Transportation networks have felt the strain of pandemic-related delays and slow economic conditions since 2020. Port bottlenecks and labor shortages have become the global standard—creating crowded ports and cramped warehouses. These tensions have reached a boiling point in the US rail freight industry.
Around 60% of all long-dwell cargo in the Port of Los Angeles heads for railroad transport, but rail dwell times are rising. As of July 2022, rail containers have an average wait of 8 days before transport. Railroads are struggling to keep up with high demand from shippers—and ongoing labor disputes complicate the problem.
Recently, rail labor unions have raised concerns about compensation and threatened to strike if railroads fail to meet expectations. These potential strikes have provoked widespread concerns among shippers, particularly with retailers and the agricultural sector.
In response to the mounting tension, a presidential executive order was recently signed to resolve the dispute. The build-up to this action is multi-faceted, and the order’s implications also touch railroads, labor unions, and the shippers who rely on rail transport the most.
The cost of excessive labor cuts
When Covid-19 struck, the rail freight industry went into crisis—and the repercussions continue today. The trouble is due mainly to the effects of the shock itself: port shutdowns, high freight rates, shipping delays, and soaring consumer demand. However, part of the blame also lies with the industry’s reaction to the crisis.
In the aftermath of the pandemic, railroads cut costs and workers to excess—creating today’s labor shortage. According to the leader of a federal rail regulator, railroads have trimmed nearly 30% of their workforce—around 45,000 jobs—in the last six years. These severe labor cuts have left railroads unable to cope with post-pandemic shipping volumes.
This strain can be devastating for industries and shippers who use rail transport heavily. The agricultural sector in the US relies on railroads for a large portion of domestic shipments. In light of rail delays, the number of grain cars unloaded in ports has risen almost one-third—and dwell times are up 22%.
Looming strikes and attempted resolutions
Amid these strained rail freight conditions, labor disputes have arisen among railroad workers who say raises and improved benefits are long overdue—especially given record-high inflation and increased living expenses. These labor disputes involve twelve unions representing about 115,000 railroad workers.
Since early 2020, these unions and several major US railroads have been in protracted contract negotiations to reach an agreement that satisfies unhappy workers and strained railroads. However, the two groups have not been able to agree despite intervention from two federal mediators. With a possible strike on the line, the fallout from failed negotiations could spark damaging shipping delays across national supply chains.
Intervention from the U.S. Government
A presidential executive order was signed in July appointing an Emergency Board to investigate the labor dispute. The three-member Emergency Board will report to the President about the reasons behind the dispute and ways towards a resolution. The National Mediation Board advised the administration that the disputes present a serious threat to interstate commerce, possibly depriving a portion of the country of crucial transportation.
The US Chamber of Commerce also encouraged federal intervention by the end of a 30-day countdown—citing an already challenging business environment.
Implications for shippers
Railroad turmoil will likely continue until unions and railroads reach a settlement and ease tensions. The appointment of an Emergency Board does not guarantee a successful compromise, though it does push off the potential strike for 60 days. Until railroads return to optimal performance, shippers need a flexible strategy for delivering goods with efficiency.
Intermodal shipping coordination. Shippers can explore the switch to trucking transportation for greater flexibility when railroads fail to meet schedules. The trucking industry has faced its challenges since the start of the pandemic—including labor shortages and shipping delays—but outlooks on the industry have recently brightened. With trucks finishing 70% of intermodal journeys, this is a viable and familiar alternative to rail freight.
Technological overhaul. From automation to digital supply chain metrics, modern technology offers another way shippers can get ahead. Innovations like a transportation management system provide shippers with expanded visibility into disparate shipments and fewer manual logistics tasks. In an era in which unexpected shocks can rock international supply chains, this technology can help shippers make smarter decisions and switch to different shipping modes if strikes halt rail freight.
Proactive pivots for a troubled rail freight industry
Rail freight is a pillar of the transportation industry in the US and beyond—but delays from labor shortages and union disputes may prevent shippers from fully using this integral network. With Honeybee TMS by CTSI-Global, shippers can stay ahead of bottlenecks and keep supply chains moving.
Our logistics technology is made for end-to-end supply chain oversight and event management, so shippers are always up-to-date about the status and timing of shipments. If rail union negotiations fail in the coming months, logistics teams won’t have to scramble to find the best alternative. Honeybee TMS uses accumulated logistics data to choose the best carrier, route, and transportation mode for every delivery.
Contact us today to boost your supply chain flexibility as rail freight plunges into an uncertain future.