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UPDATE 2-U.S. labor chief hosts talks with union, railroads to avert shutdown

(Adds House speaker, UPS comments)

By David Shepardson and Lisa Baertlein

DETROIT/LOS ANGELES, Sept 14 (Reuters) - U.S. Labor Secretary Marty Walsh on Wednesday hosted talks in Washington with freight railroad and union officials aimed at averting a looming rail shutdown that could disrupt cargo shipments and impede food and fuel supplies even as one of the smaller unions involved in the dispute rejected a deal.

Railroads including Union Pacific, Berkshire Hathaway's BNSF, CSX and Norfolk Southern have until a minute after midnight on Friday to reach tentative deals with three hold-out unions representing about 60,000 workers before a work stoppage affecting freight and Amtrak passenger rail service could begin.

A union representing about 4,900 machinists, mechanics and maintenance personnel said on Wednesday its members voted to reject a tentative agreement with a committee that represents railroad operators.

Unions in the current talks have been offered significant pay increases. Three of 12 unions, representing about half of the 115,000 workers affected by the negotiations, have yet to sign deals while grappling with railroads over working conditions.

A shutdown could freeze almost 30% of U.S. cargo shipments by weight, stoke inflation, cost the U.S. economy as much as $2 billion per day and unleash a cascade of transportation woes affecting the U.S. energy, agriculture, manufacturing and retail sectors.

White House spokeswoman Karine Jean-Pierre told reporters aboard Air Force One that a shutdown of the freight rail system would be an "unacceptable outcome for our economy and the American people and all parties must work to avoid just that."

The Labor Department in a statement "the parties are negotiating in good faith and have committed to staying at the table" on Wednesday in the talks Walsh is hosting.

President Joe Biden's administration on Tuesday said it was making contingency plans aimed at ensuring deliveries of critical goods in the event of a shutdown. The stakes are high for Biden, who has vowed to rein in soaring consumer costs ahead of November elections that will determine whether his fellow Democrats maintain control of Congress.

If agreements are not reached, there could be union strikes or employer lockouts. But the railroads and unions also could agree to stay at the bargaining table, or the Democratic-led U.S. Congress could intervene by extending talks or establishing settlement terms.

House of Representatives Speaker Nancy Pelosi said it was not clear whether Congress would step in, noting that the main issue "is that there's no sick leave for the workers and that's a problem." "We'd rather see negotiations prevail so there's no need for any actions from Congress," Pelosi added.

Industry groups are urging Congress to intervene, saying a rail shutdown would hit as grain farmers gear up for harvest and consumers gear up for winter weather and Christmas holiday shopping.

Railroad customers have long complained that rail service is expensive and unreliable, with the industry's decision to halt shipments of hazard materials, refrigerated food and general merchandise ahead of a potential shutdown making matters worse.

Amtrak, which uses tracks maintained by freight railways, began cutting long-distance trains on Tuesday. Some commuter rail systems like Chicago's Metra said they will begin halting some service on Thursday.

Rail hubs in Chicago and Dallas were already clogged and suffering from equipment shortages before this week's contract showdown. Those bottlenecks are backing up cargo at U.S. seaports by as much as a month. And, once cargo gets to rail hubs in locations such as Chicago, Dallas, Kansas City and Memphis, cargo can sit another month or longer.

Package delivery giant United Parcel Service, one of the largest U.S. rail customers, said it is working on contingency plans as automakers worry that a shutdown could extend vehicle buyer wait times.

Food and energy companies are warning that additional service disruptions could create even sharper price hikes and result in lost production.

(Reporting by David Shepardson and Lisa Baertlein; Additional reporting by Jeff Mason aboard Air Force One; Joe White in Detroit; Chris Walljasper in Chicago and Abhijith Ganapavaram in Bengaluru; Editing by Will Dunham and Mark Porter)

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