US Rail Strike Could Cost Consumers $1B in First Week

AEG Analysis Shows a December Rail Strike Likely to Produce Greater Losses than the 2019 GM Strike in the First Week

East Lansing, November 23, 2022—If the anticipated rail strike moves forward on December 9, Anderson Economic Group is forecasting potential losses to U.S. workers and consumers of approximately a quarter billion dollars in the first three days alone. However, while a strike may mean consumers have trouble finding one or two in-demand items, we will not see the Grinch steal Christmas this year.

U.S. consumers and businesses would experience a $60 million dollar loss on the first day; $90 million the second day

A transit strike involving trucks or rail is one of the most expensive, disruptive events that can happen in a modern economy. At least four costly effects stem from such a strike:

1. Some goods (especially food items) spoil because they never reach the market.
2. When goods do not reach the market, other goods and services are never produced and related wages are lost.
3. Customers and companies must adjust. Shutdowns can lead customers to stay home, believing they cannot get goods they would otherwise purchase.
4. Freight workers help to maintain passenger rail service and facilities. Their absence also disrupts long-distance passenger rail.

Further economic impacts caused by a national railroad strike would include lost wages for the industry’s workers, and production slowdowns due to non-delivery of critical components in some vulnerable industries.

To enumerate these costs, Anderson Economic Group constructed a scenario in which a large share of the freight traffic and some long-term passenger traffic stops at the beginning of December 9, 2022. We estimate direct interruptions to rail and passenger traffic, and from this we estimate lost wages, spoiled perishable items, and long-term passenger rail losses.

Our calculations show a first-day impact of approximately $60 million. This figure includes $30.9 million for lost freight, $3.8 million for long-term passenger rail disruption, and $25.0 million in lost railroad industry wages. These estimates are based solely on losses that directly impact the industry and its customers. They do not include “indirect” effects or losses in other industries.

Second- and third-day losses, however, increase to $91 million per day. This is largely due to a $61.9 million per day increase in the spoilage of food & agricultural goods. Consequently, even a brief three-day strike could cause workers and consumers to lose one quarter-billion dollars.

Likely Wage, Freight, and Long-Distance Passenger Income Losses per Day

Day 1	$59,832,508	Day 5	$63,602,338
Day 2	$90,777,194	Day 6	$110,985,873
Day 3	$90,777,194	Day 7	$110,985,873
Day 4	$57,426,979

        Source: Anderson Economic Group analysis using data described below in “Methodology.”

These losses do not include income losses for investors or railroad company managers. For them, the immediate effect of a strike would incur not only lower revenue, but also fewer expenses.

The auto, food, retail, and energy industries are vulnerable

We identify three industries as particularly vulnerable to a rail disruption:

1. The agriculture and food industry. A rail strike’s most immediate and irretrievable damage would be from lost food items and crops, extending far beyond those already in transit. Losses impact unharvested crops, crops harvested and stored for delivery, and crops that are consequently not fertilized or harvested.
2. The auto industry. The US auto industry has suffered supply problems for more than two years, causing inventories to dip to historic lows. A railroad strike would further delay both vehicle production and sales. A strike lasting more than a few days may well trigger the shutdown of some assembly plants.
3. The retail industry. During this critical period for retail sales, a lack of inventory for in-demand products could mean lean holidays for retailers large and small, whether online or brick-and-mortar.
4. The energy industry. Despite a focus on renewable energy, much of the U.S. economy still runs on energy derived from fossil fuels:
   1. Some industrial states, such as Michigan, continue to count coal as their number 1 or number 2 most important energy source. Our analysis of coal inventories indicates that most power plants could absorb a rail disruption of a week. A longer-lasting railroad strike would affect coal supplies and energy production in multiple states.
   2. Because a large quantity of ethanol, petroleum, and refinery products and byproducts are also transported by rail, a strike would impact the supply of these products, as well.

Some damage will occur even if a strike is averted

As we’ve seen in other strikes, shipping customers will anticipate work disruptions and begin to adjust in advance. At some point, railroads are likely to reschedule or postpone some critical shipments due to a possible shutdown.

AEG’s rigorous methodology

As with our previous analysis, AEG incorporated limited financial and operational information from selected large carriers, and information from Amtrak on long-distance rail. Some information was also obtained from the primary railroad association, and from the presidentially-appointed board tasked with reviewing the labor dispute. We did not rely upon public statements made by the bargaining entities in our analysis.

In this analysis and in all our studies, AEG follows a rigorous and conservative methodology. We expect consumers and businesses to substitute among providers and goods wherever possible, and for many customers to accept small delays in shipments without significant costs. We also consider industrial structure and regional differences. We do not exaggerate the impacts by using unreasonable multipliers or “black box” methods, nor do we assume that companies or employees lose the same amount of money each day regardless of the duration of a strike.

Our firm has done rigorous assessments of strikes, labor disruptions, power outages, and similar events for two decades. This includes the GM strike of 2019 and at least two port shutdowns. Our published methodology recognizes substitution as well as income losses. The methodology is described in publicly available references. Reviews completed after the strikes and our analyses confirm that AEG’s methodology provides a reliable and un-exaggerated indication of actual losses.