Why The US Economy Cannot Afford Another Supply Chain Shock

The House of Representatives on Wednesday voted to force a contract between rail workers and carriers. The Senate still needs to consider the bill.

The economy has gotten a bad taste of supply chain disruptions caused by the end of the pandemic lockdowns and cannot afford another one that a rail strike would cause. It will add fuel to the inflation fire that burns household budgets and slows further economic growth.

Financial advisor David Peters noted that the economy has already been significantly affected by inflation in other areas; this would only make things worse in the areas that are hard to avoid.

“Supply chain shortages have been a major issue for the past several years,” he said in an email to International Business Times. “However, this one has the potential to be particularly damaging due to its wide-ranging consequences. So many household items, automobiles, food, and beverage depend on railroad transportation – anything traveling anywhere will be affected.”

Cheryl Druehl, associate dean of George Mason University School of Business, also sees the strike as having a broad impact.

“A rail strike will lead to more supply chain disruptions — in raw materials and consumer products,” she told IBT. “Many bulky, heavy products are shipped via rail, including grains, livestock, and cars. As a result, a rail disruption will lead to shortages in certain materials, increasing prices, and the inflation we’re already seeing. Any supply chain disruption can impact the economy, but a rail strike affects transportation across the US, having a broad impact.”

doctor Ernie Goss, a professor of economics at Creighton University’s Heider College of Business, noted how the strike has broad implications.

“A strike would slow growth in the ethanol industry, which would spill over into the broader economy,” Goss said. “This would contribute to higher inflationary pressures while the economy is slowing down.”

Ambrose Conroy, the founder of Seraph Consulting, is of a similar opinion, seeing the strike being painful for the economy on all fronts, which is why we see increasing government involvement.

“Politicians may posture during the negotiations, but if a strike occurs, everyone will be incentivized to get things moving quickly,” he told IBT. “If President Biden fails to act, the rail strike will almost immediately impact the average American in terms of shortages, higher prices, and few choices.”

Frank Kenney, a director of market strategy at digital consulting company Cleo, believes that the impact of a strike would have a much lower impact than a year ago or even four months ago during peak holiday shipping when the strike was initially proposed.

“Fortunately, we are now in an annual slow period for trucking, and current trucking capacity should be able to take on any excess freight that must be trucked instead of shipped by rail,” he told IBT. “The additional costs associated with the switch from rail to OTR can be mitigated with the benefits of faster delivery times and faster access to goods in preparation for early 2023 campaigns; end year sales and inventory clearance, and president’s day.”

Paul Hong, a professor of global supply chain management at the University of Toledo, expressed skepticism about the success of a strike, which doesn’t have the support of the general public.

“People are already burdened with the impact of inflation — rising prices in their daily necessities such as gas, diapers, groceries, and holiday shopping items,” he said.

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