Monday, November 28, 2011

Transportation Costs in 2012 - Could They Explode?

Transportation Costs Have Been On the Rise - What About a Rail Strike in 2012?

There have been some major concern of U.S. workers in contract negotiations with railroad companies. There was a December 6th, 2011 deadline that if an agreement could not be reached, there would be a massive rail shutdown.

There has been a recommendation that the 132,000 negotiating workers reach tentative agreements to end a two year stalemate between workers and railroads. Unions that do not reach an agreement by December 6th may begin strikes and the railroads can lock them out.

According to the Association of American Railroads, a walkout on December 6th would cost the American economy approximately $2 Billion a day.

The Good News

The good news is that one of the unions that represent approximately 19 percent of U.S. workers still negotiating their contracts, said that it would like to continue talks at least through February

“We have no intention of striking” on Dec. 6, said Fred Simpson, president of the Brotherhood of Maintenance of Way Employes, which represents workers who build and maintain tracks and other structures. “We sent all the railroads a letter saying, ‘We’re not going to strike, we’d like to bargain until Feb. 10 to see if we can get something done.’”

Impact on Trucking Costs

Of course, any reduction in the supply of transportation means an increase in other sectors, such as truckload. Normally products and goods are shipped at a much lower rate across country when rail is used. Once the products are shipped to the rail yards, they are normally finalized by trucks.

Think about the impact, for example, if coal fired power plants cannot ship their coal via rail. The price of electricity would obviously go up considerably. How about the price of automobiles? Most autos are shipped via rail across the US then finished with car carriers. The impact on the auto industry could also be significant.

Companies would be forced to utilize long haul trucking to get their goods to their customers or face severe financial hardships. This would also drive the transportation costs "through the roof" as the simply rules of supply and demand dictate higher prices when more demand is placed on a commoditized service, such as transportation.

For now, it appears that the railroad strike may be averted. Let's keep our fingers crossed that a settlement can be negotiated - our county would have a difficult time rebounding from the past recession should this important part of the shipping equation shut down.

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