The Latest Railroad Union Debacle Highlights the Fragility of U.S. Supply Chains

The Latest Railroad Union Debacle Highlights the Fragility of U.S. Supply Chains

Just as supply chains started showing signs of normalcy, a new crisis threatened to disrupt the transport of goods across the country.

In July, major railroad unions voted to authorize a strike over national contract negotiations. While most unions agreed to a proposal that included immediate wage increases and cumulative raises, two unions, The Brotherhood of Locomotive Engineers and Trainmen and the SMART Transportation Division, held out for improvements to working conditions. Together those unions represent nearly half of the 115,000 freight rail workers. The unions say workers often stay on call for several days at a time, working 12-hour shifts with little notice, and are penalized for calling in sick.

The prospective worker stoppage was averted after President Biden helped solidify a deal on Thursday, just 24 hours before the federally mandated 30-day “cooling off” period ends, which would have likely resulted in strikes and lockouts. Rail workers will finally receive sick leave without being subject to penalties, consisting of unpaid leave and one additional paid day off. The agreement now heads to union members for a ratification vote and while the vote is tallied, workers have agreed not to strike.

This crisis may be mollified–for now–but if one thing’s clear after this situation it’s that you need to have a plan B and even a plan C or D. While it has shown some signs of improvement, such as freight rates declining for the first time this year, the supply is still a fragile system. 

Halted railway service would trigger an estimated $2 billion a day in losses, but the trucking industry accounts for 80 percent of all U.S. freight–and that’s been hanging on a thread for months. A letter sent to Congress last week by the American Trucking Association (ATA) highlights just how. The letter noted that idling all 7,000 long distance daily freight trains in the U.S. would require more than 460,000 additional long-haul trucks every day. The organization says there’s already a strain on equipment and a shortage of 80,000 drivers across the nation.

“The current globalized supply chain network for many businesses is lean, with no redundancy in the system, and fraught with single points of failure – ports, rails, canals. The current industrial action in the U.S., both in the rails and ports, is yet another example of the fragility of our supply chain,” notes Rick Veague, CTO of IFS North America, a enterprise supply chain management software company

This “just-in-time” supply chain, adds Veague, referring to a time when the supply chain was more predictable, worked well prior to the pandemic. However, there are now more weak links in the system due to geopolitical tensions, climate change, and lingering ripple effects from Covid. And every single time there is trouble in each of these weak points, there is a domino effect that causes disruptions to other parts of the very strained and stretched supply chain network. This is yet another reason why companies should move towards more domestic production.

Many businesses are already considering reversing the cost-saving decisions to offshore decades ago, the raw materials, components, and end products they source from domestic suppliers will be extremely important. Research published in June from IFS, found that 72 percent of large enterprises globally have increased the proportion of domestic suppliers they use, as opposed to international suppliers. Moving production closer to home will help cut down on the need for fuel and thus fuel costs, while at the same time shock-proofing against geopolitical threats or incidents that result in the blockage of key trade routes, says Veague. 

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