Latest railroad union debacle highlights fragility of US supply chains

As supply chains began to show signs of normalcy, a new crisis threatened to disrupt the movement of goods across the country.

In July, the main railway unions voted in favor of a strike over national contract negotiations. While most unions accepted a proposal that included immediate pay increases and cumulative increases, two unions, the Brotherhood of Locomotive Engineers and Officers and the SMART Transportation Division, resisted improving working conditions. work. Together, these unions represent nearly half of the 115,000 rail freight workers. Unions say workers often remain on call for days at a stretch, work 12-hour shifts with little notice, and are penalized if they call in sick.

The potential work stoppage was averted after President Biden helped cement a deal on Thursday, just 24 hours before the end of the federal government's 30-day cooling-off period, which likely would have resulted in strikes and lockouts. Railway workers will finally benefit from sick leave without penalties, consisting of unpaid leave and an additional day of paid leave. The deal now heads to union members for a ratification vote and while the vote is counted, workers have agreed not to strike.

This crisis may be over - for now - but if one thing is clear after this situation is that you must have a plan B and even a plan C or D. Although she showed signs of improvement, such as freight rates falling for the first time this year, supply remains a fragile system.

Stopping rail service would cost an estimated $2 billion a day, but the trucking industry accounts for 80% of all freight in the United States, and it's hanging by a thread for months. A letter sent to Congress last week by the American Trucking Association (ATA) underscores just how much. The letter stated that idling the 7,000 daily long-haul freight trains in the United States would require more than 460,000 additional long-haul trucks each day. The organization says there is already a strain on equipment and a shortage of 80,000 drivers across the country.

"Many companies' current globalized supply chain network is lean, with no redundancy in the system and fraught with pitfalls: ports, rails, canals. Current industrial action in the United States, both in rail and ports, is another example of the fragility of our supply chain,” notes Rick Veague, CTO of IFS North America, a 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 before the pandemic. However, there are now more weak links in the system due to geopolitical tensions, climate change and the lingering ripple effects of Covid. And whenever there are problems in each of these weak spots, there is a domino effect that causes disruptions in other parts of the very tight and stretched supply chain network. This is another reason why companies should move towards greater domestic production.

With many companies already considering reversing cost-cutting decisions to outsource decades ago, the raw materials, components and end products they source from domestic suppliers will be extremely important. A study published in June by IFS found that 72% of large companies globally have increased the proportion of domestic suppliers they use, as opposed to international suppliers. Bringing production closer to home will help reduce fuel requirements and therefore fuel costs, while also protecting against geopolitical shocks or incidents that cause major trade routes to be blocked, Veague says.