The crisis appears to have been averted.

An 11th-hour tentative agreement between railroads and unions representing rail workers means that a strike that would have crippled supply chains in the United States is likely to be avoided.

The agreement on a new contract for workers still needs to be ratified by rank-and-file union members, but the deal reached early Thursday, Sept. 15 between union leadership and major railroad employers means the work stoppage that would have gone into effect at midnight Friday, Sept. 16 will not be going forward.

Ratification by the various railroad union members could take a week or more, but during that time the railroads will continue running.

Nearly 30% of U.S. freight movement by ton-miles occurs by rail. A shutdown of that system of more than 7,000 trains for even a short time could have led to product shortages, further fueled runaway inflation, and cost the U.S. economy some $2 billion a day.

A Strike Promo Did Not Need

The promotional products industry would not have been immune to the disruption. ASI Media was in contact throughout the week with industry supply chain leaders who were closely monitoring the talks. They said the longer a strike would go on, the worse the impacts would be.

Fallout could have included much more expensive costs for moving product from port to warehouse, as logistics pros across industries would be scrambling to get items on trucks and even planes – items that they would have moved by rail.

Insufficient capacity in the transportation industry for moving the influx of goods (that would otherwise have been taken by rail) could have led to restocking delays for promo suppliers, which could then translate to inventory shortages.

This is a win for the economy and for the American people.

Rail workers will get better pay, improved working conditions, and peace of mind around their health care costs.

I thank both the unions and rail companies for negotiating in good faith. https://t.co/9JNtLynsch

— President Biden (@POTUS) September 15, 2022

Suppliers farther away from the coasts, which rely more heavily on rail for transport of imports, would have felt the pain most acutely.

“For those suppliers that are not located on either coast, a strike would have been terrible,” said Jeffrey Nanus, CEO of Norwood, NJ-based hard goods supplier AAA Innovations (asi/30023). “It’s very difficult and incredibly expensive to move containers by truck. This would have compounded an already challenging situation with trucking, chassis, demurrage, etc. If a strike was prolonged, port congestion would become unmanageable as the ports would have no space to store the containers.”

As the strike deadline neared this week, railroads started buttoning up certain operations in anticipation of a work stoppage. Amtrak suspended long-distance train service but was now restoring it in light of the deal. Other issues included rail leaders suspending the transport of hazardous chemicals and some high-value goods, as they didn’t want such things to be stuck out on their networks amid a strike.

Promo sourcing leaders told ASI Media even that limited tying up of rail operations will cause some hiccups for supply lines, but the effects should not be deep or long-lasting now that operations are resuming.

“There’ll be some slowdowns as they catch up again,” said John Janson, senior director of global logistics at SanMar (asi/84863), the largest supplier in the promo products industry.

The Last-Minute Deal

Prior to Thursday’s agreement, unions representing about 45,000 rail workers had already tentatively agreed to a new contract. However, unions representing about 60,000 other unionized rail workers, including the engineers and conductors that crew each train, were still at odds with rail lines and preparing to strike.

A big contention point was paid sick time policies. A union official told CNBC that leaders for the hold-out unions negotiated an extra paid day off for workers and that the agreement opens the door to revisit attendance policies in the future. Such advancements occurred in what media reports described as a 20-hour-straight mid-week negotiation session in Washington, D.C.

Thanks to the dedication of all members involved in the collective bargaining process, new contracts provide rail employees a 24% wage increase during the 5-year period (2020-2024), including an immediate payout on average of $11K upon ratification. https://t.co/Dc9H5W27vI pic.twitter.com/NTuOYkyYRD

— AAR (@AAR_FreightRail) September 15, 2022

Under the new contract, workers will get an immediate 14.1% wage increase following ratification. They’ll also get wage increases totaling 24% during the five-year period of the contract – 2020 to 2024. The deal is retroactive.

Unionized workers will see their next annual increase in July 2023 – 4% – followed by a 4.5% rise in July 2024. They’ll also receive five $1,000 annual lump sum payments, and at a time when healthcare costs are skyrocketing, the rail workers will see no change to their insurance copays or deductibles. The workers had been without a contract since 2019 as the contentious negotiations proceeded without result.

“The tentative agreement reached tonight is an important win for our economy and the American people,” said President Joe Biden in a statement announcing the deal. “It is a win for tens of thousands of rail workers who worked tirelessly through the pandemic to ensure that America’s families and communities got deliveries of what have kept us going during these difficult years.”

Biden’s administration played a role in brokering the deal. In July, he appointed a special emergency board that ultimately developed a framework and suggestions for a compromised deal for workers. The appointment of the panel legally prevented a strike until Sept. 16. Labor Secretary Marty Walsh was also in contact with rail lines and union representatives to help secure an agreement.

Had a deal not been reached, Congress could have intervened to prevent a strike. Whether that would have happened, however, is uncertain.

While the rail strike appears to have been avoided, labor unrest elsewhere potentially threatens supply chains. Teamsters representing UPS workers have said their rank and file will strike come August 2023 if a new favorable contract agreement is not achieved. Unionized West Coast port workers remain without a contract about 2 ½ months after their previous deal expired. Negotiations are ongoing, but have reportedly hit various roadblocks, though both sides have said there won’t be a work stoppage. Tensions have also escalated between FedEx Ground and the contractors that deliver its packages.