Special Report: Ag Sector Braces for Possible Railroad Worker Strike

Discord surfaces between railroads and two big unions

As soon as Friday, Sept. 16, up to 115,000 freight rail workers could walk out if they cannot reach a new contract with railroads, potentially shutting down the national rail network that transports 20% of all grain shipments. If a strike would occur, ag sector officials concur it would be catastrophic for U.S. food and agriculture, as the system will not regroup to full capacity overnight, even if any strike is short. The nation’s supply of food could take a hit, driving up prices at the grocery store and limiting U.S. grain exports to countries facing famine. 

Sources inform that over the weekend, things were not moving in the right direction for a compromise as discord surfaced between the railroads and the two biggest unions.

Railroads have filed notices that they are going to begin limiting shipments of many chemicals effective Monday in anticipation of a possible strike. Link to a notice the Association of American Railroads (AAR) sent out.

A railroad shutdown in mid-September would quickly overwhelm grain storage facilities, leaving farmers with few options to store their crops and boosting the chance of spoilage. Many grain processors would shut down, raising the price of bread and other common food items, while farmers would be saddled with huge crop quantities and lower commodity prices.  “It’s kind of a double whammy when you hit both the beginning and the end of the supply chain,” said Max Fisher, chief economist at the National Grain and Feed Association (NGFA).

Another important impact: Freight railroads also carry roughly half of fertilizer, and farmers can’t afford delays, according to a Wednesday letter to congressional leaders from The Fertilizer Institute. “If farmers do not receive fertilizer, it results in lower crop yields, higher food prices, and more inflation for consumers,” Corey Rosenbusch, the group’s CEO, told lawmakers. 

A nationwide railroad work stoppage would cost the U.S. economy more than $2 billion per day and cause shipping containers to stack up at ports, according to estimates from the AAR.  

With a significant chunk of U.S. grain exports traveling by rail, a work stoppage would also cut down on this country’s ability to ship food to foreign nations, particularly those in East Africa and the Middle East that face a risk of famine following Russia’s invasion of Ukraine. 

“It would definitely be a negative impact on the supply chain on anything that is coming from the far east,” said Gerald Schwebel, the Executive Vice President, Corporate International Division for International Bank of Commerce. So anything that is coming from the far east by any disruption in the supply chain — especially with the holiday season coming — it’s going to reflect very similar to what we experience last year and even early part of this year with the containers and not being able to be unloaded and eventually affecting the supply chain into the United States.”

As previously reported, a coalition of food and agricultural groups, including the American Farm Bureau Federation and the NGFA, urged lawmakers on Thursday to block a freight rail strike, warning that it would have “devastating consequences” for global food security. “Congress must be willing to act to ensure our farmers and ranchers can continue to help feed the world,” the groups wrote in a letter to the top lawmakers on transportation committees. 

Five unions have reached tentative agreements with railroads on a new contract based on the Presidential Emergency Board (PEB) recommendations, which call for 24% raises over five years and back pay but don’t address workers’ concerns about grueling hours and limited time off. The PEB recommended a deal in which rail workers would get an immediate 14.1% wage increase and a 24% compounded wage increase through 2024. Should the deal be ratified, rail employees would receive average pay of about $110,000 annually by the end of the agreement. The wage increases would be the largest in four decades, as well as annual cash bonuses of $1,000.

The PEB’s wage recommendations are somewhat less than the unions requested, and somewhat more than management had previously offered.

The bulk of rail workers belong to unions that haven’t struck a deal. And a recent online survey noted that more than 9 in 10 railroad workers would vote to reject the PEB recommendations and go on strike. 

The conductors’ union and some other unions are poised to strike, including the one representing engineers. They are not satisfied with the work rule recommendations, and how the “on call” requirement will affect the quality of their members’ lives, denying them any free time with their families even when off work. The unions are urging allies in Congress not to act, arguing that a strike is the only way to reach a deal that can improve what they say are intolerable work rules driving employees to quit the business, causing staff shortages and well documented service problems in freight rail service. “The fact is they [the railroads] are counting on Congress to act,” said Dennis Pierce, president of the Brotherhood of Locomotive Engineers and Trainmen. “We’ve let them [the union’s allies in Congress] know we need them to stay out of it.”

Sen. Roger Wicker (R-Miss.), ranking top Republican on the Senate Committee on Commerce, Science and Transportation, said in a statement Friday that he supports the recommendations proposed by the PEB and warned the parties involved in negotiations of the pressure a strike would place on the already choppy supply chain. “The Presidential Emergency Board has put forward a comprehensive and fair set of recommendations that, if adopted, could end this standoff today,” Wicker said. “I will be calling on my colleagues in Congress to join the administration in endorsing these recommendations as written and advance legislation to resolve this dispute if it is clear that a shutdown in rail service is imminent.”

Rail strikes differ from other strikes because labor relations are governed by the Railway Labor Act of 1926. It has been three decades since Congress intervened to stop a rail strike.

What happens if workers vote for a strike? President Biden does not have the power to prevent a strike at that time. Only Congress can act to prevent a work stoppage, either by imposing a deal on the two sides or to extending the current cooling off period. Congress would likely intervene to block any strike, most observers note. They could then vote to fast-track a new contract.

With Nov. 8 elections ahead, the Biden administration is obviously eager to avoid more economic disruption. White House officials have been urging unions and railroads to secure an agreement before the issue comes before Congress. A White House official said that given the massive supply chain disruptions stemming from the pandemic and its subsequent fallout, now is not the time for increased uncertainty or disruption. “Now is the time for the parties to resolve their differences, before the nation’s economy begins responding to even the prospect of a nationwide rail stoppage,” the official said, emphasizing that the president supports the collective bargaining process and stands ready to support the parties involved work toward an agreement or a voluntary extension of the cooling-off period.

Labor Secretary Marty Walsh joined a negotiation session Wednesday before the National Mediation Board. “We are confident the parties will make every effort to negotiate in good faith toward a mutually acceptable solution, and we urge both sides to do so promptly,” a White House official said.

­­­­­­­­­­The dilemma: Democrats in Congress could impose a contract more to the unions’ liking than what was recommended by the presidential panel. But that might have trouble getting the necessary Republican support to pass. Republicans could potentially benefit if there was a prolonged rail strike causing problems in the economy right before the election, especially if it could be blamed on the Democrats. This is why some believe Congress will kick the can down the tracks, extending the cooling off period, perhaps past election day, rather than imposing a contract. But that is no long-term solution.

The strike threat comes as several railroads, including Union Pacific (UNP), Norfolk Southern (NSC) and Berkshire Hathaway (BRKA)’s Burlington Northern Santa Fe have reported record earnings. The unions argue the companies are making the profits on the back of their employees, creating conditions that are driving workers to quit. Employment at the nation’s major railroads is down by more than 30,000, or about 20% of the workforce, since the last contract was reached in 2017.

“This isn’t a personal choice by the presidents of the unions,” said the engineers union president Pierce. “Our membership has made it loud and clear that this is not a deal membership would ratify.”