The Railroad Strike of 2022: What it Means if the Temporary Deal Doesn’t Hold

By Len Batcha, CFO/President

Technical Transportation, Inc

Today, the logistics industry is at a crossroads. Expanding e-commerce operations and online marketplaces are driving record volumes of parcels, packages and freight. The rise of on-demand services has transformed how goods move from point A to point B.

In response to these new demands, shippers and carriers alike have invested heavily in technology solutions, such as blockchain networks and artificial intelligence. These investments–which can be carefully planned for and managed–will help companies streamline operations and cut costs over the long term.

Yet, no matter how many advancements we introduce to better manage the supply chain, there will always be one aspect that is more tenuous and more difficult to manage – and that is the workforce. The recent prospects of railroad labor strikes brought this to the forefront and raised concerns about the impact on the supply chain if the temporary deal struck by the current administration doesn’t hold. In this blog post, we’ll explore this impact in greater detail and how those in the supply chain can prepare.

Why Labor Strikes Are Becoming More Common in America’s Supply Chain

The most recent railroad disputes this month involved pay and working conditions. A strike would have affected not only commuters who rely on the railway to get to work but also a portion of the nation’s energy supply, material supplies and parts to manufacturing facilities, drinking water and other commodities destined for end consumers or strategic reserves.

Unfortunately, the possibility of labor strikes is becoming more common in the supply chain industry due to several factors. This includes:

• Union Membership Declining – Over the past few decades, the union membership rate in America has declined. The portion of employees who are union members fell from 20% in 1983 to 10% in 2021. Union members in transportation and material moving occupations represent only 12% of the total number of workers in the industry.
• Automation & AI – Rising levels of automation and increasing adoption of AI have also contributed to the recent rise in labor strikes. As more companies look to automate manual tasks and use AI to drive more complex processes, there is a greater chance that workers will feel threatened.
• Outdated Equipment and Facilities – A lack of investment in the supply chain infrastructure has made working conditions a concern for workers’ health and safety.

The Economic Impact of Strikes

Labor strikes can have significant impact on not only the supply chain, but the economy as a whole. In fact, the Association of American Railroads estimates that a nationwide shutdown of rail operations could cost $2 billion in lost economic output each day.

A strike could also have significant impact on shippers and carriers, including:

• Increased Costs – One of the biggest impacts is the increased costs for shippers and carriers. Shippers face increased costs due to route delays or the need to find alternative modes of transport. Carriers face increased costs due to the need for higher wages and the likelihood of increase in transport-time costs. Some additional costs could be incurred if temporary workers need to be hired and more vehicles leased to make up for the shortage. This has direct impact on the bottom line for most companies involved.
• Delayed Deliveries – Another major impact is the potential for delayed deliveries. Shippers and carriers may need to find alternative routes to avoid striking areas. This could result in longer transit times, delays, and potential order cancellations.
• Product Disruption – Finally, there is a risk that strikes could impact how products are distributed across the supply chain. If a strike occurs at a port where exports are shipped, there could be a disruption in moving goods to their intended markets. Alternatively, if a road or rail strike occurs, there could be a disruption in the flow of imported goods.

Mitigating Risk During a Strike

In order to minimize the impacts of a potential railroad union strike, supply chain companies, 3PLS and other businesses caught in the middle should create a plan of action, with contingencies outlined and in place, should a strike move forward. Having this crisis plan ready will ensure you are minimizing downtime and not reacting to circumstances that may drive prices even higher or cause additional disruptions.

Components to a plan of action should include:

• Transportation Strategy – It is crucial to have a contingency plan in place to transport goods should a strike occur. In the event of a railway strike, having trucking, airways, and ocean liner accounts setup and ready to go will be critical for maintaining transport flow. Also setting up alternate routes that circumvent any strike areas can help offset potential delays. Be sure to also communicate these plans and pricing to customers, so there are no surprises if your alternative plan/s need to be implemented.
• Inventory Management Strategy – Inventory management is crucial during a strike, but needs to be planned carefully ahead of time. There are two ways to manage inventory during a strike: Replenishment and Minimum Inventory Strategy.
  • Replenishment – this strategy is used to keep your inventory at just the right level to meet expected demand. It can also include stockpiling inventory to maintain extra inventory and mitigate any potential disruption in the supply chain. This may be advisable in situations where the outcome of the strike is uncertain and there is a high risk of disruption.
  • Minimum Inventory Strategy – This strategy is used to keep your inventory at a consistent level that allows you to meet customer demand under all circumstances. You will have to keep a close watch on inventory levels and be ready to act if there are any signs of a shortage. This strategy is ideal for helping offset costs incurred with surplus inventory but requires more timely and reactionary management.

In the end, a well-prepared supply chain can better minimize any impact to operations, should a strike move forward down the road. Let us know how we can help you today.