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Rail and port labor issues adding to supply chain misery, expert says

Most rail stakeholders ‘wondering what, if anything, can they do’

A man on the docks. (Photo: Jim Allen/FreightWaves)

The struggle by the freight railroads and their unions to reach consensus on a labor agreement comes at a time when it is already anyone’s guess how existing challenges in the supply chain will play out over the next several months, according to Ashley Craig, an attorney with Washington law firm Venable.

For starters, there are rail service issues, as well as lingering supply chain impacts from the COVID-19 pandemic, according to Craig, who co-chairs Venable’s international trade group. Furthermore, the International Longshore & Warehouse Union (ILWU) and the Pacific Maritime Association are negotiating a new labor contract for West Coast port dockworkers. The last contract expired July 1.

To that already potent mix, add contract talks in rail. The Presidential Executive Board (PEB), a three-member committee appointed by President Joe Biden, has been taking testimony from the railroads and the unions about key issues in their negotiations. PEB Chair Ira Jaffe and members Barbara C. Deinhardt and David Twomey will issue a report by Aug. 16 offering recommendations for the railroads and the unions. Then there will be a 30-day cooling-off period for both sides to consider those ideas. The unions will not be permitted to strike or engage in a work stoppage before the cooling-off period ends. 

Wages and benefits are among the sticking points between the unions and the railroads. Contract negotiations began in January 2020. The National Mediation Board took over negotiations earlier this year but released the parties after they failed to reach an agreement. Per the Railway Labor Act, the formation of the PEB was the next stage in the process.

FreightWaves spoke with Craig on how the broader supply chain is coping with all these labor unknowns, plus the consumer and economic landscape post-pandemic.

This interview was edited for length and clarity.

FREIGHTWAVES: What are the implications of the latest actions surrounding the Presidential Emergency Board and rail and union relations for the broader supply chain?

CRAIG: “I know we’re talking about the rail situation, but there’s a greater supply chain concern given that we have the ILWU in negotiations with the Pacific Maritime Association. Those talks seem to be, let’s just say, ‘progressing,’ but we’re still not quite there just yet. And we all know what happened 10 years ago [when negotiations between] the stevedores and the shipping lines got pretty bad.

“So, talk about a confluence of events where we have still-lingering COVID, supply chain disruptions, port congestion, long-standing concerns with the rail from the shipper perspective, etc. Now we have a situation where the president had to go and evoke executive authority, issue the order, create the board, essentially timeout for 60 days [starting July 18] … We’re looking for this report [that will list PEB’s recommendations].

“Who knows what’s going to happen, but we could find ourselves in the worst-case scenario where we have no agreement between the unions and the rail side. … And then we have a lockout on the Pacific waterfront, and we’re going to have massive disruptions to the supply chain above and beyond what we have been seeing over the last 18, 24 months related to COVID impact supply chain concerns, etc.

“So, long way of saying, what are people doing? I mean, you’re seeing the statements issued by [the National Retail Federation], for example, applauding the president’s decision to step in and issue the order bringing the board, appoint the three, and hopefully, not only take a timeout but also drive towards some sort of consensus.

“But the rhetoric is still pretty high. The rail carriers have not backed down, and they’re still very much focused on the price point that every individual employee union, in terms of salary, derives … . The comments are fixated on the fact that [railroad salaries are] much higher than the average American worker. The counter [from the unions] is they haven’t gotten the raise in three years, they’re front-line workers, etc.

“I think most of the stakeholders that rely on rail are sitting here wondering what, if anything, can they do other than what has been able to have been done already, which is to get the president to step in, in a direct way. So, lots of unanswered questions at this point.”

FREIGHTWAVES: Do shippers and customers create contingency plans in this situation?

CRAIG: “You try. In a ‘normal’ situation where we didn’t have multiple events running in parallel — let’s just say that the ILWU-PMA situation [didn’t have] a contract negotiation here — then you would be looking at other modes, primarily long-haul carrier. But, as we know, because of COVID and pandemic impacts, we’re at an all-time shortage when it comes to drivers of long-haul motor carrier operations. So, that’s really the only contingency that you can factor in, and for many of the customers that use rail given the commodities that are being transported, setting aside merchandise/retail, etc., they really cannot look to motor carrier as a Plan B.

“The other contingency plan, which also gets complicated given supply chain disruptions, is you had retailers trying to factor in a potential stoppage on the rail. They were trying to move as much as they could earlier than they normally do during peak season on the retail side, but then you got hit with the ocean sector situation. So, it was a really lose-lose situation for most shippers. So, contingency plans that we have heard: trying to move up inventory, trying to look at other modes if possible and just trying to brace for the potential stoppage of rail support for an undetermined period of time it decides can’t reach an agreement. But to say it’s an unfortunate situation is an understatement.”

FREIGHTWAVES: How strongly do you feel people are bracing for a worst-case scenario, based on what you’ve heard?

CRAIG: “It’s one of those kinds of talking head moments [where people can] pontificate a little bit and speculate a lot. But I would say, being a novice student of history, if you look at what’s happened in the past, there have been lockouts or walkouts. …

“If you look at 10 years ago, on the Pacific side — I should say waterfront  — Obama was criticized for not jumping into that discussion earlier than he did. And eventually, he had to parachute then-Secretary of Labor [Tom] Perez in to personally broker a deal, but it was beyond the eleventh hour. 

