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HomeMarketChance of Rail Strike Has Risen to 30%, Analyst Says

Chance of Rail Strike Has Risen to 30%, Analyst Says

A rail strike could halt nearly 7,000 freight trains and cause a $2 billion a day hit to the economy.

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The probability of a rail strike in coming weeks has increased to 30%, according to an analyst. Experts have estimated a strike could cause a $2 billion daily hit to the U.S. economy.

The Transportation Division of the International Association of Sheet Metal, Air, Rail, and Transportation Workers (SMART-TD), one of the largest rail unions in the U.S, rejected a labor contract on Monday that addressed issues of pay rates and health benefits. If Congress doesn’t get involved in negotiations, the Brotherhood of Railroad Signalmen will be able to go on strike as early as Dec. 5, while SMART-TD and the Brotherhood of Maintenance of Way Employees Division could strike starting Dec. 9.

Up until this point, a possible rail strike has been averted. But Cowen analyst Jason Seidl said he thinks a rail strike is becoming more likely.

“While we continue to believe that a rail strike is unlikely given the significant implications to the broader economy, we see the probability modestly increasing,” Seidl wrote in a research note.

“Benefits and working conditions continue to be the sticking point in the dispute,” Seidl said. He added that further negotiations over these outstanding concerns have not gone anywhere, which has raised the likelihood of a strike.

A rail strike would have major implications. Experts like the National Retail Federation have said a strike could halt nearly 7,000 freight trains and cause a $2 billion a day hit on the economy.

“The U.S. economy is also in jeopardy of an unwanted supply-chain hit as rail  workers appear poised to strike just before the holidays,” Oanda analyst Edward Moya wrote earlier this week.

Tony Harris, chief marketing and solutions officer at SAP Business Network, said Wednesday that a rail strike would “most certainly lead to more supply chain disruption and challenges of a magnitude that would be hard to quantify.” He added that industries that depend on rail transportation for products such as agriculture and energy products, automobiles and components, construction materials, chemicals, equipment, food, metals, minerals, paper and pulp, would feel the greatest impact of a rail strike, especially if they solely rely on rail for their shipping.

There has been a call on Congress to intervene to prevent a strike, including from the National Retail Federation. The NRF said Monday a rail strike would create greater inflationary pressures and threaten business resiliency.

“Congress must intervene immediately to avoid a rail strike and a catastrophic shutdown of the freight rail system,” the NRF said.

Seidl a “strike would only take place if Congress were in session and available to halt a stoppage.

“However, we note that representatives face less risk to political capital with midterms behind us. This raises the probability of political gridlock and a prolonged strike in our view,” the analyst said.

Seidl added that some customers have already started to pull back their freight from the rails as a preemptive measure in case a strike commences.

Write to Angela Palumbo at angela.palumbo@dowjones.com

Credit: marketwatch.com

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