What A Rail Strike Could Cost

Time is running out for American freight railways to avoid a strike by their workers. Barron's Bill Alpert writes that such a strike could further inflame inflation. Bill writes:

Two years of labor negotiation have come down to a Thursday midnight deadline, after which locomotive engineers and conductors say they may stop working the trains that carry nearly 30% of the nation’s freight. Bargainers for around half of the industry’s 115,000 unionized workers have accepted wage recommendations of an emergency panel appointed by President Joe Biden.

But unions for engineers, conductors, and mechanics say they’ll strike unless the railroads change the strenuous work schedules that resulted from efficiency techniques known as “precision scheduled railroading.” The profits yielded from precision railroading have won Wall Street fans for Union Pacific (ticker: UNP), CSX (CSX), Canadian Pacific (CP), Canadian National (CNI), Norfolk Southern (NSC), and the BNSF division of Berkshire Hathaway (BRKb).

The past week of anxious bargaining has weighed on the U.S. rail lines, driving Union Pacific stock down several percentage points, to a Wednesday price of $220, against a 1% rise in the S&P 500. The two Canadian railroads have U.S. lines, but investors see them as less exposed, adding a few percentage points in the past week to their premium-priced shares.

Bill notes that a rail strike could cost the economy $2 billion a day, per U.S. Chamber of Commerce estimates. Pointing to U.S. Bureau of Transportations Statistics numbers, he writes that freight costs amount to nine cents for every dollar of output in the retail sector and its wholesalers. That includes truck, rail, water, and air transport. Bill continues:

A rail-freight interruption would be a setback for industries that have struggled with their supply chains. Three months of falling gasoline prices could be reversed if refineries can’t get the 100-car “unit trains” that deliver some oil. Fertilizer reaches farm communities by train. And auto makers are particularly reliant on rail, using it to move 75% of newly produced cars and trucks.

The White House is scrambling to find transportation alternatives, in case of a rail strike. But the trucking industry has no spare capacity, and can’t even carry many things that trains can. Still, analysts at Wells Fargo foresee a jump in spot prices for trucking that would benefit Knight-Swift Transportation Holdings (KNX), Schneider National (SNDR), and Werner Enterprises (WERN), as well as the logistic companies such as C.H. Robinson Worldwide (CHRW) and J.B. Hunt Transport Services (JBHT).

You can read more of Bill's coverage here.