'Tentative agreement' reached to avoid freight-rail strike, as trucking braced for impact

Disruptions loomed all week as industries and the federal government braced for a possible freight-rail worker strike or lockout on Sept. 16. And the trucking industry was already beginning to feel the pressure.

“The phone has been ringing off the hook for the last 48 hours,” Craig Callahan, EVP and chief commercial officer for Werner Enterprises, told FTR Transportation Intelligence chairman and CEO Eric Starks during FTR’s 2022 Transportation Conference on Sept. 14. Werner ranks No. 12 on the FleetOwner Top 500 For-Hire Fleets of 2022 list.

“We’re a UP [Union Pacific] franchise,” Callahan added. “Our consultative approach to our customers is that we’ve got a contingency plan. We’re at an advantage because we are a portfolio company and having modal shift conversations for us is like a Tuesday, so it’s no big deal.”

Early this morning, following 20 consecutive hours of negotiations at the U.S. Department of Labor, rail companies and union negotiators came to a tentative agreement to avoid a strike, the Labor Department stated.

"The tentative agreement reached tonight is an important win for our economy and the American people," President Joe Biden said in a Sept. 15 statement. "It is a win for tens of thousands of rail workers who worked tirelessly through the pandemic to ensure that America’s families and communities got deliveries of what have kept us going during these difficult years. These rail workers will get better pay, improved working conditions, and peace of mind around their health care costs: all hard-earned."

American Trucking Associations (ATA) President and CEO Chris Spear released a statement on Sept. 15 congratulating the nation’s freight railroads and their unions on reaching a deal and averting a "potentially economically catastrophic strike."

“Our supply chain is entirely interdependent, making the potential for a nationwide rail stoppage a serious threat to our nation’s economic and national security,” Spear said. “We applaud both sides for reaching a tentative agreement that averts this outcome and permits our supply chain to continue climbing out of this COVID-induced rut.”

Union leaders also praised the tentative agreement, while emphasizing a new contract will not become final until members review the terms and approve it through a ratification vote. The agreement includes wage increases immediately, and in the next two years, bonuses, and no increase to insurance copays and deductibles, according to the Brotherhood of Locomotive Engineers and Trainmen (BLET), and the Transportation Division of the International Association of Sheet Metal, Air, Rail, and Transportation Workers (SMART-TD).

“The solidarity shown by our members, essential workers to this economy, who keep America’s freight trains moving, made the difference in our obtaining an agreement with provisions that exceeded the recommendations of the Presidential Emergency Board,” Jeremy Ferguson, SMART-TD president, and Dennis Pierce, BLET president, said in a joint statement. “We listened when our members told us that a final agreement would require improvements to our member’s quality of life, as well as economic gains.”

Over the course of the week, several railroads, including CSX, BNSF, Norfolk Southern, and UP, indicated they would begin to wind down services in advance of Sept. 16, when the cooling-off period for freight-rail labor contract negotiations ends, according to the National Retail Federation.

Callahan acknowledged, however, that disruptions could be significant given the severity and duration of a possible impasse.

“Loads are already getting converted,” he noted. “Our truckload service—specifically over the road—is already in demand right now. That’s going to spill over into what we will see in the spot market in the near term, and then we will have to react accordingly based on what happens on Friday.”

How a rail strike could disrupt trucking

An Association of American Railroads (AAR) report found that a nationwide rail service interruption would dramatically impact economic output and could cost more than $2 billion per day of a shutdown. If negotiations stay unsettled with the remaining unions by Sept. 16 at 12:01 a.m., every economic sector served by rail could be harmed. AAR and various other industry associations, including ATA, have been urging Congress to prevent such a widespread service interruption.

“Idling all 7,000 long-distance daily freight trains in the U.S. would require more than 460,000 additional long-haul trucks every day, which is not possible based on equipment availability and an existing shortage of 80,000 drivers,” said ATA's Spear in a Sept. 9 letter sent to Capitol Hill. “As such, any rail service disruption will create havoc in the supply chain and fuel inflationary pressures across the board.”

Earlier this week, in light of the possibility of a rail labor strike, the six Class I freight railroads participating in national bargaining began securing shipments of hazardous and security-sensitive materials, such as chlorine used to purify drinking water and chemicals used in fertilizer, according to AAR. Railroads also began making moves to handle sensitive cargo in the event of a work stoppage due to an impasse in labor negotiations.

As of Sept. 14, the National Railway Labor Conference had reached tentative agreements with nine of the 12 freight-rail unions based on Presidential Emergency Board (PEB) recommendations, a panel of arbitrators approved by President Biden, according to the National Retail Federation.

“The executive branch is handcuffed here,” Callahan said during FTR’s 2022 Transportation Conference. “They really can’t force either party to concede. So, either the unions and the railroads have to come to some sort of an agreement, which it certainly appears to be at an impasse, or Congress has got to engage or get some consensus—which we all know how unlikely and how difficult that will be.”

Recommendations from the PEB provide the most substantial pay increases to rail employees. Under PEB recommendations, rail employees would receive a 24% compounded wage increase during the five-year period from 2020 through 2024, with a 14.1% wage increase effective immediately. Employees would also receive service recognition bonuses totaling $5,000 over the course of the contract. Retroactive wage increases and lump sum payments would provide employees an immediate payout totaling more than $11,000 on average upon ratification.

During FTR’s conference, Avery Vise, FTR’s VP of trucking, called on Anne Reinke, president and CEO of the Transportation Intermediaries Association, to provide her thoughts on a strike. Before her role at TIA, Reinke worked in rail transportation at CSX for 16 years.

“We never had a rail strike when I was there, but we got close,” Reinke said. “I tend to think that the pressure will be too great on this administration and this Congress not to do something. There is certainly a lot of posturing going on right now.”

“Still, we want to be purist about the supply chain being more stable and less disruptive,” she added. “If they do have a strike, I would suggest it’s short-lived.”

On whether trucking could handle disruptions from the rail industry—which transports 30% of the nation’s freight—Werner’s Callahan reiterated that it would depend on the duration of a potential strike.

“If there is an extended time period on this disruption, it will absolutely create chaos in other modes, primarily LTL and truckload,” Callahan pointed out. “However, if the disruption lasts for hours or days versus weeks, then I think the impact can be swallowed up.”

“We’re fortunate it was not a year ago,” he added. “If it would have been a year ago, it would have added to the chaos. I think there is some flexibility that is built into the current supply chain that can handle a little bit of this, but it won’t take much.”