Which Stocks Are Going To Suffer From A Rail Shutdown?

Key Takeaways

• President Biden signed a bill into law to avert a possible rail strike that could’ve cost the economy an estimated $2 billion per day.
• While a strike was averted, the issue of paid sick leave wasn’t resolved, which left many union members in a lurch.
• With soaring inflation already impacting the economy, a rail shutdown would’ve driven prices through the roof at a precarious time.
• See lists of specific industries and companies below.

The threat of a rail strike presented many issues that would have devastated the economy this holiday season, with an estimated impact of $2 billion daily. The rail companies and union leaders had until December 9 to sign a new deal after a tentative agreement reached in September was jeopardized by at least three unions rejecting their contracts with the carriers. As the deadline approached, there were serious concerns over the impact of a rail strike around this time of the year.

President Joe Biden signed a bill into law on December 2nd to avoid a possible rail shutdown. Congress acted quickly, perhaps with the added pressure of inflation already having reached a 40-year high in 2022.

We’re going to break down the rail union negotiations and examine which companies suffer from rail issues.

What’s happening with the Rail Union negotiations?

Negotiations between the unions and rail companies weren’t going well, and it looked like a strike was inevitable. Negotiations had been ongoing since 2019, and both sides had until December 9 of this year to reach a deal. At that point the cooling-off period would end, and without much hope of resolution, the government chose to get involved, given the stakes: about $2 billion per day.

As a result, a bipartisan bill went through the house on November 30 and then the Senate the next day. The bill ultimately landed on President Biden’s desk on December 2, and he signed it immediately to prevent what he called “a Christmas catastrophe.”

The White House released President Biden’s statement on the bill on December 1st to announce that he would be signing it as soon as it landed on his desk. President Biden said the bipartisan action would save the economy from a “devastating” shutdown that would negatively impact millions of families across the country.

It’s worth mentioning that the Senate voted 80 to 15 on December 1 to impose a tentative contract reached back in September but not agreed on by a majority of union members at the time. The Senate did not approve a provision that would have added paid sick leave to rail workers’ contracts, which was a sticking point for many workers in the first place. While eight out of 12 rail unions ratified this deal, four unions held out due to the unresolved issues of paid sick leave and a strict attendance policy.

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How was the government able to intervene?

The Railway Labor Act lays out procedures for Congress to mediate conflict between carriers and workers. If the RLA’s procedures don’t lead to a resolution, the Constitution gives Congress the power to regulate Commerce between states, meaning they can force both sides to accept an agreement to prevent damage to the American economy. From the moment that the labor agreement decided by Congress is effective, the rail workers aren’t legally able to go on strike.

Are both sides happy with the deal?

The main bottlenecks are the issues of paid sick leave and general working conditions. President Biden addressed this in his statement on the bill by stating:

“And, look, I know this bill doesn’t have paid sick leave that these rail workers and, frankly, every worker in America deserves, but that fight isn’t over. I didn’t commit we were going to stop just because of — we couldn’t get it in this bill, that we were going to stop fighting for it.”

It was surprising to some that a pro-labor president would support a deal that didn’t offer paid sick leave, but many others felt it was a necessary action taken to prevent greater economic harm.

What would be the possible ramifications of a shutdown?

The risks of a potential railroad strike exposed some of the more general issues associated with the supply chain.

It’s estimated that the rail strike could’ve frozen about 30% of U.S. cargo shipments based on weight, cost the economy about $2 billion per day, and left millions of passengers stranded. There would have also been roughly 765,000 Americans (many union members) out of work and not bringing in an income.

It would likely also have increased inflation. When the pandemic restrictions loosened, it was difficult for the economy to match supply with the new demand. This partially contributed to the prices of goods and services going up. If we had a rail shutdown, it would disrupt the entire supply chain, a particularly frightening prospect during the holiday season. This would likely bring the prices of most everything even higher.

Which stocks could suffer from a rail shutdown?

A rail shutdown would’ve completely halted many industries and hurt many publicly traded companies. Here are a handful of stocks that would likely suffer from a rail shutdown:

• 3M (MMM). A rail strike would mean chemical cargo couldn’t be delivered, so the company would struggle to produce most of its products.
• Trinity Industries, Inc. (TRN). Trinity offers rail transportation products and services across North America. If there’s a shutdown, they wouldn’t be able to generate as much revenue.
• Union Pacific (UNP). This is one of the major railroads in the western part of the U.S., and the strike would’ve left many passengers stranded along with cargo stuck at ports.
• CSX Corp. (CSX). As a leading supplier of rail-based freight transportation across North America, a strike would’ve devastated this company.
• ExxonMobil (XOM). Fuel companies would struggle with shipments and would have to rely exclusively on the trucking industry.
• Berkshire Hathaway Inc Class A (BRK.A). Berkshire purchased Burlington Northern Santa Fe, which is the largest railroad in North America. This strike would’ve seriously hurt the revenue of BNSF.
• Walmart Inc. (WMT). There would be many supply chain disruptions for basic consumer goods and merchandise as we rely heavily on rail transportation.

What industries would be impacted by a rail strike?

We were able to highlight some of the stocks that would take the brunt of a rail shutdown, but the truth is that many other industries would be impacted as well. Here are some of the industries that a rail strike would hurt:

Chemicals

The American Chemistry Council provided an economic analysis that estimated a rail strike would interrupt the movement of about $2.8 billion in chemical cargo weekly. The same report found that if the strike went on for one month, GDP would lose roughly 1%, or $156 billion. The ACC represents major companies like 3M, Eli Lilly, ExxonMobil, and Chevron.

Retail

While many retailers have already stocked up on merchandise for the holiday season, another supply chain disruption would’ve stung. Since cargo that comes into the U.S. on ships often uses trains and trucks to be delivered, we could’ve had another situation where ports are filled with shipping containers that can’t be moved.

Fuel

In 2021, there were 162,000 barrels per day of crude oil carried on freight rails. With over 70% of ethanol being transported via rail, a shutdown would greatly limit access to the product used in most gasoline in the country. Oil companies would have to rely on trucking and prices at the pump would go back up.

Food supply

It’s estimated that 25% of the grain in the country is moved via rail and that our food producers ship about 1.2 billion carloads of grain annually. This strike could’ve impacted the food supply in the nation as trucking companies are already struggling to keep up with diesel fuel prices.

We also can’t ignore the consequences of the job losses that would happen as a result of the strike and all of the stranded passengers who wouldn’t be able to visit their families during the holidays if the strike were to go on for an extended period.

How Should You Be Investing?

The risk of another economic disaster is enough to make investing feel more daunting than ever right now. Just as inflation appeared to be easing up a bit, we just had a near miss that would have stoked inflation, if the President had not interceded.

With Q.ai’s Inflation Kit, you could turn those inflation fears around with an Investment Kit that helps you profit from higher inflation. With our unique Portfolio Protection feature, you can protect yourself against continued volatility. Q.ai also offers an Infrastructure Spending Kit that taps into the transportation projects and road repairs, expanded access to high speed internet, and clean water. Billions have already been allocated to priority projects being funded across all corners of the country.

Bottom Line

Many people won’t realize how close we just came to another catastrophic economic issue. While the new agreement between the railroad companies and unions isn’t perfect for either side, we were able to avoid further damage to the economy at an already volatile time.

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