In a high-inflation environment, railroads are one of the few positive notes. Adjusting for the rising price of inputs like energy, so-called “value-added” prices of rail services are down by 2.6% over the last year. Meanwhile, value-added prices for air freight and passenger services are up by 20.5%, and value-added prices for trucking services are up by 33.4%, also adjusting for the price of inputs such as energy.
That’s why the current bargaining impasse in the railroad industry is distressing. The national railroads and rail labor unions are in a 30-day “cooling off period” that ends July 18. To avoid a strike or a lock-out, President Biden is likely to appoint a Presidential Emergency Board (PEB) to make settlement recommendations before a final cooling off period ends in mid-September.
While not directly part of the national negotiations, an important backdrop that the Tier 1 rail carriers have invested more than $11 billion in installing Positive Train Control (PTC), a system that makes rail movements much safer. The carriers propose to use this new technology to operate more efficiently by redeploying many conductors out of trains to ground-based positions. The rail unions are resisting this change at the individual carrier level, while demanding higher wages at the national level.
To work their way through the complicated puzzle of technology, wages, and productivity, President Biden needs to appoint PEB members who understand the railroad industry, and who are experienced arbitrators. That is the best route towards achieving a fair outcome that doesn’t disrupt the economy and further fuel inflation.
