Looming Canada rail shutdown could disrupt US supply chain

CANBERRA – The two largest Canadian railroad companies will shut down operations on Aug 22 if no agreement is reached with their unionised workers, forcing industries to brace themselves for billions of dollars in losses.

Canadian National Railway and Canadian Pacific Kansas City have issued lockout notices to a union representing more than 9,000 employees at both companies, essentially starting a countdown for a nationwide work stoppage unless parties reach a last-minute deal.

The looming strike has already begun to affect the movement of products, including wheat, chemicals and fertilisers, throughout Canada and the US.

The two rail operators started a phased shutdown of the network last week, while AP Moller-Maersk said on Aug 19 that it was no longer accepting shipments for Canada that need to travel by rail and are too heavy for trucks.

“The economic harm will extend well beyond the C$1 billion (S$960 million) of goods that are transported by rail each day,” Mr Goldy Hyder, chief executive of the Business Council of Canada, said in an e-mail.

“It will lead to billions more in lost revenue from goods that won’t be sold, lost wages of workers who won’t be able to do their jobs and the potential for lost contracts from international shippers and consumers.”

A strike is also set to affect commuter rail in Canada’s three biggest cities. Vancouver’s West Coast Express passenger train would have to cease operations, as would Toronto-area GO trains on the Milton line and at Hamilton station and three Exo routes around Montreal.

The Teamsters Canada Rail Conference has said bargaining issues include provisions to combat crew fatigue. It has also served a strike notice that takes effect on Aug 22.

The disruption is set to affect some of Canada’s largest industries. The country is the world’s top potash producer and 75 per cent of fertiliser is moved by rail, said Ms Karen Proud, CEO of Fertiliser Canada.

Fertiliser maker Nutrien said it relies on rail service to move its products for farmers and has started proactive measures such as pre-positioning stock.

“We are concerned that labour action could impact the ability to move our products, which consequently may negatively impact farmers and food security around the globe,” a company spokesperson wrote in an e-mail.

More than 90 per cent of Canadian grain is moved by rail, so there could be a near-total stoppage of grain movement.

The country is also a major wheat producer and if exports stop, providers could face demurrage fees, contract extension penalties or sales defaults.

For the chemicals industry, many of their products need to be moved by rail in specialised containers for safety reasons. In advance of a work stoppage, both railways have halted transporting new shipments of hazardous chemicals that cannot be left unattended.

While some industries that depend on rail can switch to trucks, that is no easy feat. A typical freight train holds the equivalent of 300 trucks and changing transport modes typically comes at a premium of as much as 20 per cent, said Mr Scott Shannon, vice-president of transport firm C.H. Robinson.

“Trucking rates could spike because a whole lot of freight would have to find another way to travel,” he said.

Some companies have shifted to ports in the US in preparation, already impacting domestic railway earnings. Canadian National lowered its annual guidance in July, and its CEO Tracy Robinson told analysts there was a sharp reduction in international volumes.

At the same time, dock workers in British Columbia are threatening to strike over the impact of automation. After disruptions to Canada’s ports in 2023, concerns are growing about the country’s international reputation.

“Customers have a choice on where they get their goods from,” said Mr Greg Moffatt, executive vice-president of the Chemistry Industry Association of Canada.

“If the supply chain they’re exposed to on the Canadian side is not reliable, they’ll look to modify that supply chain.” BLOOMBERG