A railroad worker strike risks sending the economy and supply chain into chaos

Railroad companies and unions representing 115,000 workers have been negotiating for two years on pay and working conditions — with little progress.

Both sides are at a stalemate, and if they don’t reach a deal today, it could turn into a full-blown crisis.

Union workers could strike by midnight tonight

… a scenario that could cost the U.S. economy $2B a day.

• It would be a complete disaster with significant impacts on an already fragile economy.
• Rail carries 30% of the country’s freight, and disruptions would lead to even more supply chain issues.

Biden has already reached out to involved parties, but the administration doesn’t have much legal power remaining. It’ll be up to Congress to block or delay a strike.

A rail stoppage would direct goods to other industries — which are already in panic mode. The American Trucking Associations warned that truckers wouldn’t be able to meet the extra demand — which would require an additional 460,000 long-haul trucks (not an option).

What could the disruptions really hurt?

The fertilizer industry — one that’s dependent on rail service, per Fertilizer Canada (BBG).

• Fertilizer is important to growing food, and any disruption could further increase food costs (read: food crisis).
• Railroad companies stopped shipping ammonia — a hazardous fertilizer ingredient — which would be dangerous if stalled on trains.

The impacts will be felt across the economy. Nearly half of rail transports are final goods going to consumers — and the other half consists of raw goods, parts and equipment (flashback to COVID empty stock shelves?).

The industry is betting on a last-minute settlement…

Workers and railroad companies are incentivized to make a deal — and without one could do even more harm…

• Workers could be forced to work without better terms from Congress intervention — which already stopped many strikes in the past.
• Railroad companies would lose business and risk damaging their reputation.

Other options: The two sides could also agree to extend the deadline — an unfavorable move for unions. If a deal is reached, supply chain disruptions could be avoided.

No matter the result, railroad operators like Union Pacific (NYSE:UNP) and Canadian National Railway (NYSE:CNI) will likely face higher costs.