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A rail strike would have put another kink in an out-of-balance supply chain

RACHEL MARTIN, HOST:

Even just the possibility of a rail strike put a kink in a supply chain that's still out of balance from the pandemic and disrupted further by the war in Ukraine and severe weather events. Railroads haul about 30% of the freight transported across the country every year. The effects of freight rail interruption would be felt in every manufacturing sector and cause spot shortages of consumer goods. We are joined now by Abe Eshkenazi. He is CEO of the Association for Supply Chain Management. Thank you so much for being here.

ABE ESHKENAZI: Good morning, Rachel.

MARTIN: So this is a good thing, that they have reached this labor deal. Explain, though, what David was just talking about. All these contingency plans were already put in place in case there was a strike. So what's going to be the impact of all that?

ESHKENAZI: Yeah, absolutely. It will take some time to rebalance, as you indicated before, some of - restarting some of the schedules, as well as some of the deliveries. A number of organizations have already taken steps to mitigate the rail strike. Knowing that there was a significant potential of it, they may have diverted into other modalities, but very limited options. They may have done it for the short term. In the long term, any disruption on the rail would have hit a global issue from shipping to rail, to trucking, all the way to the consumer and retail outlets. This has averted a significant disruption to our entire supply chain.

MARTIN: But we're going to have to see things like - I mean, these goods that were supposed to be moved from Point A to Point B on freight trains are probably already being put on trucks.

ESHKENAZI: Some of them are. I think you're finding some organizations that may have found some short-term, you know, options or alternatives, knowing that there may have been a possibility of it. But that would have been a short-term fix. In the long term, very few organizations, manufacturing or, you know, logistics companies could have withstood a - you know, a long duration of a strike from the rails. There just isn't a number - a significant number of options that organizations have for the volume that we're talking about and the costs, as you indicated before, from food, automotive to consumer goods. Almost, you know, half of our products are touched by rail at one point or another.

MARTIN: That's amazing to think about, half the products that we as just households have in our homes. I imagine especially construction, too - right? - which has been - that industry has just been walloped by the pandemic.

ESHKENAZI: Absolutely. Lumber, obviously, is a critical part in the construction industry. And then you get into the agricultural, the coal and the chemicals, as well as the ore. And then you've got hazardous materials. As we were indicating before, some of those, they may have already taken steps to mitigate where they are. Obviously, if refrigerated vehicles or containers were required, then you needed to make plans accordingly. You don't want those stuck in transit. And there are obviously products in transit that needed to be accounted for and secured, whether hazardous or otherwise. So this is a - you know, a significant part of our economy.

And as I indicated before, shippers are taking note in terms of, OK, if the rails are running, then I can ship my containers, you know, to the ports. The ports have to indicate, can they get the product off the ship, onto rail and out of the ports and into the warehouses? So the extended supply chain really would have been impacted. And thankfully, it hasn't had to deal with this disruption. As you indicated before, from the pandemic to the Ukraine crisis, to weather-related issues, we're still dealing with a lot of the recovery issues from those disruptions. Labor shortages haven't reduced that significantly. Trucking is still a problem. So there were very few alternatives to the rails that we have.

MARTIN: Abe, are we just expecting the world to calm down? I mean, doesn't all of this point to just an inherent fragility about our supply chain system?

ESHKENAZI: It's a really interesting question because prior to the pandemic, we were very effective. Just-in-time was the hallmark for almost all supply chains. We had high, you know, variability. You had rapid delivery, reasonable cost. What we didn't prepare for was just-in-case, the demand surges and a lot of the disruptions. We were working on a very effective but a highly fragile system that needed all aligning - aligning all the nodes within the supply chain. And as we've seen, impacting one node, whether it's in the ports or whether it's in the China manufacturing or in trucking, you'll see the collateral effect that it has upstream and downstream in the supply chains.

MARTIN: Well, we so appreciate your context on this this morning. Abe Eshkenazi is CEO of the Association for Supply Chain Management, again, talking about this news that the White House has announced a labor deal that puts to rest the possibility of a rail strike. Thank you so much.

ESHKENAZI: My pleasure, Rachel. Thank you. Transcript provided by NPR, Copyright NPR.