US rail conductors, brakemen, and yardmen Nov. 21 turned down a tentative labor agreement brokered in September, setting up the potential for a nationwide rail strike in two weeks that could cripple the flow of US agricultural and energy product shipments.
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Analysts at S&P Global Commodity Insights have said that electricity reliability is likely not at stake from a strike, but it would support higher electricity and natural gas prices going into the winter heating season, while the biofuel industry has warned that it could cause pain at the pump for US drivers.
Aided by the Biden administration, freight railroad companies and union leaders from the two largest rail unions—the Brotherhood of Locomotive Engineers and Trainmen and SMART Transportation Division—reached a tentative deal Sept. 15 that raised pay, loosened attendance policies and put caps on health care costs. That deal, however, required ratification by the rail unions' rank-and-file members.
Eight unions ratified the deal, including the Brotherhood, with 53.5% of its roughly 24,000 members voting in favor of the new labor contract. But four unions have rejected it, with the latest rejection coming from SMART-TD, which saw 50.87% of its 28,000 members vote no, narrowly failing to ratify the agreement.
The four unions who have opposed the deal will head back into negotiations with a Dec. 8 deadline looming. Come Dec. 9 if no agreement is reached, freight rail as well as some commuter and Amtrak trains could come to a halt. All of the unions have said they will honor picket lines if just one union opts to strike.
Congress could step in to prohibit the strike, extend the bargaining deadline or enforce a settlement agreement, but that could prove a heavy lift especially as unions have urged Democrats to not interfere.
Ethanol, crude deliveries
Roughly 70% of the ethanol produced in the US is shipped by rail, primarily from the Midwest to coastal markets. Ethanol can also be transported by truck or barge, but the number of available barges has fallen. And barges require roughly 25,000 barrels to make the fixture economical, surpassing the typical 5,000-10,000 barrel lot sizes typically traded.
A rail strike could threaten momentum for ethanol production growth spurred by the August enactment of the Inflation Reduction Act, which is slated to bring new tax credits and infrastructure investment to the ethanol sector.
And with ethanol accounting for about 10%-11% of US gasoline volume, any disruption to getting that fuel to terminals for blending is seen as likely to impact gasoline prices.
A rail strike could also disrupt deliveries of crude in the US, primarily North Dakota Bakken crude from the Midwest to refiners on the USAC and USWC.
The most recent monthly Energy Information Administration data shows the Midwest shipping 71,000 b/d of crude to the USWC in August, and 22,000 b/d to the USAC.
Coal shipments to power plants would also be disrupted, and at a time when "low fuel storage levels coupled with a range of potential fuel resupply challenges are creating additional risks for winter regional [bulk power system] reliability," according to a 2022-23 Winter Reliability Assessment released Nov. 17 by the North American Electric Reliability Council.
That assessment also found that coal inventories in some areas are lower than typical following a summer of high electricity demand and high natural gas prices that made coal more economically advantageous.
Morris Greenberg, senior manager of North America power analytics with S&P Global, estimated that coal stocks "would drop by up to 1 million tons for each day that deliveries are suspended."
"But there is an expectation that Congress will act to end a strike before it does too much damage to the economy," he said.
In the past, rail strikes have been relatively short—the last strike lasted only two days, John Ward, the executive director of the National Coal Transportation Association, said in an interview.
But even a short strike would disrupt the fluidity of rail deliveries, adding to existing delays, he said. In a recent poll of 45 coal-fired generators, 100% said that they had modified their operations in the first half of 2022 due to transportation service issues, disruptions, and delays, Ward said in a recent presentation.
Historically, coal plants have aimed to have a 60- to 90-day supply of coal on the ground at the plant, Ward said. "Nobody has been able to get into that territory lately," he said. In the event of a rail strike, there is not a lot of coal reserve on the ground to weather any sort of prolonged supply disruption, he said.