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Rail strike potential grows, threatening to worsen supply chain backlogs, inflation

It could come down to seven days. 

That’s how much paid sick leave some freight rail workers are demanding from the rail companies before they sign new contracts. The dispute once again threatens to bring freight transport across the country’s sprawling 140,000 miles of rail to a halt ahead of the December holiday rush — snarling already overburdened supply chains and triggering massive economic fallout.

Two months after President Joe Biden and Labor Secretary Marty Walsh helped broker a deal that was supposed to end the monthslong impasse, negotiations have soured ahead of the deadline of Monday to ratify the contract. The discontent is part of a wave of worker dissatisfaction that has surged in the last year, with workers emboldened to ask for more from companies amid high inflation and a tight jobs market. 

Rail workers say years of grievances about workforce cuts, coupled with new scheduling requirements, have pushed them to the brink of exhaustion. Rail companies say the workers are highly paid, with the proposed contracts bringing salaries to an average of $110,000 by 2024. 

Three unions voted down the proposed deal in recent weeks, and votes are still outstanding from the two largest ones. Those unions, which will release their results Monday, have the most clout to call for a strike. But if any of the unions decides to strike, all rail unions will honor the work stoppage.

The economic fallout from a short strike, which the Association of American Railroads estimates could cost the economy $2 billion a day, could propel Congress to step in; how that would play out in a lame-duck session remains to be seen. 

“Congress can’t allow a national freight rail strike to go on for more than a few days,” said Seth Harris, a former Biden White House adviser on labor and economic issues. “But it’s hard to imagine the Democrats’ putting themselves in a position where they’re negotiating for paid leave from the unions.”

Strike threat averted, then back again

Workers came close to striking in September before the White House stepped in.

The companies agreed to significant raises — 24% over five years backdated to 2020 — and some flexibility in workers’ increasingly rigid scheduling requirements. But fully paid sick time, which some rail companies had temporarily offered earlier in the coronavirus pandemic, was not part of the deal. 

The first sign of dissent came less than a month later. 

The Brotherhood of Maintenance of Way Employees, a division of the Teamsters that represents 23,000 workers who maintain and build railroad tracks, voted the deal down on Oct. 10. Two weeks later, the Railroad Signalmen, 6,300 rail workers who operate the network’s signal system, voted their deal down. This week, the International Brotherhood of Boilermakers, which represents some 300 workers, also rejected its proposed contract.

President Joe Biden speaks about the railway labor agreement alongside Labor Secretary Marty Walsh at White House on Sept. 15.Anna Moneymaker / Getty Images file

But whether the workers strike is likely to come down to the Brotherhood of Locomotive Engineers and Trainmen and the transportation division of the Sheet Metal, Air, Rail and Transportation Workers, or SMART-TD, which together represent about 57,000 railroad employees, about half of all freight rail workers. Depending on the results of their votes, workers could strike as soon as Dec. 9. 

Years of tension come to the fore  

Railroads have slashed employment in recent years under a system called “precision scheduled railroading,” which has allowed them to run longer trains with fewer workers and boost profits. During the pandemic, some instituted rigid scheduling requirements that leave workers on call essentially 24/7. 

In interviews, many freight workers said they felt the companies’ emphasis on pleasing Wall Street was coming at their expense.  

One conductor and SMART-TD member, who works for Union Pacific in the Midwest and asked not to be identified because of fear of reprisal from the company, said he planned to vote against the agreement. “It’s obvious their entire business model is set upon lowering the operating ratios and increasing profit margins with the end goal of boosting the stock price. It hurts the workers and the customers.”

Kristen South, a spokesperson for Union Pacific, pointed to the pay raises that were negotiated as part of the previous deal in response. “The current round of national negotiations included the largest raises for our union workforce in decades,” she said in an email. “Work remains to make our jobs attractive to today’s employees — especially the unscheduled, ‘on call’ jobs.”

Union Pacific and BNSF, the two biggest freight rail companies, had record profits last year, while two of the other top five companies achieved record low operating ratios — a key measurement that gauges the share of revenue lost to expenses like labor. BNSF did not respond to a request for comment. In general, the industry enjoys far higher profit margins than other transportation businesses, like air carriers, and delivery companies, such as UPS. 

Workers service the tracks at the Metra/BNSF railroad yard in Chicago on Sept. 13. Scott Olson / Getty Images file

Union leaders say paid sick time has taken on new importance for workers. 

“They believe they deserve the basic human protection of being able to not come into work” when they’re sick, said Peter Kennedy, a director at the Brotherhood of Maintenance of Way Employees. 

Two of the unions that rejected the deal, the Brotherhood of Maintenance of Way Employees and the Signalmen, are asking for 56 hours of paid sick time — seven days a year — with their leaders saying they believe their members would ratify the contracts if the provisions are added.

