s largest, said it had 27,000 shipping containers waiting to be loaded onto trains. This is about three times more than under normal conditions. Two-thirds of the current container inventory has been there for nine days or more, when none should have been there that long.
“Efficient rail operations are critical to the Port of Los Angeles,” said Port Executive Director Gene Seroka. “With two-thirds of our freight leaving California by rail, the supply chain and the U.S. economy need all of us working at maximum effort.”
Peak season for imported goods destined for retailers ahead of the holiday shopping season is now. The National Retail Federation said last week it was worried about shortages later this year if the railways strike.
“We are in the middle of the peak import season,” the trade group said. “Any disruption to the rail network this month could have lasting negative effects on this important selling season. Product delays and shortages are correlated with inflation.
Most factories aim to have parts and raw materials delivered just before they are used on assembly lines – a process known as “just-in-time” deliveries. And many factories rely on rail to get those parts and supplies, and to ship them.
“For years now, American manufacturing workers have been feeling the effects of rapidly rising material costs and severe supply chain disruptions,” a statement from the National Association of Manufacturers said. A railroad strike would “devastate the flow of manufactured goods on which families depend.”
The railway strike could lead to temporary plant closures, as has happened in the global auto industry due to shortages of parts and computer chips caused by the pandemic.
Although only the country’s freight rail lines face an impending strike, many of the country’s commuter trains travel on tracks maintained and operated by freight railroads. As a result, many passenger railways expect to close operations once the freight strike begins.
Amtrak has already cut service on several of its long-distance trains. The company owns about 700 miles of track, mostly between Boston and Washington, DC, but about 97% of its 22,000-mile system runs on freight lines.
Many commuter railroads are also preparing to shut down much of their operations for the same reason.
That could mean more car commuters to work, and more traffic and congestion, even for those who don’t normally take the train.
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