Rail strike would be ‘polar vortex-level shock” to freight market

A rail strike or lockout that could take effect on Friday has raised the potential for historically significant supply chain upheaval that would affect all modes of road transport to some extent.

The trucking industry is the largest customer for rail freight and rail moves more than 40% of all long-haul freight in the US. They are disrupted over a wide geographic area as we saw in March 2021,” he 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 chair and associate professor of supply chain management in the Department of Supply Chain Management, Eli Broad College of Business. from Michigan State University, referring to the particularly harsh winters last year. “But,” he added, “COVID-19 is bad if we get to more than two weeks.”

Work on a new labor agreement has been ongoing for more than two years. Rail suppliers and 12 employee unions are currently at war over new contracts that demand wage increases and quality of life improvements, among other concessions. Most union groups have agreed to a tentative deal, but it will take all 12 to formally call off a strike.

Association of American Railroads projects that lost economic output due to a national rail closure could be more than $2 billion a day, and more than An additional 460,000 long-distance trucks would be needed each day to make up for lost rail capacity, a scenario that is impossible on almost every conceivable level.

There is some good news in that, particularly for spot market carriers. “Today, spot rates have been falling for eight months,” Croke said. “A prolonged strike could cause spot rates to rise again as shippers scramble to move their cargo. Since it’s RFP season, the end of peak shipping season, harvest season, and there’s a lot of uncertainty about consumer spending during the holiday season, a strike would be more devastating to carriers than anyone. If I were a carrier, I would be reaching out to customers and assessing their exposure to service slowdowns and a potential strike right now” .

Container

Some national rail service providers and several regional railroads began cutting service starting Monday, and the loss of rail capacity for an extended period will cause a “sharp increase in long-distance dry van shipments from both coasts inland.” Miller said.

“The West Coast rail to Chicago is where I would expect to see the most disruption given the magnitude of the rail movements coupled with the fact that the run is so long that it will reduce overall dry truck capacity,” Miller added.

That lane peaked in mid-December at an average of $3.70 per mile, according to DAT. It has cooled off over the past eight months and settled in a range of around $2.30 a mile, but a rail glitch is likely to push these fares back up.

DAT RateView shows the average spot rate for a van from Los Angeles to Chicago through Sunday. It is a pioneer lane where the full truck competes with the intermodal. Sunday is not the best barometer for freight, but it does show a reduction in capacity in Los Angeles.

“Similar to 2020 and 2021, we will see an increase in point demand because many shipments whose previous routing cascade was first intermodal will now switch to trucks,” Miller said. “We have an open question about how many carriers want those loads, especially if they’re not sure they’ll find loads back to the West Coast. With high diesel prices making the standoff a deal breaker, this could put further pressure on up on those spot rates.”

One dry van segment that Miller says is of particular interest is the transportation of paper and related products. “You see about 11,600 cars of that commodity category on all Class 1 railroads every week,” Miller said, “which would suggest about 40,000 additional truck loads a week. glass, 12,400 railcars a week, although some of this could be transported on a flatbed.”

Dry bulk and tank

The railroads haul about 27,700 railcars of crushed stone, sand and gravel, as well as 27,700 railcars of grain each week, and Miller said he sees “little chance trucking companies can make up for this capacity.”

Similarly, there is not enough tanker truck capacity to handle the 55,000 railcars of chemicals moved by rail each week and another 19,100 of petroleum products, which “equals to needing about 300,000 additional tanker loads per week.” week,” Miller said. “Again, I don’t see how this is offset by the [truckload] ability.”

Platform and refrigerated

Approximately 13,000 railcars of metals each week are moved by rail, in addition to another 8,100 railcars of lumber and wood products, Miller said. Assuming one railcar carries the equivalent of four semis, “that equates to about 88,000 additional flatbed loads a week,” he added, “and that’s not counting all the additional equipment that will need to be flatbed.”

Approximately 13,600 railcars per week of food and related products move through refrigerated trains. Therefore, Miller said he expects “some increase” in spot prices for refrigerated trucks, however, he doesn’t see the dynamics being as extreme as with dry trucks.

“Imports of refrigerated trucks and platforms arrive mainly at specialized ports such as San Diego or Philadelphia for South American products or Baltimore for [roll-on/roll-off] machinery,” Croke added. “I’m sure reefer and flatbed containers would be affected, but nowhere near the impact on dry truck this close to the holiday season.”

Leave a Comment