UAW strike: Why railroads could feel the impact too
The autoworkers are continuing their strikes against the Big Three automakers, Ford (F), General Motors (GM), and Stellantis (STLA). Most economists expect for there to be some ripple effects across the U.S. economy. One industry that could feel the impact is railroads. Cowen Senior Research Analyst Jason Seidl tells Yahoo Finance Live that "autos have been one of the few brights spots" for railroads in what has been an overall "tough" year for the industry. Seidl says he does expect the strikes to eventually start showing up in the railroad companies' numbers, though it's not being seen yet due to lags in the data.
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Video Transcript
BRAD SMITH: If the UAW strike becomes prolonged, the effects could span out to industries outside of autos. Joining us now with the impact we could see on rail, we've got Jason Seidl who is the Cowen senior research analyst. So just broad strokes, set the set the table for us here. What are some of those impacts that you're anticipating, based on any correlations that we could see overflow from the UAW strike right now?
JASON SEIDL: Well, thanks for having me. So it's been a very tough year for the railroads. Volumes of have not been what everyone has hoped for. We're down about 4.5% on the year. And ironically, autos have been one of the few bright spots. We have double digit growth in automotive traffic for the railroads in 2023.
So if you take that away, you're adding over a half a percentage point on the downward side, the total traffic for the rails. And so we are expecting this to eventually start hitting numbers. You're not seeing it yet, because there's a couple week lag in what you see in the numbers.
The railroads already reported on a week lag, but there's also some finished vehicles on the ground that they can still move as we head into the strike here. But a prolonged strike, you're going to really get an impact for the railroads, and that's coming with a backdrop of just everything else putting pressure on them.
- Yeah, certainly. And, Jason, as we're speaking right now, we're just getting the headline crossing that today at noon all parts distribution facilities here in for GM and Stellantis are being called to strike. When you take a look at where some of these locations will be, the strike for GM parts plants in Michigan, two locations there, strike of all US Stellantis part plants, that is according to sources here in terms of what we are seeing crossing Bloomberg right now. And Fein saying that GM, Stellantis still needs some, quote, "serious pushing."
Now, they are continuing their strike against Ford, but they are not going to be expanding their strike with Ford. So, Jason, as we talk about some of the ripple effects and what you were just saying in terms of the lag effects that we could see for the rails, the longer that this goes on, how big of an impact could we see? If this is a strike that lasts, we're talking 30 days, potentially 45 days, which is what we just heard from our last guest.
JASON SEIDL: We've already taken some of our numbers down yesterday to account for the slower-than-expected traffic that we've seen and maybe some minor impacts from the strike that we're seeing. Remember, total automotive exposure for the railroads is somewhere between 4% and 5%, depending upon the carrier, so it's not really large. But it's going to impact them, like I said, because you're already in an environment where the railroads have their own labor that are costs are going higher. Remember, when the railroad workers were about to strike, they got ordered back to work by Congress. But that was the most expensive rail labor contract in history, and the railroads have been around for a while. So you have that flowing through on the cost side.
Additionally, on the cost side, you had some weather impacts here in the near term. And additionally, on the cost side, you're seeing fuel rise up. Fuel has dropped from January to July. But post the end of July, we've seen a big rise in fuel, and the rails get hit on that with about a 60-day lag on the recovery side. So near terms, the railroads have a lot of negative things going on, and unfortunately, very few positives these days.
