How Ongoing Labor Negotiations Are Impacting Inflation and Supply Chains

John Drake Vice President, Transportation, Infrastructure, and Supply Chain Policy, U.S. Chamber of Commerce

September 7, 2022

Two ongoing labor disputes threaten to exacerbate supply chain issues and send inflation higher unless the parties can reach agreement.

America's seaports and railroads are essential to the movement of goods through our country and with our global trading partners. While the business community continues to recover from last year's historic congestion at our West Coast ports, they are closely watching the railroads and West Coast ports negotiate new contracts with their workers. Much is at stake with these negotiations and history shows that these negotiations are frequently difficult, including service disruptions that can snarl supply chains and disrupt delivery schedules.

Ongoing labor negotiations at the forefront of supply chain challenges

• The West Coast port workers, represented by the International Longshore and Warehouse Union (ILWU), and the port terminals, represented by the Pacific Maritime Association (PMA), began negotiating a new contract in early 2022 to replace the previous one that expired on June 30. While both sides are committed to maintaining service levels while negotiations continue, history shows these negotiations are often tense as they set pay, benefits, and work hours for over 15,500 port workers while also setting operational structures for 29 West Coast ports that account for approximately 9% of the nation's GDP.
• Labor negotiations between six of the nation's largest freight railroads and the majority of their rail unions started in late 2019. Similar to the West Coast port negotiations, this contract will set pay, benefits, and other important issues for approximately 115,000 employees while also establishing operational structures on the railroads that move approximately one-third of U.S. exports by volume for the next few years, putting much pressure on both sides.

It is encouraging that recent progress points to signs that both negotiations may be moving towards a good resolution. It is critical that policymakers in Washington and all parties to these negotiations continue working towards agreements and avoid any breakdown in talks that lead to service disruptions or worse.

Here's a deep dive on what's going on and how we ensure a smooth resolution.

Ports and railway's outsize impact on supply chains

Ports and railroads account for a huge volume of traffic and trade in goods across borders and within the U.S.The ports of L.A. and Long Beach alone count for40 percent of U.S. imports from Asia. In 2021, cargo and vessel activity at West Coast ports supported more than 12 million jobs and accounted for37% of all imports to the U.S.

Meanwhile, railroads carry enormous amounts of food, fertilizer, lumber and drywall, autos and auto parts, animal feed, steel, coal, and crude oil. In 2019, railroads moved13.7 million intermodal (shipping) trailers and containers.

It's easy to see that any disruption to eitheror a simultaneous disruption to both modes of transportationcould cause a major snarl in supply chains and drive inflation higher.

West Coast ports: Negotiations continue with some progress

When the port terminals and ILWU started negotiating a new contract on May 10, both sides communicated that it would be highly unlikely that a new contract would be in place before the previous contract expired on June 30, and that ports would operate normally while negotiations continue. Previous negotiations over the last twenty years saw at least one short-term service disruption that snarled supply chains and hurt businesses, which is giving concern to the business community while the current negotiation continues.

Both sides appear to be making progress. On July 27, the ILWU announced that it had reached a tentative agreement with the port terminals on health benefits, a significant step towards agreeing on a new contract. Recent reporting suggests that negotiations may have hit an impasse due to an operating issue at a specific port while some big issues - like automation - remain outstanding.

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In the meantime, service levels at the West Coast ports remain steady. While it is still unclear when these negotiations will conclude, it is important for both sides to arrive at an agreement without any service disruptions while also allowing our nation to meet the growing trade flowing through our West Coast ports.

Railroad dispute makes progress following administration recommendations

After the current round of rail negotiations started in November 2019 between six of the nation's largest railroads (BNSF Railway, the U.S. operations for Canadian National, CSX, Kansas City Southern, Norfolk Southern, and Union Pacific) and approximately 115,000 rail employees represented by twelve unions, recent developments in talks have given hope that the negotiations are close to reaching an agreement.

Collective bargaining for the railroad industrydiffers from negotiations in other industries because of the railroads' importance to the American economy. Most importantly, railroads are governed by the Railway Labor Act (RLA), a federal statute designed to bring the parties to agreement without disruptions to rail transportation.

The RLA includes numerous safeguards that help overcome bargaining stalemates. For example, earlier this summer after the National Mediation Board released both parties from mediation, the RLA required both sides to begin a 30-day "cooling off" period.During this time, the Chamber called on President Biden to appoint an impartial Presidential Emergency Board (PEB) that would perform an independent hearing of both sides' concerns and make its own set of recommendations for a deal. President Biden appointed the Board in July and following consultation with both sides, the PEB issued its recommendations in August.

Now both sides are in a final RLA-mandated 30-day "cooling off" period to review the recommendations and continue negotiating. While the PEB findings are not binding, they do provide a strong framework for negotiations. The recommendations helped a recent breakthrough on August 29th when the six major freight railroads announced tentative agreements with three of the twelve labor unions. These tentative agreements provide a strong framework and pattern to reach tentative agreements with the remaining nine unions. If the railroads don't reach agreement with the remaining unions by the end of this current "cooling off" period on September 16, then either party could pursue "self-help" options (including a strike) unless Congress steps in.

The U.S. Chamber is tracking these negotiations closely and will continue to call on policymakers and both sides to work towards reaching a voluntary new agreement.

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