How a potential railroad strike could affect Minnesotans and our economy

[MUSIC PLAYING] MELISSA TOWNSEND: This is Minnesota Now. I'm Melissa Townsend. It's 12:08. A contract deal between railroad unions and freight train companies is again hitting a snag. That means there could be a strike come November involving more than 100,000 railroad workers across the country. These are the men and women who maintain the rails and the trains.

According to reporting from The New York Times, the sticking point is paid sick leave. Here in Minnesota, this could directly impact 3,500 workers and 21 railroad companies. That's according to reporting from Carol Levin. Here to tell us more is Kyle Goldschmidt. He's an associate professor of operations and supply chain management at the University of St. Thomas. Professor, welcome to Minnesota Now.

KYLE GOLDSCHMIDT: Hi, Melissa. Thank you so much for having me.

MELISSA TOWNSEND: Thanks for being here. So I read that 2/5 of American long-haul freight moves over trains. How could a strike affect the supply chain?

KYLE GOLDSCHMIDT: So supply chain is very complex, and we've realized this during the pandemic. And if you have any one modality go down-- we saw this with the ports-- it's going to cause disruptions throughout the supply chain. And so you mentioned 2/5 of goods traveling via rail. If you take that out of the equation, we're going to see supply chain disruptions.

MELISSA TOWNSEND: Mm. And I also read there's problems at the ports. I hear long-haul truckers are quitting in droves. I mean, are we hitting a crisis here?

KYLE GOLDSCHMIDT: I wouldn't call it a crisis. I'd call it a challenging point in managing the supply-- in the supply chain. We've seen port strikes before. We've seen rail strikes before. The challenge is that it all seems to be happening at once. And I'll add one more to that. We have low water levels in the Mississippi, so barge traffic is also constrained.

MELISSA TOWNSEND: I was going to ask about that. So barge traffic cannot continue as normal?

KYLE GOLDSCHMIDT: Correct.

MELISSA TOWNSEND: Interesting. So I read a strike across the-- a strike in the railroad industry could cost the economy $2 billion a day. Unpack that for me. What does that mean? Who pays that cost of $2 billion a day?

KYLE GOLDSCHMIDT: So that is essentially the production that we would be losing in the US. And the rail provides very different services. So a lot of that service is transporting goods from the source, so those raw materials to the refiners. But they also transport goods between the various modes-- or nodes, excuse me. And so when a-- when a item comes into the port, that needs to be loaded onto either a truck or onto a train. And if it's not able to be loaded onto that train, it can't reach the next destination in the supply chain.

MELISSA TOWNSEND: Mm-hmm. So all those little stops add up basically.

KYLE GOLDSCHMIDT: Exactly.

MELISSA TOWNSEND: Mm-hmm. And how will this affect Minnesota businesses?

KYLE GOLDSCHMIDT: So there are many different levels that the businesses are going to be impacted. So starting at the top of the supply chain, we produce a lot of raw materials, so iron ore from the iron range, a lot of grain-- cereal grain is produced in Minnesota. And those are exported via rail. And so if we can't transport those out of the state, there are going to be potential disruptions to any industries that utilize those commodities.

MELISSA TOWNSEND: Interesting. Oh, was there more?

KYLE GOLDSCHMIDT: We also have a lot of-- a lot of raw materials come in. And so you can think of crude petroleum. So we don't produce a lot of oil or oil products, and so we need to import that, and that can come in one of two ways. It's either via pipeline or typically, I believe from Minnesota, it's via rail.

MELISSA TOWNSEND: Mm. So will we see the impact of this on store shelves? Will there be bare shelves for some items?

KYLE GOLDSCHMIDT: I don't think that there's going to be bare shelves in the short-term. One of the things that retailers have done as a result of the pandemic is they've invested a lot more in inventory. And we've heard a lot about that from the retailers and how much inventory they're holding. But the longer a strike goes on, the greater the chances are that we could see some disruptions.

MELISSA TOWNSEND: Mm-hmm. Let's talk about prices for a minute. So you mentioned crude oil trains running through the state. Could this further steepen gas prices?

KYLE GOLDSCHMIDT: I believe so. If you don't have that flow of crude oil in via train, it probably has to come over some other modality, and that would likely be truck. And it's just not as efficient. It requires-- if you think about a train, I mean, they're carrying hundreds of tankers. And shift that to trucks, that's hundreds more trucks carrying that oil on our highways. And so there's a carry-down effect, and it's going to cause disruptions, delays. And this is also a really challenging time of year to hire truck drivers.

MELISSA TOWNSEND: Oh, say more about that. Why is that?

KYLE GOLDSCHMIDT: Well, it is the holiday season. If you haven't seen ads for hiring truck drivers, this is the time of year that a lot of companies are moving goods essentially to make sure that the shelves are stocked for the holiday season. And so you mentioned at the beginning of the segment there's a shortage of truck drivers. If there is more competition with the need for diverting some of the rail traffic to truck, it's going to become more costly.

MELISSA TOWNSEND: Mm-hmm. How long would the strike have to last in order to really make a difference in prices or supply?

KYLE GOLDSCHMIDT: You know, it's really hard to say. Many companies aren't really fully aware of their entire supply chain. And so often you only realize the disruptions once they occur. And so it could be anything from-- for certain products a few days to possibly a few months depending on the inventories that these companies are holding.

MELISSA TOWNSEND: Interesting. I read the earliest there might be a strike is November 19th, so there's still plenty of time for negotiations. Are there any signs you're seeing that companies are already preparing?

KYLE GOLDSCHMIDT: I haven't heard anything immediately, but obviously company-- this is something that companies are paying attention to and, again, that they should be paying attention to. And it's not only working with your immediate supply chain, so that first tier, but also looking back further into the supply chain second tier, third tier to understand where those possible disruptions could be.

MELISSA TOWNSEND: Mm-hmm. What do you think the chances are that they will strike? You know, negotiations have been going on for a while. There hasn't been in contract since 2019. Can you tell what the chances are that there would be a strike?

KYLE GOLDSCHMIDT: I can't knowledgeably--

MELISSA TOWNSEND: Crystal ball?

KYLE GOLDSCHMIDT: --say what the likelihood is. But this is such a key part of our infrastructure that I would be surprised if this were allowed to go on for a very long period of time. This is a very complex infrastructure though. You know, rails are independently owned and managed, and so it's a lot different from some of our other transportation modalities and a lot more complex to manage and negotiate.

MELISSA TOWNSEND: Mm, so many players involved you mean?

KYLE GOLDSCHMIDT: Exactly.

MELISSA TOWNSEND: Mm-hmm. Is there something we haven't talked about that is of most concern to you regarding these negotiations and a possible strike?

KYLE GOLDSCHMIDT: I think that we have come to realize how important our supply chain is and how challenging it can be for businesses to operate given the constraints that we're seeing now within the supply chain. And so I think that just as we recognized during the pandemic, these are key parts to our infrastructure, and we should acknowledge the employees that have put forth so much effort to keep everything flowing to make sure that we don't run out of products on the shelves and that these don't impact our day to day lives.

MELISSA TOWNSEND: Mm-hmm. Well, thank you, professor, for being on.

KYLE GOLDSCHMIDT: Thank you. It's been a pleasure.

MELISSA TOWNSEND: That was Kyle Goldschmidt. He's an associate professor of operations and supply chain management at the University of St. Thomas. By the way The New York Times has a terrific in-depth article looking at some of the issues that are a part of this negotiations. You can check that out at newyorktimes.com.