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Sept. 14, 2022, 4:19 p.m. EDT

Why a possible railroad strike would cripple the supply chain, stoke inflation

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By Bill Peters and Claudia Assis

A possible national railroad strike is looming over the U.S. supply chain and adding to the inflation fears that have rocked markets this week.

Major freight railroad operators have already warned that they are preparing for a possible strike and halting some services, creating network slowdowns.

Railroad stocks such as Union Pacific Corp. /zigman2/quotes/209717171/composite UNP +0.38% and CSX Corp. /zigman2/quotes/208536759/composite CSX -0.16% as well as shares of the iShares Transportation Average ETF /zigman2/quotes/204736489/composite IYT +0.25% fell on Wednesday, continuing a downdraft that has brought losses for the ETF of nearly 4% so far this week.

Also see: Dow books near 1,300-point drop as stocks record worst day since June 2020

Wall Street expects Congress to intervene and head off a work stoppage. In the meantime, Labor Secretary Marty Walsh continued “to lead discussions” Wednesday between railroads and unions, a DOL spokesperson said.

“The parties are negotiating in good faith and have committed to staying at the table today,” the spokesperson said.

If a strike happens, the big question will be for how long.

“If we were to have a prolonged strike, let’s say two weeks or more, it would be incredibly debilitating for economic activity,” Jason Miller, a Michigan State University professor who follows the supply chain, told MarketWatch.

“Depending on how you want to measure it, the railroads at some point touch between about a third to about 45% of all freight in the U.S. at some point or another,” Miller said.

More than 100,000 rail workers, their unions and some of the nation’s largest railroad operators are staring down a 12:01 a.m. Friday deadline to agree to new work terms.

After that, those unions can legally strike, a move that could drive transportation costs higher, stall commutes and gum up shipments of coal, chemicals, auto parts and grain, and cost $2 billion a day, by one estimate.

Disruptions and affected industries

Amtrak said that it would begin suspending select long-distance service on Tuesday “in preparation for a possible freight rail service interruption later this week.”

Passenger and commuter train services share tracks with freight trains in many areas, and some commuter railroads such as Southern California’s Metrolink on Wednesday put up service advisories in case of a strike.

New York’s MTA and New Jersey Transit, two of the major commuter railroads in the U.S., said they don’t anticipate disruptions.

Rail operators such Union Pacific and Norfolk Southern Corp. /zigman2/quotes/200877725/composite NSC +0.48% said they were halting shipments of hazardous materials and “security-sensitive” cargos this week in preparation for the possible strike.

The Consumer Brands Association warned that the railroads “are poised to stop shipments of crops as early as Thursday, and shipments of crop fertilizers are already being delayed ahead of the fall harvest.”

Berkshire Hathaway’s /zigman2/quotes/200060694/composite BRK.B +0.40% /zigman2/quotes/208872451/composite BRK.A +0.35% BNSF Railway said that the situation remains “fluid” and that it would update customers as information becomes available.

The White House, meanwhile, was reportedly speaking with ocean-shipping, trucking and air-freight providers to explore ways keep goods flowing.

But filling a railroad-network-sized gap in the economy could be a tough task, costing $2 billion a day , the Association of American Railroads, an industry group, estimated in a recent report.

The association estimated that it would take 467,000 long-haul trucks, daily, to haul what the railroads do. “There simply aren’t enough trucks or truck drivers to handle that volume,” it said in the report.

That responsibility would fall on trucks, though, as space on trailers is starting to open up after more than two years of pandemic-fueled snags, but as the industry struggles to attract and retain drivers.

The report pinned that $2 billion-a-day price tag on estimates of “lost economic output due to a nationwide rail shutdown.” The group did not immediately respond to a request for a breakdown of that figure.

Coal, chemicals, grain shipments and auto parts and automobiles rely heavily on rail shipments.

A ‘buying opportunity’

Some analysts saw any stoppage as an investing opportunity, were Congress to attempt to bring closure to the matter.

Amid strike talks, analysts at Bank of America recently raised their ratings on Canadian National Railway Co. /zigman2/quotes/208205632/composite CNI +1.03% , Canadian Pacific Railway Ltd. /zigman2/quotes/204163517/composite CP +0.92% and Union Pacific to buy from neutral.

Bank of America had been neutral to negative on most carriers since downgrading the sector in April.

/zigman2/quotes/209717171/composite
US : U.S.: NYSE
$ 213.33
+0.81 +0.38%
Volume: 1.10M
Nov. 25, 2022 1:10p
P/E Ratio
19.02
Dividend Yield
2.44%
Market Cap
$131.16 billion
Rev. per Employee
$816,853
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/zigman2/quotes/208536759/composite
US : U.S.: Nasdaq
$ 32.02
-0.05 -0.16%
Volume: 5.84M
Nov. 25, 2022 1:00p
P/E Ratio
17.03
Dividend Yield
1.25%
Market Cap
$67.32 billion
Rev. per Employee
$696,172
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/zigman2/quotes/204736489/composite
US : U.S.: Cboe BZX
$ 228.46
+0.58 +0.25%
Volume: 81,673
Nov. 25, 2022 3:30p
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/zigman2/quotes/200877725/composite
US : U.S.: NYSE
$ 252.32
+1.21 +0.48%
Volume: 347,481
Nov. 25, 2022 3:30p
P/E Ratio
18.57
Dividend Yield
1.97%
Market Cap
$58.42 billion
Rev. per Employee
$682,873
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/zigman2/quotes/200060694/composite
US : U.S.: NYSE
$ 317.43
+1.25 +0.40%
Volume: 1.84M
Nov. 25, 2022 1:10p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$698.97 billion
Rev. per Employee
$794,952
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/zigman2/quotes/208872451/composite
US : U.S.: NYSE
$ 478,676
+1,656 +0.35%
Volume: 2,660
Nov. 25, 2022 3:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$698.97 billion
Rev. per Employee
$794,952
loading...
/zigman2/quotes/208205632/composite
US : U.S.: NYSE
$ 127.67
+1.30 +1.03%
Volume: 457,515
Nov. 25, 2022 1:10p
P/E Ratio
23.18
Dividend Yield
1.69%
Market Cap
$85.52 billion
Rev. per Employee
$564,582
loading...
/zigman2/quotes/204163517/composite
US : U.S.: NYSE
$ 81.46
+0.74 +0.92%
Volume: 689,129
Nov. 25, 2022 1:10p
P/E Ratio
33.14
Dividend Yield
0.73%
Market Cap
$75.47 billion
Rev. per Employee
$554,669
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