Rail Stoppage Could Fuel More Inflation

According to the Wall Street Journal, talks around new labor contracts for railway workers could reach a crucial juncture. Concerns are mounting over the potential upward pressure on prices if a strike holds up supply chains and hurts economic activity, according to economists and business groups.

The economic impact of any disruption would depend on how long the strike lasts. Congress also could intervene to delay or stop any strike.

A railroad strike could start this Friday if rail companies, and labor unions can’t reach a deal on a new contract. Labor Secretary Marty Walsh was meeting Wednesday with union and rail-company leaders to encourage them to reach an agreement.

White House officials are trying to reach a deal before a Friday 12:01 a.m. deadline when the unions have threatened to start a strike. Railroads have started cutting some services this week.

Stopping America’s 7,000 long-distance freight trains could reduce economic output by more than $2 billion every day, the Association of American Railroads said in a recent report. Some of that economic activity, however, could be delayed until after the strike ends, rather than lost forever.

Passenger rail provider Amtrak has canceled some long-distance trains and some freight rail operators have already stopped accepting hazardous goods.

U.S. economic output last year was $23 trillion, or an average of $63 billion a day.

America’s rail network is used by manufacturers to get parts and move goods as well as by retailers to get products from ports. Many items end up on multiple forms of transportation as they make their way across the U.S. and around the world.

Business groups said it would be difficult and costly to find alternative methods of transportation, typically trucks, because there aren’t enough trucks and truck drivers to go around. If a strike takes place, the railroad economic report estimates, there would be a need for an additional 467,000 long-haul trucks immediately, above the 2.8 million truck tractors that are already in operation.

“Supply networks are at risk of disruption once again if railroad workers go on strike,” wrote Rubeela Farooqi, chief U.S. economist for High Frequency Economics. “Interruptions to rail traffic would cause product shortages, which would impact both sales and factory operations, with implications for prices.”

U.S. consumers and businesses have faced rising prices in recent months as high incomes boost demand while supply-chain constraints and a tight labor market raise costs for companies.

The U.S. shipped 464,261 carloads of goods for the week ended September 10, according to the Association of American Railroads. Bulk commodities like coal and grain as well as products like cars are all commonly shipped by rail.

Source: WSJ Link