A looming railroad worker strike could be the next supply chain disruption on the radar for the brewing industry and the overall economy.
The nation’s freight carriers could ground to a halt as of midnight Friday if a deal isn’t made with the last two of 12 unions representing railroad workers. All 12 unions have said they’ll strike in solidarity if an agreement isn’t reached. At issue is sick time policies, which the unions argue have created poor working conditions.
The Association of American Railroads, a trade group representing the railroads, said a strike and shutdown could cost $2 billion a day. The four largest rail carriers have already begun scaling back service. Meanwhile, the White House has attempted to intervene to head off a potential work stoppage of the railroads, the first in 30 years.
If the trains stopped rolling, what would it mean for the beer industry?
David van Wees and Tim Near, founders of procurement and supply chain management firm Agrowgate, told Brewbound that a railroad worker strike could cause complications as corporations look to replace rail freight with “an already constrained over-the-road (OTR) network” of trucks.
“The stat that 40% of over-land, long-haul freight goes by rail, you can’t replace that with trucking,” van Wees said. “That fundamentally would be a shock to every part of the system.”
OTR transportation isn’t a one-for-one replacement either, Near added. Rail freight is cheaper and doesn’t have a weight limit compared to OTR trucking.
“It’s actually going to take more units of trucking to haul the same amount of freight,” he said.
“If somebody’s using rail, they’re using it because it’s cheaper and they can get by without having the lead time, and the biggest users of rail for materials for brewing are the agricultural products,” Near continued. “So malt and any corn sweeteners and things like that, and that’s usually exclusively the very large operations.”
The larger beer manufacturers could see “a more significant impact” if they cannot receive the rail cars filled with barley, sweeteners and other ingredients and eventually transport finished goods wholesalers.
Indeed, the nation’s largest beer manufacturers appear to be most exposed to a rail strike. The Beer Institute, a trade group representing all brewers, including the four largest beer manufacturers (Anheuser-Busch In Bev, Molson Coors, Constellation Brands and Heineken USA), sent a letter to Congressional leaders last week encouraging “all involved parties to attempt to resolve their differences” and urging “Congress to avert a freight rail collapse” in the event of an impasse.
“Many brewers, importers, and agricultural suppliers utilize rail to move their products nationwide,” Beer Institute senior director of federal affairs Annie Lange wrote. “If rail carriers and the labor unions cannot agree, we have concerns that any resulting delays will exacerbate supply chain issues. Congress has the authority to intercede and prevent further risk to the supply chain by implementing [President Joe Biden’s Presidential Emergency Board] PEB’s recommended terms.”
For craft brewers, the biggest issue will be in moving raw materials such as malt from the upper Midwest and Canada, Agrowgate’s Near said.
Another potential issue for craft breweries who aren’t contracted for trucking will be access to OTR freight, van Wees said. Smaller craft breweries could be susceptible to being bumped by larger corporations — not just beer manufacturers — “gobbling it up,” he added.
“If you’re a craft brewer and you don’t have an ironclad contract with a freight company,” you could be out of luck, van Wees said.
Brewers Association chief economist Bart Watson told Brewbound that a potential railroad strike likely wouldn’t have a major direct impact “in the short run” on craft brewers. However, “an ongoing or protracted railroad strike would have wider implications for the economy and could certainly cause ripples throughout the supply chain that end up affecting craft brewers.”
“A fair amount of barley is moved from Montana and North Dakota by rail to maltsters further east, but we don’t expect to see a lot of disruption in supply unless the strike continued for some time,” Watson wrote.
Rail “transportation of finished goods, for craft brewers, is minimal if at all,” while “it’s pretty uncommon” for brewers to get raw material via rail, Watson added.
If a strike does occur, Near and van Wees believe the “shock” to the transportation “will take months to work through even if the strike gets resolved fairly quickly.”
“It’s all one big system and web, and if you shut that thing down, it’ll take a while to get it back up and running again,” van Wees said.
Nevertheless, both Near and van Wees believe political pressure will lead to a quick resolution.
“This would be crippling to the economy, so I think a lot of pressure will be put on to fix this,” van Wees said.