Rail strike ‘polar vortex-level blow to freight market’

The railroad strike or lockdown that could take effect on Friday has raised the prospect of a historically important supply chain turmoil that will affect every trucking mode to some degree.

The trucking industry is the largest customer of freight rail and rail transports more than 40% of all long-distance freight in the US. As such, a nationwide shutdown of rail service “could be a polar vortex-level shock to the freight market, Where supply chains are disrupted across a wide geographic region, as we saw in March 2021, said Dean Kroc, principal industry analyst at DAT Freight & Analytics.

“I would call Polar Vortex 2021 bad if the strike lasts about a week,” said Jason Miller, interim chair and associate professor of supply chain management in the Department of Supply Chain Management of the Eli Broad College of Business at Michigan State University. -19 is bad if we get two-plus weeks.”

Work on a new labor deal has been underway for more than two years. Rail providers and 12 workers’ unions are currently waging war on new contracts that demand wage increases and improved quality of life, among other concessions. The majority of union groups have agreed to a tentative deal, but it will take all 12 to formally end the strike.

The Association of American Railroads projects lost economic output due to national rail shutdowns that could exceed $2 billion per day, and could exceed 460,000 additional long-distance trucks will be needed every day To compensate for the loss of rail capacity – a scenario that is impossible at almost every conceivable level.

“Today, spot rates have been falling for eight months,” Kroc said. “A long strike can send spot rates upwards as shippers scramble to move their cargo. Given that this is RFP season, the tail end of peak shipping season, harvest season and during the holiday season There is so much uncertainty over consumer spending, a strike would be more devastating to shippers than anyone. If I am a carrier, I am communicating with customers and evaluating their risk of service slowdown and potential strike. “

dry van

Some national rail service providers and several regional railroads began reducing service Monday, and the loss of rail capacity for an extended period will fuel a “sharp increase in dry van long-haul shipments from both coasts inland”, Miller said. he said.

“The West Coast to Chicago lane is the one I would expect to see the most disruption given the magnitude of railroad movements, including the fact that the haul is so long that it will cut into overall dry van capacity,” Miller said.

According to DAT, this lane reached its peak in mid-December, averaging $3.70 per mile. It has cooled over the past eight months and settled in the range of about $2.30 a mile, but a breakdown in rail transport is likely to drive these rates back skyward.

The DAT RateView shows the average van spot rate from Los Angeles to Chicago through Sunday.  It is a Belvedere lane where the truckload competes with the Intermodal.  Sunday isn't the best barometer for freight traffic, but it solidifies capacity in LA.The DAT RateView shows the average van spot rate from Los Angeles to Chicago through Sunday. It is a Belvedere lane where the truckload competes with the Intermodal. Sunday isn’t the best barometer for freight traffic, but it solidifies capacity in LA.

“In 2020 and 2021, we will see an increase in spot demand as many shipments whose previous routing guide waterfalls were previously intermodal will now convert to trucks,” Miller said. “Where we have an open question is how many carriers want those loads, especially if they’re unsure of how to find loads in the West Coast. Given the high diesel prices that make margin killer deadheading, it’s more at those spot rates.” can exert upward pressure.”

Miller said one segment of dry vans is of particular interest, which haul paper and allied products. “Each week sees about 11,600 carloads of that commodity category across all Class 1 railroads,” Miller said, which would suggest an additional 40,000 truckloads a week. We also need to consider grain mill products – 14,300 carloads a week – as well as stone, clay and glass products – 12,400 carloads a week – although some of these may go on flatbeds.”

bulk and tank

Railroads carry approximately 27,700 carloads of crushed stone, sand and gravel, as well as 27,700 carloads of grain each week, and Miller said he sees “there is little chance that this capacity could be built up by trucking firms.”

Similarly, there is not enough tanker truck capacity to handle the 55,000 carloads of chemicals that go on the rails each week, and another 19,100 petroleum products, which “require about 300,000 additional tanker loads a week,” Miller said. “Again, I don’t see how it is formed from existing [truckload] ability.”

Flatbed and Reefer

Miller said about 13,000 carloads of metals are transported by train each week, as well as another 8,100 carloads of wood and wood products. Assuming that a railcar carries the equivalent of four cm, “that’s about 88,000 additional flatbed loads a week,” he said, “and that’s not counting all the extra equipment that would need to be hauled by flatbed.” “

Roughly around 13,600 carloads of food and other products are transported via refrigerated rail per week. So Miller said he expects “some spike” in refrigerated truckload spot prices, however, he doesn’t see mobility as extreme as dry vans.

“Reefer and flatbed imports mostly come to specialty ports like San Diego or Philly for South American produce or Baltimore. [roll-on/roll-off] machinery,” Kroc said. “I’m sure reefers and flatbeds will be affected, but nowhere near the impact on dry vans as the holiday season approaches.”

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