Rail Shippers Brace for Potential National Strike

“For every day this uncertainty continues, we essentially lose five shipping days because of the ramp down and ramp up,” Corey Rosenbusch, chief executive of The Fertilizer Institute, a Washington-based trade group representing agricultural suppliers, said in a statement calling on Congress to intervene.

A walkout “could quickly impact supplies for fall application and lead to a reduction in U.S. production at a time when 70% of European production has been curtailed or ceased due to Russia’s shut-off of natural gas supplies,” Mr. Rosenbusch said.

The railroads face a deadline on Friday at 12:01 a.m. at which point two unions at an impasse over a new labor contract could walk out. Officials from the two sides are meeting Wednesday in Washington, D.C., with Labor Secretary Marty Walsh in an effort to avert a strike.

Wall Street analysts say any walkout won’t last long because they expect Congress to order rail workers to return to their jobs, as lawmakers have done in earlier strikes.

“We believe the potential for a rail work stoppage is growing,”

Citi’s

Christian Wetherbee

wrote in a research note Wednesday. “That said, we continue to believe any strike/lockout would be very short lived (potentially hours vs. days), as we believe Congress would move quickly to legislate the unions back to work.”

The rail network carries about 28% of U.S. freight and is second only to trucking, which carries about 40% of freight, according to government data.

Railroads are a lifeline for bulk commodities such as ethanol and coal. Because ethanol is blended into gasoline, a shortage of the biofuel could push up gas prices, said Debnil Chowdhury, vice president of refining and marketing at S&P Global Commodity Insights.

The American Petroleum Institute in a letter to Congressional leaders this week said restrictions on transporting hazardous materials that began this week in anticipation of a strike “could have profound impacts on the ability of our industry to deliver critical energy supplies.”

Some shippers, such as manufacturers of food, beverages and healthcare products, are seeking assurances from logistics operators they can switch from rail to trucks in the event of a strike, said Tim Humbert, vice president of North American intermodal at

C.H. Robinson Worldwide Inc.,

the biggest freight broker by revenue in North America.

Other shippers will have to hold on to cargo if the rail network shuts down.

High demand for trucks could trigger delays in getting goods from warehouses to some stores, said

Jon Cargill,

chief financial officer at retailer Hobby Lobby Stores Inc.

The trucking sector is the biggest single customer group for major U.S. railroads, according to investment research firm Cowen & Co., and with logistics companies they funnel tens of thousands of loads each week into intermodal rail networks.

“The volume freight shippers would try to move would overwhelm all sectors of trucking,” said Dean Croke, an analyst at DAT Solutions LLC, a load board matching trucks with shipping customers.

Many farmers are nearing peak harvest seasons for crops such as corn and soybeans, potentially sidetracking plans to get goods to markets. U.S. railroads hauled more than 18,000 carloads of grains over the past week, according to the Association of American Railroads.

Soybeans can be stored, but delays reaching customers at hog farms in China could push overseas buyers toward suppliers in other countries, said Peter Friedmann, executive director of the Agriculture Transportation Coalition, a Washington, D.C.-based association representing farming interests in shipping.

Some railroads have already stopped accepting hazardous cargoes to ensure dangerous chemicals aren’t stranded in unsecured locations in the event of a strike.

The cargoes include ammonia used in fertilizer and chlorine used in water treatment. Several groups representing the water sector sent a letter to Congressional leaders Wednesday saying that “unless freight rail service for chlorine returns to normal soon, communities will be unable to produce safe drinking water, resulting in many boil water advisories and the threat of waterborne disease outbreaks.”

Trade groups for corn growers and refiners said in a statement that grain shipments scheduled for Thursday were being canceled and that a strike “would cripple U.S. agricultural production and supply chains and exacerbate food price inflation.”

Seaports that have coped with big volumes of containers on docks this year say they are prepared for a buildup if rail service halts and have space to store boxes at cargo-handling yards and off-dock depots.

Outside the ports, many logistics facilities remain swamped by the flood of imports. Craig Grossgart, senior vice president of global ocean for freight forwarder Seko Logistics, said his firm’s 3.5 million square feet of warehouse space near the ports of Los Angeles and Long Beach, Calif., is so full it couldn’t cope with a surge in new cargo.

Even a strike of a few days would “make a hell of a mess and exacerbate an already bad situation into a worse situation,” Mr. Grossgart said.

Write to Paul Berger at [email protected]