The National Railway Labor Conference, the consortium of the main freight rail companies, says those workers get three paid personal days a year, an average of three weeks of vacation time, the ability to take unpaid days off for illness and access to a short-term disability program for longer illnesses. The leave benefits, which are partly paid, kick in after four days and can last up to a year. 

The unions “have repeatedly agreed that short-term illness-related absences would be unpaid in favor of higher compensation for days worked and more generous sickness benefits for longer absences,” says a fact sheet distributed by the group.

Kennedy said the union had never agreed to higher wages at the expense of a benefit like paid sick leave. 

“Every Railroader in this country — save the railroad CEOs and C-suites executives with their ever-growing bloated salaries — would like to know where those higher wages went,” he said. “Workers’ wages have just barely kept up with rising inflation and cost of living.”

Two smaller unions of the dozen that bargain with the freight rail companies do get fully paid sick time, Michael Maratto, the general counsel for the National Railway Labor Conference, said in an email. Both have ratified their contracts already. 

A supply chain disaster 

One thing all parties agree on is that a strike would be a disaster for the already beleaguered supply chain in the U.S.

“No one wants to see a strike, and parties remain focused on getting a deal done and avoiding even the threat of one,” said Jessica Kahanek, a spokeswoman for the Association of American Railroads. “Should parties be unable to reach an agreement, though, Congress has historically stepped in to avert a service interruption.”

More than 300 business groups, including the U.S. Chamber of Commerce, the American Farm Bureau and the International Association of Movers, urged the White House in a letter Oct. 27 to intervene again to resolve the dispute and warned of the potential for a strike to worsen inflation. 

“A rail strike, even one of short duration, would be catastrophic,” said John Drake, a vice president at the Chamber of Commerce. 

Drake said that even the potential of a work stoppage can affect the supply chain, as dangerous products like fertilizers and fuels and chemicals like chlorine are removed from circulation in the days leading up to a strike deadline. 

A BNSF freight train travels across a railroad crossing in Williams, Ariz., on July 6. Bill Clark / CQ-Roll Call, Inc via Getty Images file

Jess Dankert, a supply chain expert at the Retail Industry Leaders Association, said a strike could also heighten the country’s economic issues — raising prices for consumers just as inflation appears to be cooling off.   

“It would be pretty impactful for the supply chain,” she said. “The backup into ports could reignite acute port congestion that we’ve seen. The parcel market, like UPS [which relies in part on the rails], you’ll have that impacted, as well. There would be a lot of pressure on the truck market. And with that shortened capacity, prices would increase.”

Rob Benedict, a vice president at the American Fuel & Petrochemical Manufacturers trade group, which represents refineries and other fuel and petrochemical producers, warned a strike could send the prices of gasoline and other fuels soaring. He said that members transport around 2 million carloads of products a year — about 300,000 barrels of crude oil a day — on the freight rail system and that after three to five days of missed shipments, refineries run out of storage and begin to curtail production. 

“In a time when gas prices are high, that’s the last thing you want to do,” he said. Benedict said that the group had been in touch with members of Congress and the White House and that it was lobbying for more forceful intervention. 

The Class I railroads — the top seven freight companies and Amtrak — have dropped about 29% of their workforces in the last six years, roughly 45,000 workers, according to the federal Surface Transportation Board. Workers, industry groups and some federal regulators say that service has suffered on the rails, even as the price of shipping has risen. 

Congress can ultimately force the parties back to the table, pause negotiations until next year or legislate a settlement, an outcome that some of the unions have opposed. 

Some labor activists criticized Walsh, the labor secretary, last week for saying Congress “will have to take action to avert a strike,” even though he urged the parties back to the negotiating table first. He declined through a spokeswoman to comment further.

Congress waited less than 24 hours to force a settlement during the last rail strike in April 1991, with terms that were largely seen as unfavorable to workers. Most observers are skeptical that Congress would do much more than force through a deal along the lines of what was already negotiated — without the paid sick time guarantee. But partisan rancor in Washington remains an unpredictable force, and getting the necessary 60 votes in a nearly evenly split Senate is a tough ask. Democrats on the Senate Commerce Committee did not respond to a request for comment. 

A locomotive engineer at BNSF, who spoke on a wide range of labor issues and asked for anonymity for fear of retaliation from the company, said he planned to vote for the agreement. He felt it would allow workers to negotiate over the industry’s quality-of-life issues, including its stringent time-off policies, in the future.  

“It’s not everything that you wanted — you’re never going to get that,” said the engineer. “But it opens up our ability to negotiate.” 

Empty railroad tracks at the CSX Oak Point Yard in New York on Oct. 11.Spencer Platt / Getty Images file

This post appeared first on NBC NEWS

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