Latest Railroad Union Debacle Highlights Vulnerability of US Supply Chains

Just as supply chains were beginning to show signs of normalcy, another crisis threatened to disrupt freight transport across the country.

In July, major railway unions voted to authorize a strike over national contract negotiations. While most unions agreed to a proposal that included immediate wage increases and cumulative increases, two unions, The Brotherhood of Locomotive Engineers and Trainmen and the SMART Transportation Division, maintained improvements in working conditions. Together, these unions represent almost half of the 115,000 workers in freight transport. The unions say employees are often on call for several days in a row, work 12-hour shifts without notice, and are penalized if they call in sick.

The future work stoppage was averted after President Biden helped cut a deal on Thursday, just 24 hours before the federally mandated 30-day “cooling off” period expires, which likely would have led to strikes and lockouts. Rail workers will finally get penalty-free sick leave, consisting of unpaid leave and one extra paid day off. The agreement now goes to union members for a ratification vote and while the votes are being counted, workers have agreed not to strike.

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This crisis can be averted (for now), but if one thing is clear after this situation, it is that you need a plan B and even a plan C or D. While it is showing some signs of improvement, such as falling freight rates for the first time this year, supply is still a fragile system.

A halted rail service would cause an estimated $2 billion a day in losses, but the trucking industry accounts for 80 percent of all U.S. freight – and that has been hanging by a thread for months. A letter sent to Congress by the American Trucking Association (ATA) last week shows how. The letter noted that idling all 7,000 daily long-haul freight trains in the US would require more than 460,000 additional long-haul trucks per day. The organization says equipment is already under pressure and there is a shortage of 80,000 drivers across the country.

“The current globalized supply chain network for many companies is lean, with no redundancy in the system, and fraught with some points of failure – ports, rails, channels. The current industrial action in the US, both in rails and ports, is already underway. an example of the fragility of our supply chain,” notes Rick Veague, CTO of IFS North America, an enterprise supply chain management software company

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This “just-in-time” supply chain, Veague adds, citing 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 ongoing ripple effects of Covid. And every time there are problems in each of these weaknesses, there is a knock-on effect that causes disruptions in other parts of the very tense and stretched supply chain network. This is another reason why companies should switch to more domestic production.

Many companies have been considering turning the cost-saving decisions back to offshore decades ago, the raw materials, components and finished products they source from domestic suppliers will be of great importance. Research published by IFS in June found that 72 percent of large enterprises worldwide have increased the proportion of domestic suppliers they use rather than international suppliers. Bringing production closer to home will reduce the need for fuel and therefore fuel costs, while at the same time being shockproof against geopolitical threats or incidents leading to the blockage of key trade routes, Veague says.

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