The rail strike would be a “polar vortex shock” for the freight market

A rail strike or lockdown that could go into effect on Friday highlighted the potential for historically significant supply chain disruption that would affect every mode of truck transport to some degree.

The trucking industry is the largest freight rail customer, and the railroad moves more than 40% of all long-distance freight in the United States. Therefore, a nationwide closure of rail service “could be a polar vortex shock to the freight market, where supply chains are disrupted over a large geographic area as we saw in March 2021,” said Dean Croke. , Principal Industry Analyst at DAT Freight & Analytics.

“I would say the 2021 polar vortex is bad if the strike lasts about a week,” added Jason Miller, interim president and associate professor of supply chain management in the Supply Chain Management Department, Eli Broad College of Business. from Michigan State University, referring to last year’s particularly severe winters. “But”, he added, “COVID-19 will hurt if we get to more than two weeks.”

Work on a new labor agreement has been underway for more than two years. Rail service providers and 12 employee unions are currently at war over new contracts requiring wage increases and quality of life improvements, among other concessions. Most trade union groups have agreed on an interim agreement, but it will take all 12 to formally withdraw a strike.

The Association of American Railroads projects lost economic output due to the closure of national railways could exceed $ 2 billion per day and more than 460,000 additional long-haul trucks would be needed each day to compensate for the loss of rail capacity. a scenario that is impossible on almost every conceivable level.

There is some good news in this, particularly for spot market carriers. “Today, spot rates have been down for eight months,” Croke said. “A prolonged strike could drive spot rates higher as shippers rush to move their goods. As it is RFP season, the end of peak shipping season, harvest season and there is a lot of uncertainty about spending. of consumers during the holiday season, a strike would be more devastating to shippers than anyone else. If I were a carrier, I would communicate with customers and assess their exposure to service delays and a potential strike right now. “

Dry van

Some national rail service providers and a number of regional railways have begun to cut service since Monday and the loss of rail capacity over an extended period will spur a “sharp increase in long-haul dry van shipments from both coasts. internal, ā€¯Miller said.

“The lane from the west coast to Chicago is the one where I would expect to see the most disruptions given the magnitude of the rail movements coupled with the fact that the radius is so long that it reduces the overall capacity of the dry vans,” Miller added.

That lane peaked in mid-December averaging $ 3.70 per mile, according to DAT. It has cooled over the past eight months and stabilized in a range of about $ 2.30 per mile, but a rail failure is likely to send these rates skyward.

DAT RateView shows the average rate of van spots from Los Angeles to Chicago through Sunday. It is an emergency lane where truck loading competes with the intermodal. Sunday isn’t the best barometer for freight, but it shows a reduction in capacity in Los Angeles.

“As in 2020 and 2021, we will see a surge in spot demand as many shipments whose previous cascade of routing guides was formerly intermodal will now switch to truck,” Miller said. “The point where we have an open question is how many carriers want those cargoes, especially if they’re unsure of finding cargo on the West Coast. As high diesel prices make deadheading a margin killer, this could put more pressure on the ship. hike on those spot rates. ”

One dry van segment that Miller says is of particular interest is the transport of paper and related products. “About 11,600 trucks of that commodity category appear on all Class 1 railways each week,” Miller said, “which would suggest about 40,000 additional truck loads per week. We also have to consider grain mill products – 14,300 loads per week – as well as stone, clay and glass products – 12,400 loads per week – although some of these may move on a flat floor “.

Dry bulk and tank

The railways carry about 27,700 wagons of crushed stone, sand and gravel, as well as 27,700 wagons of grain each week, and Miller said he sees “little chance that this capacity will be recovered by the trucking companies.”

Likewise, there is not enough tanker capacity to handle the 55,000 chemical shipments moved by rail each week and another 19,100 of petroleum products, which “equates to about 300,000 additional tank truckloads a week,” Miller said. . “Again, I don’t see how this is invented by existence [truckload] capacity.”

Flatbed and reefer

About 13,000 metal wagons are transported by train each week, plus another 8,100 loads of lumber and wood products, Miller said. Assuming a wagon carries the equivalent of four trailers, “that’s about 88,000 extra flatbed loads per week,” he added, “and that doesn’t count all the additional equipment that will have to be towed by a flatbed.”

About 13,600 wagons of food and related products per week are moved on refrigerated rails. Therefore Miller said he expects “a spike” in spot prices for refrigerated trucks, however, he doesn’t see the dynamics as extreme as with dry vans.

“Reefer and flatbed imports mainly arrive in specialized ports such as San Diego or Philly for South American products or Baltimore for [roll-on/roll-off] machinery, “added Croke.” I’m sure the reefer and floor would have been hit, but nowhere near the impact on the dry van this close to the holiday season. “

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