The rail strike is a 'polar vortex level shock to the freight market'

The rail strike is a ‘polar vortex level shock to the freight market’

A railroad strike or lockout that could take effect on Friday has brought to light the potential for a historically significant supply chain disruption that would affect every mode of trucking to some extent.

The trucking industry is the largest customer of rail freight, and rail carries over 40% of all long-haul freight in the United States. are disrupted over a wide geographic area as we saw in March 2021,” said Dean Croke, senior industry analyst at DAT Freight & Analytics.

“I would say the 2021 polar vortex is bad if the strike lasts about a week,” added Jason Miller, acting president and associate professor of supply chain management in the department of supply chain management, Eli Michigan State University’s Broad College of Business, “but COVID-19 is bad if we get past two weeks.”

Work on a new employment contract has been underway for more than two years. Rail suppliers and 12 employee unions are currently vying for new contracts that include wage increases and quality of life improvements, among other concessions. The majority of the union groups have accepted a provisional agreement, but it will be necessary for the 12 to officially end a strike.

Association of American Railroads projects have lost more than $2 billion a day due to the closure of a national rail network, and more than 460,000 additional long-haul trucks would be needed each day to make up for the loss of rail capacity – a scenario that is impossible on almost every conceivable level.

“Today spot rates have been falling for eight months,” Croke said. “A prolonged strike could drive spot rates up as shippers scramble to move their freight. Given that it’s bidding season, the end of peak shipping season, harvest season and that there is a lot of uncertainty about consumer spending over the holiday season, a strike would be more devastating to shippers than anyone else. If I’m a carrier, I would be communicating with customers and assessing their exposure to downturns in service and a potential strike at this time.

dry van

Some national rail service providers and a number of regional railroads began cutting service from Monday, and the loss of rail capacity for an extended period will lead to “a sharp increase in long-haul dry van shipments since both inner coasts,” Miller said.

“The West Coast track in Chicago is where I would expect to see the most disruption given the scale of the rail movements coupled with the fact that the haul is so long it will reduce the overall capacity of the dry vans. “added Miller.

This route peaked in mid-December averaging $3.70 per mile, according to DAT. It has cooled over the past eight months and settled into a range of around $2.30 per mile, but a rail outage is likely to push those fares skyward.

DAT RateView displays the average spot rate for vans from Los Angeles to Chicago through Sunday. This is a flagship route where the full truck competes with intermodal. Sunday isn’t the best barometer for freight, but it does show tighter capacity in Los Angeles.

“As in 2020 and 2021, we will see an increase in spot demand as many shipments whose previous route guide cascade was intermodal first will now shift to truck,” Miller said. “Where we have an open question is how many hauliers want these loads, especially if they’re not sure they’ll find loads to the west coast. Given that high diesel prices are making dead heads a margin killer, that could put upward pressure on those spot rates.”

One dry van segment that Miller says is of particular interest is transporting paper and related products. “Each week, approximately 11,600 railcars of this class of cargo are spread across all Class 1 railroads,” Miller said, “suggesting approximately 40,000 additional truckloads per week. and glass – 12,400 loads per week – although some of these may be moved on a flatbed.”

Bulk and tank

The railways move about 27,700 cars of crushed stone, sand and gravel, as well as 27,700 cars of grain each week, and Miller said he sees “little chance that this capacity can be matched by companies of trucking”.

Likewise, there is not enough tanker capacity to transport the 55,000 carloads of chemicals transported by rail each week, and another 19,100 of petroleum products, which “equates to needing approximately 300,000 additional tank truck loads per week,” Miller said. “Again, I don’t see how this disguises itself as existing. [truckload] ability.”

Tray and reefer

About 13,000 cars of metals are moved by train each week, along with another 8,100 cars of lumber and wood products, Miller said. Assuming one rail car carries the equivalent of four tractor-trailers, “that’s about 88,000 additional flatbed loads per week,” he added, “and that’s not counting all the extra equipment that will have to be transported by tray”.

Approximately 13,600 cars per week of food and related products are transported by refrigerated rail. Therefore, Miller said he expects “some spike” in spot prices for refrigerated trucks, but he doesn’t see the dynamics as extreme as with dry vans.

“Imports of reefer and flatbed ships mainly arrive in specialized ports like San Diego or Philly for South American products or Baltimore for [roll-on/roll-off] machines,” Croke added. “I’m sure refrigerated trucks and flatbeds would be hit, but far from the impact on dry vans so close to the holiday season.”

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