Railroad stocks are up across the board today on news that a tentative labor agreement has been reached with multiple unions representing rail workers, averting a strike that threatened to cost the U.S. economy $2 billion per day.
Shares of rail operators Union Pacific (NYSE:UNP), CSX Corp. (NASDAQ:CSX), and Norfolk Southern (NYSE:NSC) are each up 2% or more today on news of the labor agreement. Shares of Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK.B), which owns the Burlington Northern Santa Fe railway, are also up on today’s news.
What Happened With Railroad Stocks
According to multiple media reports, the new agreements give railway workers at multiple unions a 24% wage increase in the five-year contract period that runs through 2024, including an immediate payout that averages $11,000 per worker. However, the tentative agreements still need to be ratified by the union members in an upcoming vote, according to the Association of American Railroads.
The White House announced tentative agreements have been reached with several unions, including the Brotherhood of Locomotive Engineers and Trainmen Division of the International Brotherhood of Teamsters; the International Association of Sheet Metal, Air, Rail and Transportation Workers — Transportation Division and the Brotherhood of Railroad Signalmen. These collectively represent 60,000 workers, according to the railroad association.
Negotiators from various railroad companies and their union counterparts had been holed up in the office of U.S. Labor Secretary Marty Walsh as they tried to reach a deal ahead of a Sept. 16 strike deadline. If they had not reached an agreement, it could have led to a national shutdown of railways across the U.S. Negotiations centered around pay, enhanced sick leave benefits and improved working conditions.
Why It Matters
The tentative labor pact averts what could have been a crippling rail strike for the U.S. economy. According to the Association of American Railroads, a shutdown of the national rail network would cost the American economy $2 billion per day. A strike could have also impacted cross-border trade with Canada and Mexico and hurt global supply chains that are already stretched coming out of the pandemic.
More broadly, the new agreement with the railway unions averts a damaging strike ahead of this year’s midterm Congressional elections. In November, President Joe Biden and the Democratic party will be fighting to retain control of the Senate and House of Representatives. A national and costly strike could have been politically devastating for the president and his supporters.
What’s Next for Railroad Stocks
Rail stocks such as UNP, CSX and NSC are rallying today on news that labor peace has been achieved with the railway unions and an impending strike has been scuttled. However, the unions involved still must put the proposed contracts to a vote by their membership. Until each of the unions votes in support of the new agreements, the contract dispute cannot be considered put to bed.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.