AAR-hosted call makes the case for railroad carriers and labor unions to avert a strike

On a media conference call hosted by the Association of American Railroads (AAR) earlier today, various industry associations made their respective cases for Congress to step in to help resolve the ongoing dispute between the remaining four railroad labor unions yet to ratify terms of a tentative labor agreement and the United States-based Class I freight railroads.

As previously reported, these agreements are based on recommendations made by Presidential Emergency Board (PEB) appointed by President Biden, which were released on August 16, and include a 24% wage increase over the five-year period from 2020 through 2024, coupled with a 14.1% wage increase that is effective immediately, as well as five annual $1,000 lump sum payments, with the National Carriers’ Conference Committee (NCCC), an organization representing the nation’s freight railroads in national collective bargaining, noting that a portion of the lump sum payments are retroactive and will be paid out promptly upon ratification of the agreements by the unions’ membership. A major source of contention between the unions yet to ratify this agreement and the freight railroads focuses on sick leave and shift scheduling, as well as staffing shortages and related issues.

Currently, eight of the 12 railroad labor groups have fully ratified terms of the tentative agreement and nine of 13 contracts are ratified (as SMART-TD has two separate contracts). The holdovers include: Brotherhood of Railway Signalmen (BRS), the last union yet to ratify terms of the tentative agreement, joining SMART-TD (for one of its contracts), BMWED (Brotherhood of Maintenance of Way Employees Division of the International Brotherhood of Teamsters), and IBB (Iron Ship Builders, Forgers and Helpers).

AAR President and CEO Ian Jefferies said on the call that the terms of the tentative agreement represent historic wage increases, the highest in more than five decades, resulting in an average salary of around $160,000 by the end of the contract’s term.

“Most importantly, the contract will maintain first-in-class healthcare at an employee cost share that is dramatically lower than that compared to other industries,” he said. “Our employees will be compensated in the top 10% of any industry in the U.S. It is also important to note that these agreements take significant steps to address key quality of life issues, work scheduling issues…things that several of our unions who work a more unscheduled shift stated as priorities during negotiations.”

As for where things currently stand, Jefferies said there is a clear pattern of agreements, with eight of the 12 unions having fully-ratified contracts, and nine of 13 contracts ratified, with a lot of the ratified agreements attributed to leadership at the White House.

“In September, the administration kept the parties at the table and required both parties to work extremely hard together to get to tentative agreements,” he said. “We are pleased to reach tentative agreements with all 12 leaders of the unions we negotiated with. A lot of credit goes to President Biden and his administration for their involvement and encouragement, and keeping people at the table. Yesterday, the President took decisive action to call on Congress to move to implement the clean tentative agreements as agreed to in September to avert a work stoppage and potential national rail strike. While the parties have remained at the table throughout the process, we have been—and are working on—a finite timeline with an increasingly short window. What the President called for at this point is appropriate and Congressional action is necessary, as Congress has acted 16 times previously in similar situations.”

Mike Sommers, president and CEO of the American Petroleum Institute (API), noted on the call that freight rail transportation is a critical part of U.S. energy and the nation’s supply chain, adding it is responsible for moving 95% of ethanol, a vital component of making gasoline ready for final consumption.

“Railroads are necessary for transporting this ethanol, most of this ethanol is transported via rail, and more than 90% of the gasoline consumed in the United States in 2022 contains ethanol,” he said. “Our industry has the upmost respect for the people that keep our products moving across the country via railroads. API is joining the AAR and other industry associations to urge Congress to pass legislation to implement the agreement reached by the railroad unions and the railroads. I would also like to thank the President of the United States for intervening in this matter and urge Congress to pass this agreement as quickly as possible. Shutting down our rails for even one day would have a significant impact on U.S. gasoline supply and could lead to higher prices for American consumers and businesses ahead of the holiday season.”

From the perspective of the National Grain and Feed Association (NGFA), Mike Seyfert, president and CEO, observed on the call that it is imperative for a deal to be reached.

NGFA is comprised of more than 1,000 grain processing and exporting companies, with more than 8,000 facilities in the U.S, with Seyfert noting that his group represents nearly 15% of total U.S. carloads, with rail moving 25% of all U.S. grain and about 1.5 million carloads, while also moving about 2 million carloads of grain products, like flour and soybean oil, among other commodities.

“It is because of the resiliency of rails to move these commodities over long distances that it is so important to the processing industry, the exporting industry, and also the animal feed industry,” he said. “And at this time of high inflation and global security, we cannot have our exports stopped due to a rail strike. We also have a number of areas in this country where livestock producers have to ship their feed via rail. It is really the only way where they can move it in a very short period of time. We are hopeful Congress will move quickly on this proposal that is on the table.”

The global pandemic and resulting supply chain shocks forced retailers and consumers to weather what Brian Dodge, president of the Retail Industry Leaders Association, called a cascade of disruptions over the past 2.5 years.

“But unlike most shocks we see, the looming specter of a rail shutdown and related economic impact are entirely foreseeable and preventable,” he said. “Given the timing of this potential shutdown, it is natural to worry about the effect on the holiday shopping period. While retailers largely have their holiday inventory in place at distribution centers and stores, supply chains are always moving. Everything from food products to spring merchandise and the inputs that will be used to assemble next year’s merchandise are currently making their way through an interconnected supply chain that relies on rail. A snag anywhere in that network, let alone a total shutdown of a significant part of that network has a knockdown effect that amplifies throughout the system.”

That knockdown effect could come in the form of millions of e-commerce orders being stranded in train cars full of parcel shipments, with intermodal cargo backed up and turned into gridlock at the nation’s ports, he added. And the potential hit to the national economy and added inflationary pressures are things he said that cannot be ignored.

“The strain on the global supply chain has been a major contributor to inflation…a rail shutdown would exacerbate these pressures,” he said. “We believe a negotiated deal is the best outcome. We urged the negotiators to reach a deal this summer, and when they did, we cheered all sides for their work. Now, with a deadline approaching and no deal in sight, Congress needs to act. A shutdown is unacceptable, and the economic catastrophe it would cause is entirely predictable.”

Corey Rosenbusch, president and chief executive officer of The Fertilizer Institute, said on the call that farmers have been recently experiencing a tight global fertilizer market, from geopolitical issues to high natural gas prices.

“A rail strike would be catastrophic for global food security,” he explained. “Fertilizer is responsible for about 50% of the world’s crop yields. But the timeliness of these shipments is so critical to farmers during planting season. One half of all the fertilizer that is used in the United States is moved by rail. For fertilizer companies, a rail strike would effectively start five days before a formal strike because these fertilizer shipments would be embargoed with other chemicals to secure those products on the network. We estimate that for every day of a strike it would take about five-to-seven days for that supply chain to catch up. And with limited storage at production facilities, if this is not resolved quickly, fertilizer manufacturing would have to be curtailed. This would be absolutely devastating for fertilizer distribution to farmers who need the fertilizer to grow the food on which the world depends. We are urging Congress to act now to prevent a rail strike.”    

AAR’s Jefferies said that the unions that don’t have ratified contracts have continued conversations with the carriers, but with the December 9 deadline coming, it is important to recognize that things are on a finite timetable, with an increasingly shorter timeline.

“That is why it is critical that President Biden take on the leadership role he took on yesterday, calling on Congress to implement the agreements made between railroads and union leaders in September,” he said. “It is appropriate that Speaker Pelosi echoed that with her intention to submit legislation in short order to avert a work stoppage at the end of next week. We are cognizant of the timeline, but we are taking all steps to reduce any likelihood of a work stoppage.”