Unions and railroads apparently will avert a strike with potential costs to the U.S. economy in the billions after the two sides reached a tentative labor deal Thursday. Rail stocks, including Union Pacific and Norfolk Southern, were mixed Thursday.
The White House called the deal a "win for tens of thousands of rail workers who worked tirelessly through the pandemic" in a written statement released Thursday. The agreement needs approval from union members, meaning a strike remains possible. But without the apparent deal, rail workers could have gone on strike Friday, as they negotiated for better pay and benefits.
A rail strike would have hit multiple sectors, delivering a body blow to the U.S. system for distributing goods. Everything from the transportation of food to lumber and coal could have come to a standstill. A shutdown could cost the economy around $2 billion per day, according to the Association of American Railroads. Rail accounts for about 28% of U.S. freight, and a strike would impact all major U.S. railroads.
Fears of a potential freight shutdown came this week as the latest CPI report showed inflation is still above 8%.
"The hard work done to reach this tentative agreement means that our economy can avert the significant damage any shutdown would have brought," President Joe Biden said in a written statement.
Disruptions already began Wednesday with Amtrak canceling long-distance routes. Freight railroads suspended some services to make sure sensitive and hazardous materials, such as chlorine, wouldn't be stranded.
Rail Strike And The Markets
Union Pacific stock climbed 2.2% intraday before closing up 0.19% in Thursday's market trading. Meanwhile Norfolk Southern added 0.3%. But CSX dropped 3.4%. On Wednesday, Bernstein downgraded Union Pacific and CSX, citing the pending rail workers strike.
U.S. natural gas prices tumbled Thursday after spiking Wednesday. The gain Wednesday came on expectations a rail strike would stop coal shipments, increasing demand for gas. Natural gas futures dropped around 9% Thursday to around $8.30 per million British thermal units.
While rail moves about 30% of all U.S. freight, it remains the number one mode of transportation for coal producers. Harrison Fell, professor of energy economics at North Carolina State University, said in a recent interview the railway industry can alter the delivered cost of coal.
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"To the extent that anything happens that seriously disrupts, or seriously increases the cost of delivery, that's going to further hurt the competitiveness of coal fired generation," Fell said.
Coal stocks were down Thursday. Alpha Metallurgical Resources fell 1.26% while Alliance Resource Partners dropped 2.7%. Arch Resources lost 5% Thursday.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
