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Chemical industry warns rail strike will hit GDP, stoke inflation

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Train cars on rails passing through Lafayette, Indiana.

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The U.S. chemical manufacturing industry is one of the largest users of freight rail, shipping more than 33,000 carloads per week, and it is forecasting billions of dollars in economic damage if a labor deal isn’t reached between rail companies and unions before a potential strike in December.

A new economic analysis released by the American Chemistry Council estimates that a rail strike would impact approximately $2.8 billion in chemical cargo that is moved weekly, with a month-long strike resulting in an overall hit to the economy of $160 billion, or one percentage point of GDP.

The ACC represents companies across industrial, energy and pharmaceutical sectors, among other manufacturing niches, including 3M, Dow, Dupont, Exxon Mobil, Chevron, BP and Eli Lilly.

Chemicals are among the most sensitive cargo moved by freight rail companies, and the first to be dealt with when there is risk of a strike. Strike preparation plans released by the railroads back in September when a looming work stoppage was averted indicated that the freight companies would start securing critical chemicals like chlorine for drinking water over regular cargo seven days prior to the strike date. Ninety-six hours before a strike deadline, all chemical shipments are no longer moved.

“AAR data show that there was a drop of 1,975 carloads of chemical shipments during the week of September 10 when the railroads stopped accepting shipments due to the threat of a strike,” said Jeff Sloan, ACC’s senior director of transportation policy. “We would expect a similar dramatic reduction in chemical shipments if an embargo were to take place this month.”

The start of rail strike preparation will depend on the voting results from some of the largest rail unions yet to ratify the labor deal recommended by President Biden’s Presidential Emergency Board.

The two largest unions, the Transportation Division of the International Association of Sheet Metal, Air, Rail, and Transportation Workers (SMART-TD) and the Brotherhood of Locomotive Engineers and Trainmen (BLET), a Division of the Rail Conference of the International Brotherhood of Teamsters, will announce their vote results on Monday, November 21.

If both unions ratify the tentative agreement, the strike date the rails would start prepping for is December 5. That’s the day the Brotherhood of Maintenance of Way Employees Division (BMWED), and the Brotherhood of Railroad Signalmen (BRS), can strike. Their cooling-off period ends December 4. The International Brotherhood of Boilermakers rejected the labor deal Monday, but said it will continue to negotiate during the cooling-off period.

If SMART-TD or BLET rejects the agreement, the strike date would be December 9, the day after their cooling-off period ends. BMWED has said it would extend its own cooling-off period to align with the new strike date. BRS has yet to announce a similar cooling-off period extension.

These dueling dates only add to the logistical planning challenges.

“Railroads will stop shipping chemicals that are essential to everyday life well in advance of a strike, including products that are critical to safe drinking water and food production,” Sloan said. “Many chemical facilities would be forced to shut down within the first week of a rail service embargo.”

The AAR says the impact of a potential strike would be felt almost immediately across nearly every sector of the economy. It has asked Congress to step in, using the authority it has to impose a deal under the Railway Labor Act. Its economic analysis projects a spike in a key inflation indicator, the Producer Price Index — which showed signs of cooling on Tuesday — of four percent.

“American consumers and manufacturers are still struggling to deal with inflation and don’t need to be hit with a new crisis,” said Chris Jahn, president of the ACC. “This is an economic calamity that every member of Congress should be very interested in preventing and we call on policymakers to act quickly on legislation that will enact the terms that labor leaders and railroads agreed to in September.”  

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