Rail Industry Shifts Gears in Labor Negotiations
For the first time in over six decades, the Class 1 freight railroads are taking a divergent approach to national labor talks, set to begin on Friday. Union Pacific and CSX have opted to negotiate separately with local rank-and-file chapters, focusing on hyper-local issues like service, efficiency, and customer satisfaction. This departure from the traditional joint effort among major rails leaves Norfolk Southern, BNSF, and Canadian Pacific Kansas City to pursue a national deal together.
Early Agreements and Uncharted Waters
The negotiation process has been characterized as “unchartered waters” by Jeremy Ferguson, president of the largest railroad union, SMART-TD. Several major freight rails have already reached tentative local agreements covering wages and benefits, which will not require participation in the national bargaining round. According to the National Carriers’ Conference Committee, these early agreements will increase pay by 18.8% over five years, translating into real wage growth and pay certainty for the life of the contract.
Benefits and Compensation
The agreements also bring significant benefits, including a decrease in employee monthly health-care premiums by over 10% in 2025, to $277/month. Unionized employees will have access to more paid vacation earlier in their careers, addressing union demands for better work-life balance. The average total compensation for Class I rail employees ranges from $135,000 to $190,000 annually, with an average of approximately $160,000.
Averting a Nationwide Strike
These changes come after a nationwide freight rail strike was narrowly avoided in 2022, following contentious negotiations and a period of embargo that slowed down supply chains. The railroad industry had warned of potential economic damage of $2 billion per day, and other industry groups cautioned of a direct hit to GDP and inflation.
Constructive Negotiations and Investor Focus
Labor attorney Richard Edelman notes that unions are willing to engage in more constructive negotiations, but are prepared to agree only on terms acceptable to the workforce. Analyst Daniel Imbro finds it surprising to see Class 1 rails negotiating independently, but believes the early timing indicates prioritization of service. Investors are closely watching the negotiations, focusing on whether price can exceed inflation and support margin expansion.
Railroads Prioritize Service and Efficiency
As the negotiation process unfolds, railroads are prioritizing service and efficiency. BNSF has ratified agreements with several unions, representing 53% of its union workforce, and Norfolk Southern has reached tentative agreements with 10 of its 13 unions, covering approximately 67% of its craft workforce. The newly ratified agreement provides a 3.5-percent average wage increase per year over the next five years and offers significant improvements to health care benefits.
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