With rail strike looming, tech companies reroute chips to trucking

Technology companies supplying critical semiconductor chips to the economy have started shifting cargo shipments from railroads to trucks with a national freight rail strike looming. The moves are being made, DHL Global Forwarding tells CNBC, in an effort to avoid any pre-strike rail preparations that would force freight rail companies to prioritize cargo.

The tech cargo being sent to trucks include semiconductor chips critical to the high-tech sector and auto industry.

“This is tech cargo originating out of California,” said Goetz Alebrand, head of ocean freight for the Americas at DHL Global Forwarding. Alebrand said there is now more truck capacity than there had been when a rail strike was first threatened in September as a result of fewer containers ships overall coming in to U.S. ports.

“There are more trucks and chassis, but that does not mean there are enough trucks to move all rail cargo onto trucks,” Alebrand said.

According to federal safety measures, railroad carriers begin prepping for a strike seven days before the strike date. The carriers start to prioritize the securing and movement of security-sensitive materials like chlorine for drinking water and hazardous materials in the rail winddown.

Ninety-six hours before a strike date, chemicals are no longer transported. According to the American Chemistry Council, railroad industry data shows a drop of 1,975 carloads of chemical shipments during the week of September 10 when the railroads stopped accepting shipments due to the previous threat of a strike.

The Association of American Railroads would be expected to release its planning steps, similar to what it announced in September.

Alebrand said is a client’s cargo is not characterized as perishable or hazardous, it waits to be moved. On average, it takes about two to three days to clear up one day of backup. The September pre-strike containers that were held up for approximately 48 hours took six days to clear.

Delays incurred by a rail strike would only add to the late charges shippers pay the railroads on late cargo.

“DHL Global Forwarding has advised customers of the serious impact that a rail strike could have on their operations, including delays and related detention and demurrage charges,” Alebrand said. “Our first priority has been to make them aware of this situation so that they can prepare for the risk of delays in receiving the merchandise,” he added.

DHL Global Forwarding is also looking at container locations and, as a contingency, it is moving import boxes out of rail yards to the extent possible, and reviewing all import and export flows using rail to check whether trucking is an option in the event of a strike, Alebrand said.

Areas of concern for DHL include Dallas and Fort Worth, which receive cargo from the Port of Houston. The Port of Houston has processed historic volumes of cargo as trade moves away from the West Coast ports to the Gulf and East Coast ports out of fears of a strike among West Coast port workers. The other inland port where DHL sees congestion is El Paso, a big destination for cargo going in and out of Mexico.

“Congress is back in session next week,” Alebrand said. “We now wait to see what happens.”

A rail strike could begin on Dec. 9 if no agreement is reached between unions and rail companies. Congress can intervene using its power through the Constitution’s Commerce Clause to introduce legislation to stop a strike or a lockout, and to set terms of the agreements between the unions and the carriers.