“On the rail side, I think that’s why you saw the president issue the order. He did not want things to get out of control.

“Same thing on the ILWU-PMA front: He’s been engaged. He’s stood up a team. He went in early, when contract negotiations started a couple months ago, and even before that, he was telegraphing to both parties, as well as on the rail side, we’re not going to just sit by and let you guys tinker with the situation. There’s too much at risk because of the supply chain situation, because of COVID, etc. We’re here to do what we can as soon as we possibly can. 

“I’m cautiously optimistic that they’ll get to a point. It’s not all about compensation. But from the union side, it really is, frankly. They have not received any sort of general salary increase in several years pre-pandemic. And there’s the counterargument that all transportation providers, but in particular, the Class I rail lines … [are] capital-intensive. You cannot just create a rail line tomorrow. Competition is theoretical, for the most part. Shippers don’t have many options. That’s why this phrase ‘captive shippers’ has come to be. 

“So, we have a situation where everything is linked together. And any disruption beyond what we’ve already seen is only going to further damage not only the supply chain structures but arguably the U.S. economy. And that’s the other thing that is driving, in my opinion, the White House to be more actively involved. The economic implications here are significant, and they get that now more than ever, given the softening of the economy.”

FREIGHTWAVES: Is there any likelihood that Congress will intervene?

CRAIG: “There’s only so much that the legislative branch can do … . There’s another ancillary concern here that has been bubbling up, and that is, frankly, rail carrier behavior from a commercial perspective … . The detention and demurrage charges that the railroads have been imposing on U.S. importers primarily but also exporters, the congestion at the various railroads, the lack of equipment availability — all that just again compounds one thing after another where we get to where we are today with the overall flow of goods. So, we have heard that some members of Congress have been contemplating legislative action to provide more authority to the Surface Transportation Board with regards to detention and demurrage activities on the carriers. (Editor’s note: Democratic leadership with the U.S. House Committee on Transportation and Infrastructure announced Tuesday the introduction of such a bill.)

“But in terms of driving something forward to resolution on the contract negotiations, outside of members speaking out and encouraging/demanding that the two sides come together, you’re going to see what we always see, which is a breakdown of the pro-union pockets of Congress, which have historically been Democratic, supporting the workers and calling for the rail carriers to step up and to provide increases. I don’t think you’re going to see a lot of forces in Congress speak out in support of the rail carriers — there’s so much that’s running in parallel between rail and ocean these days. … You don’t have a lot of competition in either mode. … With the passage of the Ocean Shipping Reform Act, that’s a bit more of a dramatically clear case, but you didn’t see but a couple of dozen members of Congress speak out against it. Nobody really stood up and said, ‘I’m here to support Maersk or CMA.’ The same thing happens on the rail side.

“But I don’t see an avenue really of significance for Congress to do anything here. It’s more going to be the president and his executive authority, using what he already has, calling on this board, and, if need be, looking to the Department of Labor to try to do something as well.”

FREIGHTWAVES: How similar or different are the issues facing port workers and rail workers? The whole technology piece, for instance. While compensation may be the main focus for the rail unions, the issue of technology’s role in safety and operations is lurking in the background. Meanwhile, automation is a big issue for the port workers. Is there a common theme, or is it comparing apples to oranges in terms of what the unions in both modes are asking for?

CRAIG: “I think there are some similarities. But yet, you did a very good job of articulating where it does kind of break down a little bit between the two different sectors and modes. 

“On the ocean side, you’re spot on. It’s not only ILWU wanting to negotiate higher salary compensation packages for the stevedores, but it’s also their historical resistance to automate. On the other side, you’ve got the [ocean] carriers who are experiencing unprecedented profit. It’s just no exaggeration, but as you know, and we’re talking about a multiple times x in terms of what they have been charging and other rates have started to ‘normalize’ and decrease a bit, but, for the longest time over the last 18-plus months we were looking at container freight rates of $25, $30,000 to move something across the Pacific.

“Back to the negotiations: You’ve got the carriers who are once again insisting to embrace automation, embrace technology. Look at our overseas trading partners that have automated for years, for decades and the efficiencies that they’ve been able to realize when it comes to Singapore, for example.

“On the rail side, it’s a combination of technology but more so compensation. I really believe that that is what’s driving the situation here. You’ve seen the numbers: The TTD [Transportation Trades Department of the AFL-CIO] said that the Class I railroads have realized over $146 billion, or something like that, in profits since I think 2015 or so. And during that same period of time, there’s been a reduction in the force of the union by 45,000 or 50,000. That’s to some extent automation. But it’s also, from what I’ve been able to see, frankly just the rail carriers introducing more efficiency.

“Clearly, there’s been an uptick in the amount of cargo that the Class Is have been handling … . So, it’s not a result of demand falling. They’ve been able to leverage some efficiencies brought about by just modern conveniences associated with rail transport. But at the end, it’s going to be essentially, how much can we move the needle in terms of increases in compensation and benefits and coverage for the union, and how far the rail carriers are going to want to cooperate. Period.”

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Click here for more FreightWaves articles by Joanna Marsh.

Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.