Rail Union With 4,900 Members Rejects Tentative Agreement As Shutdown Looms

By Tyler Durden

9/14/22

Update (1155ET): It's becoming increasingly possible that a major freight rail stoppage could materialize following the news thousands of rail workers rejected labor agreements this morning.

The 4,900 members from District 19 under the International Association of Machinists and Aerospace Workers (IAM) voted against the Tentative Agreement (proposed collective bargaining agreements that have not been ratified) with the National Carriers' Conference Committee (NCCC).

IAM District 19 released the following statement:

"The Tentative Agreement has been rejected and the strike authorization vote was approved by IAM District 19 members. Out of respect for other unions in the ratification process, an extension has been agreed to until Sept. 29, 2022 at 12 p.m. ET. This extension will allow us to continue to negotiate changes with the NCCC in the hopes of achieving an agreement our membership would ratify.

"IAM freight rail members are skilled professionals who have worked in difficult conditions through a pandemic to make sure essential products get to their destinations. We look forward to continuing that vital work with a fair contract that ensures our members and their families are treated with the respect they deserve for keeping America's goods and resources moving through the pandemic. The IAM is grateful for the support of those working toward a solution as our members and freight rail workers seek equitable agreements."

IAM District 19 members are locomotive machinists, track equipment specialists, and maintenance personnel.

This comes as the US Labor Secretary Marty Walsh met with freight railroad companies and union officials Wednesday morning to avert a strike that could result in a nationwide shutdown of the freight rail system as soon as Friday.

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By John Gallagher of FreightWaves

A joint resolution by U.S. lawmakers aimed at ending the threat of a strike or lockout provides little incentive for avoiding a debilitating shutdown of the nation's railroads, according to a former rail industry legal consultant.

Introduced in the Senate on Monday by Roger Wicker, R.-Miss., and Richard Burr, R-N.C., the legislation would adopt the recommendations issued in August by the Presidential Emergency Board (PEB) that were meant to be used as the foundation for a new contract. Such action is supported by major business and shipper groups, including the U.S. Chamber of Commerce and the Fertilizer Institute.

But getting a divided Congress to quickly pass such settlement legislation offers little chance of resolving the dispute, according to John Brennan III, a former senior counsel for the Union Pacific Railroad.

"Congress is in the unfortunate position of resolving a potential strike on very difficult terms, and what Wicker and Burr are proposing is a cramdown," Brennan told FreightWaves.

Brennan pointed out that when the last rail strikes occurred in the early 1990s, Congress passed settlement resolutions within 24 hours. But the partisan divide in Congress today, along with the upcoming midterm elections, could make it difficult to pass settlement legislation before midnight on Thursday, when a work stoppage would be permitted under the law.

"Expedited passage of this legislation requires unanimous consent, and one senator or congressman on either side of the aisle looking to gain political points will be able to hold this up — the possibility for theatrics is endless," Brennan said.

Another path Congress could have chosen — simply extending the status quo for a certain period — may have offered more chance for an eventual settlement, although this also likely would have received pushback from labor-supportive Democrats, said Brennan, who is also a former chief of staff for the House of Representatives' railroads subcommittee.

Delaying a possible strike through congressional action was also opposed by the American Trucking Associations.

"A possible strike or lockout in October or November is arguably worse than one next week — although any disruption will cost the nation billions of dollars of lost productivity," said ATA President and CEO Chris Spear this past week. "Moreover, our members and every other business in America will have to maintain and update contingency plans unless the rail matter is resolved expeditiously."

Instead, legislation requiring final-offer arbitration — also known as "baseball" arbitration because of its use in resolving major league contract salary disputes — may have offered the best path toward a fast settlement, according to Brennan.

"Decision-making power would be delegated to experienced, independent arbitrators who would choose between a best and final offer from either management or labor — a very scary proposition for both sides, and therefore an incentive to force them to the middle and settle," Brennan said. "The legislation could help to avoid political controversy with the upcoming election looming."

The National Railway Labor Conference, which is negotiating on behalf of railroad management, confirmed Tuesday that nine of the 12 unions involved in the contract talks have now come to a tentative agreement based on the PEB's recommendations.

However, the two unions that together make up roughly half of the rank-and-file workers covered under the contract — the International Association of Sheet Metal, Air, Rail and Transportation Workers/Transportation Division, and the Brotherhood of Locomotive Engineers and Trainmen — have yet to settle with management.

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With that said, the two hold-out rail worker labor unions (noted above) risk causing widespread supply chain chaos if labor agreements with rail freight companies aren't reached by the end of the week. This could mean more than 100,000 rail workers could soon leave the job.

Railroads are set to halt shipments of some commodities, farm goods, and other critical items on Thursday as the industry braces for work stoppages that could begin as early as Friday. If strikes materialize and the nation's freight rail system is disrupted, it could cost the economy a whopping $2 billion daily.

Norfolk Southern Corp. announced plans to halt unit train shipments of bulk commodities on Thursday. The railroad said it would stop receiving automobiles at its loading facilities Wednesday afternoon.

"We are hearing several rail carriers are tentatively planning to wind down shipments," Max Fisher, chief economist at the National Grain and Feed Association, which represents most US grain handlers, told Bloomberg.

Reuters cited Justin Louchheim, the Senior Director of Government Affairs at The Fertilizer Institute, saying most rail freight companies stopped accepting new shipments of ammonia fertilizer and other potentially hazardous materials.

Other railroads are following suit. BNSF Railway Co. and Union Pacific Corp. representatives told Bloomberg they would curtail new shipments.

"We must take actions to prepare for the eventuality of a labor strike if the remaining unions cannot come to an agreement," BNSF said in a statement.

Fisher said railroads halting new cargoes is a move at ensuring trains aren't stranded if a labor strike materializes.

Other commodities are at risk, such as coal and crude product transports that could interrupt pre-winter stockpiling by utilities, triggering an increase in natural gas demand by power plant generators. Some estimates show railroads account for about a third or more of all US freight, meaning a strike would worsen supply chain snarls that could send inflation higher.

"Almost all ethanol is moved via rail and it is produced in the Midwest," noted Debnil Chowdhury of S&P Global Commodity Insights. "There is no easy substitute for rail and the US government will have to make decisions around blend targets if ethanol movement to demand centers are constrained due to a strike."

Besides freight, the strike prospects are about to affect passenger railroad service. An Amtrak spokesperson said seven long-distance routes starting Wednesday across major metro areas, including New York City, Chicago, New Orleans, Los Angeles, and Seattle, would be halted.

The move to suspend service is one sign of the fallout from a labor dispute between unions and freight railroads that could descend into crippling shutdown of the nation's freight rail network as early as Friday. Amtrak said it had begun phased service adjustments to prepare for a potential interruption that could "significantly impact" its service between US cities outside of the Northeastern US between Boston and Washington, DC --Bloomberg

The White House announced contingency plans on Tuesday as US Labor Secretary Marty Walsh will meet with railroad and union representatives in Washington on Wednesday morning.