IAM comes to terms on tentative rail labor deal, reports NCCC

Following a collective sigh of relief heard on September 15, when United States freight railroad carriers and railroad labor unions came to terms on a tentative deal, which remains subject to ratification, one railroad labor union—the International Association of Machinists and Aerospace Workers (IAM) reached a tentative agreement with the railroads, the National Carriers’ Conference Committee (NCCC), an organization representing the nation’s freight railroads in national collective bargaining, said yesterday.

NCCC said that this represents the second tentative agreement between the NCCC and IAM, on the heels of an earlier agreement, which was not ratified. And NCCC added that all 12 railroad labor unions in the national bargaining round have now ratified or are in the process of ratifying new collective bargaining agreements.  

As previously reported, those agreements followed the announcement of the recent appointment of the Presidential Emergency Board (PEB) by President Biden, which is focused on resolving this ongoing labor dispute. The August 16 release of the PEB’s recommendations, which 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 a portion of the lump sum payments are retroactive and will be paid out promptly upon ratification of the agreements by the unions’ membership, according to the National Carriers Conference Committee (NCCC), an organization representing the nation’s freight railroads in national collective bargaining.

The Wall Street Journal reported that the wages and other contract terms largely followed PEB's recommendations, adding that unions had sought raises of 31% over the five-year term of the contract, while railroads offered 17%, with wage increases amounting to around 13% in the previous five-year contract and annual wage increases in the new contract coming in between 3%-to-7%. 

President Biden described the tentative agreement as a win for both the economy and the American people.

“These rail workers will get better pay, improved working conditions, and peace of mind around their health care costs: all hard-earned,” said Biden. “The agreement is also a victory for railway companies who will be able to retain and recruit more workers for an industry that will continue to be part of the backbone of the American economy for decades to come. I thank the unions and rail companies for negotiating in good faith and reaching a tentative agreement that will keep our critical rail system working and avoid disruption of our economy. [T]his tentative agreement means our economy can avert the significant damage any shutdown would have brought.”

Tensions over the impact of a potential strike had been running high in the days and weeks leading up to this tentative agreement being announced, and U.S.-based Class I freight railroads had already begun making contingency plans in the event a deal did not come to fruition by the end of the cooling off period at 12:01 A.M. on September 16.

The Association of American Railroads (AAR) issued a report late last week, explaining that a nationwide rail service interruption “would dramatically impact economic output and could cost more than $2 billion per day of a shutdown.”

What’s more, it added that if deals were not reached by the deadline, Congress would have needed to step in and act to prevent a service interruption that would harm and impact every rail-served economic sector. Examples of this highlighted in the report include: idling more than 7,000 trains per day; triggering retail product shortages and widespread manufacturing shutdowns; job losses; and disruptions to hundreds of thousands of passenger rail customers.

For historical context, the AAR report cited a 1992 econometric model used by the Federal Railroad Administration, in order to estimate the impact of a national rail shutdown on both employment and economic output. The model found that a two-week shutdown would result in 570,000 rail-served industry layoffs and $14 billion in lost output—or $1 billion per day.

And it added that daily tally would be much higher now, due to inflation, the constant-dollar GDP chain-weighted deflator, which measures economy-wide price changes; and how much supply chains have been streamlined since 1992, with limited excess capacity to move goods and freight. Looking at the impact of a potential rail shutdown on other modes, the report explained that most shippers that use rail could modify their distribution patterns. But that comes with the caveat, it noted, that making a switch on short notice to trucks or barges, or changing production processes to reduce or eliminate the need for rail service, would be very expensive and disruptive, as well as impractical.

Prior to the announcement of a deal being reached, Brooks Bentz, LM contributing editor and supply chain consultant, said the current situation represents complex issues—not just in this current round—for the entire time unions have represented employees, explaining that there is “inevitable tension” between management and labor, with each party having different motivations and goals like reducing costs versus improving earnings and dues.

“The timing for a potential strike is not auspicious,” said Bentz. “The economy is wobbly, inflation is higher than anyone wants, and supply chains will be hard-pressed to sustain themselves without rail service, both carload and intermodal.  Adding to that, a pivotal election on the horizon, so both sides would be well-served to find a way to avoid the disruption this will cause, even if it means more compromise than desired in this round. A strike, if it occurs—and it looks like it will—is likely to be of short duration.  Politically and economically, it would be harmful to many and beneficial to few.  The President would like order the workers back to duty, with a cooling off period of some duration, typically about 90 days. Statesmanship, at any level, is becoming a lost art, but if there ever were a time for it, that time is now, on all sides—labor, management and political.”