Businesses scramble to limit the damage of looming freight rail strike

CNN

By Matt Egan and Kate Trafecante, CNN

From retailers and computer chip makers to the oil-and-gas industry, businesses are scrambling to find workarounds where possible for a potentially devastating freight rail strike.

Even as Congress races to avert disaster through a legislative fix, consumer packaged goods companies are proactively shifting both inbound and outbound shipping volume from rail to trucks and exploring the temporary use of warehouses and storage.

Some consumer brands have been forced to consider temporarily ditching their “just-in-time” delivery models by exploring options to store additional ingredients and inputs to keep production growing in case railroads shut down, according to the Consumer Brands Association, a trade group representing Kellogg, Molson Coors, Pepsi and dozens of other brands.

In the tech industry, some companies have started to reroute critical supplies of computer chips from rail to trucks to avoid any pre-strike disruptions, a DHL spokesperson confirmed to CNN.

Retailers, which rely on rail to move cargo from ports to warehouses, are considering shifting the timing of orders and shipments. Some retailers are also considering using trucks.

“The logistical ninjas of the retail supply chain are experts at finding workarounds for disruptions—especially after the last few years—in order to ensure customers can get the things they want and need,” Jess Dankert, supply chain lead at the Retail Industry Leaders Association, told CNN in a statement.

However, retail executives say goods that retailers are counting on for the holidays will mostly not be affected because they are mostly already in stores or at nearby warehouses.

Critically, the rail strike could disrupt the supply of chlorine and other critical chemicals used to keep drinking water safe.

While facing a potential rail strike in September, the American Water Works Association, which represents drinking water and wastewater systems like water utilities, encouraged members to take “immediate inventory” of chlorine supply and coordinate with suppliers about pending deliveries.

Many railways put an embargo on hazardous materials, including chlorine, several days before any impending work stoppage to make sure they arrive at their destination.

The American Chemistry Council, which represents chemical makers including 3M, DuPont and Dow, says its members are reaching out to customers to try to ship out orders ahead of time to get ahead of a potential rail service embargo.

Chemical makers are also packing tank car fleets to maximize available space and pushing for a faster return of tank cars for speedier turnaround.

But rail is critical to America’s supply chain — nearly a third of all goods hauled around the country go by train — and some industries have few, if any, other options.

The oil-and-gas industry, for instance, warns a rail shutdown would spark fuel supply crunches and price spikes.

The problem is railroads transport the ethanol that is made in the Midwest and then used to make gasoline purchased by drivers around the country.

The American Petroleum Institute says pipelines are rarely used to transport ethanol due to technical challenges and tanker trucks are not really an option due to a shortage of trucks and drivers.

If there is a rail stoppage, the API says the delivery of ethanol to bulk storage and blending terminals would “essentially come to a halt,” ending delivery of finished gasoline to gas stations.

During a call with reporters on Tuesday, API CEO Mike Sommers said contingency is “limited for us on the ethanol side because of the current truck driver shortage.” He said by API’s estimates, the industry would need an additional 470,000 drivers to move freight daily.

In a statement, Sommers said a disruption could “hamper U.S. gasoline supply, leading to upward pressure on prices for American consumers and businesses.”

Fertilizer makers are also bracing for imminent disruptions.

“For us, a strike effectively starts this weekend,” Corey Rosenbusch, CEO of The Fertilizer Institute, told reporters on a call Tuesday.

The fertilizer exec says rail carriers have already notified companies that ammonia shipments will need to be pulled off the network starting about five days before a strike, meaning December 4.

Fertilizer companies are starting to look for alternatives and doing contingency planning — but they also face limited options given the shortage of truck drivers and other logistical issues such as low water levels in the Mississippi River that have slowed barges.

“The important piece to understand when it comes to contingency planning,” Rosenbusch said, “is there is zero elasticity right now in transportation.”

The good news is President Joe Biden and Congressional leadership have expressed optimism that lawmakers will reach an agreement that will prevent chaos from hitting the economy.

“Congress appears likely to intervene in the coming days to avert a rail strike,” economists at Goldman Sachs wrote in a note to clients on Tuesday.

Goldman Sachs said that there may be a “brief pause” in the shipment of some cargo as railroad operators halt sensitive cargo around December 5, and the economic impact of this “should be negligible.”

— CNN’s Chris Isidore and Catherine Thorbecke contributed to this report.

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