Looming Stoppage of Freight Rail Operations in Canada

By Tom Polansek and Promit Mukherjee
CHICAGO/OTTAWA (Reuters) – A looming stoppage of freight railway operations across Canada would disrupt North America’s agricultural supply chain, impacting shipments of essential goods such as wheat, fertilizer, and meat.

Unless last-minute labor agreements are reached, both Canadian National Railway (TSX:CNR) and Canadian Pacific (NYSE:CP) Kansas City will cease nearly all freight rail services in Canada for the first time at midnight on Thursday.

Canada is the leading exporter of canola, utilized in food and biofuels, and potash fertilizer, as well as the third-largest wheat exporter globally. A strike would directly involve 10,000 Canadian railroad employees, with significant repercussions on the U.S. economy due to the interconnected rail networks between the countries.

In a joint letter to the U.S. and Canadian governments, nearly three dozen North American agricultural groups urged immediate action to prevent a stoppage. They warned that bulk commodity exporters in both nations would be severely impacted, as trucking cannot accommodate the vast volumes and long distances involved.

Rail operators have announced lockdowns to commence on Thursday. The Teamsters union is advocating for enhanced wages, benefits, and crew scheduling and has issued a strike notice to CPKC.

The stoppage would hinder shipments of U.S. spring wheat from Minnesota, North Dakota, and South Dakota to the Pacific Northwest for export. CPKC is responsible for transporting grain from these regions to west-coast terminals via Canada.

The U.S. still has almost two-thirds of the spring wheat crop to harvest, with soy, corn, and canola harvests remaining a few weeks away.

Mark Hemmes, head of Quorum Corp, which monitors Canadian grain handling, stated that Canada’s prairie elevator network would reach storage capacity within 10 days of a rail stoppage. There are also concerns about U.S. corn products heading to Canada. In 2023, Canada was the leading destination for U.S. ethanol exports, with nearly three-quarters transported by rail.

Fisher emphasized that the rail operations must continue: “We just can’t have the railroads not operating.”

In 2022, the U.S. exported $28.2 billion worth of agricultural products to Canada, making it the third-largest destination behind China and Mexico, while importing $40.1 billion from Canada, who stands as the second-largest source of U.S. agricultural products after Mexico.

Around 85% of the 13 million metric tons of U.S. potash imports last year came from Canada, primarily transported via rail.

‘NO GOOD TIME’

U.S. corn farmers apply fertilizers in both fall and spring, but potash imports from Canada are steady throughout the year, as noted by Krista Swanson, chief economist for the National Corn Growers Association.
Swanson remarked, “Given constant trade flows and the importance of the trade relationship between the two nations, there is no good time for this to occur.”

The railways typically transport an average of 69,000 tons of fertilizer daily, equating to four to five trains. Disruptions could cost the industry C$55 million ($40.34 million) to C$63 million per day in lost revenue, not accounting for logistical and operational losses.

Canadian meat producers have warned of significant monetary losses and waste due to the rail stoppage. The Canadian Meat Council and Canadian Pork Council indicated some processing plants could lose up to C$3 million weekly, with closures occurring in 7 to 10 days from the stoppage. Following the resumption of rail services, it could take 2 to 5 weeks for plants to regain normal capacity.

Crosby Devitt, CEO of Grain Farmers of Ontario, voiced concerns that movement of Ontario soybeans to export markets, primarily Japan, could halt just before harvest.
Wade Sobkowich, executive director of the Western Grain Elevator Association, stated that delays in crop shipments beyond a week could incur contract penalties and demurrage costs for waiting ships, adding financial strain to the industry.

“We’ll be playing catch-up for the rest of the harvest year, till next July,” he added.

($1 = 1.3634 Canadian dollars)