Rail stocks including Union Pacific sank Wednesday as unionized rail workers, negotiating for better pay and benefits, could go on strike as soon as Friday. A rail strike would hit multiple sectors as it could stop the transportation of food, lumber, coal and other goods across the country.
More than 115,000 rail workers have the legal go ahead to strike on Friday. This could impact all major U.S. railroads, including rail stocks Union Pacific and CSX, as supply chain disruptions could be on the horizon. The impending strike comes after Tuesday's CPI report showed inflation is still above 8%.
Eight of 12 labor unions have reached tentative agreements with railroad carriers. However, there are still disagreements over vacation, sick days and attendance policies.
A "cooling off" period expires Friday, at which time workers are legally allowed to strike. Around 40% of long-distance shipments in the U.S. move by rails and the idling of 7,000 trains daily could create product shortages and widespread manufacturing shutdowns.
A freight rail shutdown could cost the U.S. economy around $2 billion per day, according to the Association of American Railroads. Rail accounts for about 28% of U.S. freight. It is also the number one mode of transportation used by coal producers, according to the Energy Information Administration.
Rail Stocks Fall As Strike Looms
Disruptions have already begun with Amtrak canceling service on three long distance routes and part of a fourth that operate on freight-owned tracks. Freight railroads have suspended some services to make sure sensitive and hazardous materials, such as chlorine, aren't stranded on the tracks.
Supply chain issues have been a problem for the past two years as companies have dealt with Covid, massive swings in demand, labor shortages and more. That in turn helped push up inflation to 40-year highs and hampered economic growth.
Bernstein downgraded UNP stock and CSX early Wednesday, citing the pending rail workers strike.
Union Pacific dropped 3.7% to 217.95 in Wednesday's market trading. CSX stock fell just over 1%.
On Tuesday, UNP stock sank 3.4% and CSX 3.9%.
Tuesday's declines likely reflected, in large part, the stock market sell-off on the hot consumer price index. It's unclear if markets have priced the impact of a rail workers strike on big rail operators, not to mention coal, chemicals and other industries.
Response In D.C.
It's still possible that a rail workers strike won't happen, or that it will be short-lived, causing minimal disruptions. And Washington may step in.
Senate Republicans have introduced a resolution to impose a new contract if negotiations between railroads and unions collapse. Meanwhile Senate Democrats have signaled they would pass legislation to block a rail shutdown.
President Joe Biden's administration said Tuesday it was working on contingency plans to try to ensure deliveries of critical goods continue in the event of a shutdown of the U.S. rail system, the Wall Street Journal reported.
"We are working with other modes of transportation, including shippers and truckers, air freight, to see how they can step in and keep goods moving in case of this rail shutdown," White House press secretary Karine Jean-Pierre told reporters Tuesday.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
