The Brotherhood of Locomotive Engineers and Trainmen or the BLET agreed to approve a deal that would keep its 24,000 members from striking during the next legal protest period on December 9th. The SMART transportation division however, just barely failed to reach an agreement, with 50.87% of their members voting no on the deal. SMART – TD is the largest railroad union with around 36,000 members and although unlikely, a strike could have an economic impact of around $2 billion/day if an agreement is not reached by all union members after the December 5th cool down period ends.
The US relies heavily on our railways, for 1/3 of our export moves and holds a predominant grasp on the movement of raw materials for the creation of finished goods domestically.
The good news is this is typically a slower season for manufacturing, especially in our current economic situation. One example being the most recent release of the ISM PMI almost 11 points below 2021 levels and only .3% above contraction territory.
I suppose just the notion of a strike could spark fear among some shippers causing rail customers to leverage over the road capacity, as was seen back in September when similar nuances were present. Luckily, national TL capacity is at its highest level since 2019, which would make it relatively easy for a valve to be turned for shippers to leverage a plethora of capacity.
Historically speaking when strikes have emerged, they’ve been short-lived. And with inventory levels remaining near full capacity for the majority of warehouses around the country, we should have a decent buffer period even if a strike emerges on a number of goods. Furthermore, under the Railway Labor Act, Congress does have the ability to impose a resolution from Biden’s Presidential Emergency Board or order the trains to operate as usual with an extension of negotiations.
Van rejections remain relatively unchanged even as we approach the Thanksgiving Holiday, currently hovering around 4%. A little bit of life has sparked on the reefer rejection front as the demand for refrigerated goods typically spikes right before Thanksgiving as consumers finish up their shopping meal prep.
Since the end of October, flatbed rejections have soared from below 12.5% to above 17.5% and are now hovering around 16%. The spike directly related to building material retailers pushing for inventory replenishment before winter and a shift for some seasonal flatbed operators to jump back into the van or reefer markets as demand for flatbed typically decreases as the cold sets in.
This has been your Bridge Logistics Market Update for the week of November 21st, 2022.