Impact of a Railway Strike on the U.S. Supply Chain

The US Senate recently passed a bill to avert a rail strike by forcing a contract between rail workers and the carriers. Since last winter, the railroad unions and leaders of seven dominant freight-rail carriers have been struggling to come to an agreement on a new contract. One of the key points of those talks were lack of paid sick leave for the workers which congress failed to find enough votes to pass.

A rail strike would be one more thing to add to the list of problems impacting the global electronics value chain already dealing with impacts from geopolitical issues, lingering inflation, weakening economy and chip shortage. 

The US railroads is a crucial part of an integrated global supply chain freight system. Trains roughly move two-fifths of long-distance American freight and one-third of exports, all stakeholders within the network must maintain a consistent flow of freight at every step to avoid supply chain disruptions. 

According to the Association of American Railroads a railway strike would cost the US economy $2 billion a day as rails nearly carrying 30% (over 60 tons) of goods including food, cars, coal, chemicals, construction supplies, technology goods and other commodities. Half of that traffic moves bulk commodities while the other 50% consists mostly of shipping containers carrying smaller consumer goods.

This intricate critical transportation system has been dealing with disruptions and imbalances despite a strike. Earlier this month, for instance, the shipping line Maersk said it was suspending import bookings through Fort Worth, Texas, citing “severe congestion” around rail ramps and container yards in the region. This was not an isolated situation in the interlinked system that is still recovering from disruptions of the pandemic.

There are various congestion points that can potentially slowdown the freight system among them is the choke point around the twin ports of Los Angeles and Long Beach, California. Nearly 80% of shipping containers are waiting more than five days on average to make their rail connections at these ports creating the beginning of potential backups and disruptions in the supply chain. 

Dallas, El Paso, and Fort Worth are key logistical hot spots of rail congestion where cargo from the East and West coasts as well as in and out of Mexico collate. Finally, according to the Association of American Railroads, 25% of all US freight rail traffic and 46% of all intermodal traffic starts, stops, or passes through the Chicago region which ends up being another freight bottleneck. 

That being said even a temporary interruption could create a ripple effect of disruptions and supply shortages.

According to a report from CNBC, tech companies have already started shifting cargo to trucks in pre-strike preparations. The cargo being sent to trucks include semiconductors that are used in virtually everything from automobiles to data servers to consumer electronics and everything in between.

Although the railway strike maybe averted in the short-term the possibility of one still exists. The rail union bosses said they understand why President Biden, the most pro-labor president in recent history, had to push Congress to pass the tentative agreement, but reiterated that paid sick leave remains an issue they consider essential to proper recognition of rail workers.

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