A railway strike could shut down the flow of commodities across the US and have widespread effects on products from electricity to agriculture.
Railway labor unions and railroad management are once again in the process of negotiation, with a potential railway strike looming if negotiations fail. If an agreement is not reached by December 5, more than 50% of US railway workers may begin to strike, shutting down the railroad network. Estimates by the railway industry show that a potential shutdown could cost the US economy over $2 billion per day, as the movement of vital commodities and resources would be frozen. While some products could be moved by truck or barge, there is not enough capacity to make up for the loss of railways. It is estimated that it would require an additional 467,000 long-haul trucks per day to replace railways. A shortage of truck drivers exacerbates this, and low river water levels caused by drought, which reduces the amount of goods that can be moved by barge.
Energy Effects
Coal:
- A rail strike could shut down most US coal transport, which would lead to major disruptions in US electricity generation
- About 20% of US electricity is generated by coal, and 70% of that coal is moved by train according to the EIA
- 9,300 carloads of coal are transported per day on average, with each carload being able to supply 7,300 homes with electricity according to the Association of American Railroads (AAR)
- Coal inventories at power plants are at the lowest level they have been in several years, while coal prices are significantly elevated
- An extended shutdown of rail-based transportation could lead to a drawdown of coal inventories to a level that could lead to the shutdown of power plants
- Reduced ability to generate power from coal or a further increase in the price of coal would increase the bid for natural gas from the power sector, potentially at a time when gas demand for space heating is also elevated
Oil:
- About 1.5% of US oil production or 162,000 Bpd is transported by rail according to the AAR
- Most oil transported by rail originates from the Bakken
- While most US oil flows would be unaffected by a rail strike, refined products would be heavily impacted by the lack of blending components such as ethanol.
Biofuels:
- Roughly 70% of US ethanol production moves by rail. Ethanol producers have on-site storage covering at most 6-9 days of production after which plants would simply shut down
- During the last near-strike in September, ethanol cars were removed from some rail lines days in advance of the deadline as a precaution
- Ethanol shortages would quickly disrupt retail gasoline supply as the lack of ethanol blendstock would require ramping up production of finished 87 conventional or the introduction of government waivers
- A nationwide rail strike would materially curtail renewable diesel production as key feedstocks are principally moved by rail.
Agriculture Effects
- 6,300 carloads of food and farm products are shipped every day according to the AAR
- 20% of US grain production is transported by rail
- Rail-based transport is especially critical during the fall harvest season
- Products that farms require, such as fertilizer, would also be constrained; one carload of fertilizer can treat 4,500 acres of farmland
- A third of US agricultural exports are moved by train, and a shutdown of US exports could further tighten the global grain market which is already under pressure from the Russia-Ukraine conflict
Metals Effects
- 1,500 carloads of steel and 1,900 carloads of iron ore are transported every day by rail
- A shutdown of industrial metals transportation would significantly affect construction projects and damage the US economy
- Projects that have already been hampered by tight supply-chains would experience further difficulties and delays
Conclusion
If labor unions and railways are unable to come to an agreement before the deadline, there could be wide-reaching effects on commodities and their prices. Each day the strike lasts would cost billions of dollars and drastically increase the effects of existing supply-chain issues.
