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A deal to avert a rail strike is on track, but it won't fix U.S. supply chain issues
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A tentative agreement announced Thursday looks likely to head off a strike that would have brought freight trains across the U.S. to a screeching halt. But the concern generated by the possibility of such a disruption highlights how fragile the nation's supply chains remain 2 1/2 years after they were first upended by the COVID-19 pandemic.
The breakthrough in negotiations was announced by Labor Secretary Marty Walsh, who hosted talks between unions representing 115,000 railway workers and the country's largest railroads. If the unions accept the deal, workers will get double-digit raises, more flexible attendance policies and other benefits. President Biden called the agreement a win for rail workers who worked through the pandemic "to ensure that America's families and communities got deliveries of what have kept us going during these difficult years."
Those deliveries, however, are still not entirely back on track, despite an apparently receding pandemic. And it could be a long time before supply chains again run as smoothly as they did before the age of lockdowns and mask mandates.
"Unfortunately, I just don't see anything in the next year or two that's going to lessen the number of disruptions," says Lisa Anderson, a supply chain expert and president of California-based LMA Consulting Group.
Jason Furman, a Harvard professor who headed the Council of Economic Advisers under President Barack Obama, says there's room for optimism, but "we're not out of the woods yet."
"[The] ports have mostly cleared themselves out. Trucking has mostly resolved itself. The cost of international shipping is way down. So there are definitely a lot of things that have gotten better," he says.
But in other key areas, there are still several fairly serious wrinkles, such as high fuel and food prices and a shortage of microchips for vehicles that aren't likely to be resolved anytime soon, Furman says.
Gas prices are falling, but petroleum supplies are tight
A rebound in demand since the worst days of the pandemic and supply disruptions due to the war in Ukraine combined to drive up the price of gas to unprecedented levels earlier this summer.
Things have cooled off a bit since then as we come off peak gasoline consumption season, says Patrick De Haan, head petroleum analyst at GasBuddy. "But diesel and heating oil especially are [still] high in areas of the country. California, the West Coast is particularly delicate right now because several refineries have experienced unexpected downtime."
There are also fewer of those refineries in operation, he says, and that means any shock, such as last year's ransomware attack that shut down the Colonial Pipeline, could send prices higher.
"Because of COVID, we've seen permanent shutdowns of 5% of the nation's refining capacity since 2019," De Haan says.
"Three decades ago, we had triple the amount of refineries," he says.
Due to industry consolidation, "what used to be 200 plus refineries is down to about 119," De Haan says. "That means when one goes down, it's becoming extremely problematic" because it represents a much larger portion of the total refining capacity, he says.
De Haan says he believes that refineries that were working overtime earlier this summer may also have deferred maintenance, and that could lead to problems down the road.
As for the war in Ukraine, even if it ended tomorrow, it wouldn't change the petroleum picture much, he says.
"Even if Russia pulled out of Ukraine, that doesn't immediately give Western countries and oil companies the confidence to do business with the Kremlin again," he says. "Especially if there is no regime change."
Ripple effects can be felt in food and retail costs
As many Americans have come to realize during the recent rise in gas prices, there's a huge knock-on effect when it comes to food.
Higher fuel prices have had an impact not only on the cost of shipping food, but on the price and availability of fertilizer, Anderson says, because nitrogen fertilizers are produced using a carbon-rich byproduct of oil refining, known as "petcoke."
The war in Ukraine has made things even worse, because Russia used to supply a lot of these fertilizers.
The invasion followed Beijing's decision last summer to introduce new limits on the export of phosphates, also a key ingredient in fertilizer. Up until then, China had been supplying nearly a third of the world's supply.
Anderson also points to weather-related shocks to U.S. agriculture, such as a prolonged drought in California, that could cause shortages and price hikes for some crops.
Retailers are dealing with chronic supply headaches
For retailers, things are certainly not as bad as they were at the height of the pandemic, says Jonathan Gold, the vice president of supply chain and customs policy at the National Retail Federation.
"While you're not seeing the 100 plus vessels backed up outside of the ports of LA [and] Long Beach, there are still congestion issues impacting those ports and the ability to get containers out of the port on the rails, to the warehouses via truck," he says.
Gold also notes labor negotiations at West Coast ports that caused retailers to shift their supply chains to the East Coast and Gulf Coast to avoid potential disruptions. It's all happening at "the height of the peak shipping season, when they bring in all their holiday merchandise," he says.
"Our supply chains are only as strong as our most congested link," Transportation Secretary Pete Buttigieg told NPR on Thursday. "And we've seen that throughout the pandemic period and the recovery from the worst days of it, whether it's ships, trucks, warehouses or trains, all of these things need to be working well in order for our economy to thrive."
In many cases, retailers are also experiencing excess inventory. As the pandemic waned somewhat, consumer behavior that had been focused on online shopping quickly shifted back to the services sector.
"I think right now a lot of retailers still recognize that there are challenges within the supply chain," Gold says. "They're trying to address those. They're trying to build more resiliency into their supply chains going forward, to be able to address any kind of future disruption that comes down the pike."
Copyright 2022 NPR. To see more, visit https://www.npr.org.
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