Unprecedented Rail Disruption Looms in Canada

By David Ljunggren and Promit Mukherjee
OTTAWA (Reuters) – North American industry groups and shippers are bracing for an unprecedented simultaneous stoppage at both of Canada’s main railway companies that could inflict billions of dollars’ worth of economic damage.

Canada, the world’s second-largest country by area, relies heavily on trains for transporting grain, beans, automobiles, potash, coal, and other goods.

“It’s a catastrophe. Literally nothing would move,” said Greg Northey, vice president of public affairs at Pulse Canada.

Negotiations between Canadian National Railway (TSX:CNR) and Canadian Pacific (NYSE:CP) Kansas City, along with the Teamsters union, have reached a deadlock, with accusations of bad faith from both sides.

The rail companies plan to lock out workers on August 22 if a labor deal is not reached, while the union is prepared to call for a strike on the same date.

Industry groups are urging the Liberal government of Prime Minister Justin Trudeau to prevent a stoppage, emphasizing that Canada’s railways transport around C$380 billion ($277 billion) worth of goods annually.

“Factoring in the millions of Canadian jobs that would be impacted, the magnitude of the disruption is daunting,” stated the Business Council of Canada in an open letter to Trudeau and Labour Minister Steven MacKinnon.

U.S. Freight Traffic Impacted

A stoppage would also affect the U.S. due to the close integration of the two economies, as Canada exports approximately 75% of its goods south of the border. The networks of CN and CPKC connect with significant U.S. rail and shipping hubs like Chicago, New Orleans, Minneapolis, and Memphis. CPKC’s network further extends south to ports on both coasts of Mexico.

On Tuesday, CN announced it would implement an embargo on new reservations for hazardous materials and refrigerated containers starting Thursday. It also embargoed all intermodal traffic from various U.S. hubs beginning Friday.

In a similar action, U.S. rail operator Norfolk Southern (NYSE:NSC) advised customers it was embargoing hazardous and security-sensitive cargoes to or from CN and CPKC, effective immediately. More embargoes may follow if work stoppages occur.

Some U.S. companies prefer Montreal or Vancouver for imports and exports. U.S. logistics firm C.H. Robinson, which manages over 650,000 loads across the border yearly, is preparing additional trucking capacity on both sides of the border.

“When all trains serving the entire country could literally be stopped on their tracks, that’s another whole level of disruption,” remarked Scott Shannon, a senior executive at C.H. Robinson.

Pressure Mounts

Industry groups assert MacKinnon has the authority to refer the dispute to the country’s labor relations board, potentially preventing a stoppage. However, MacKinnon has expressed a desire for the two sides to resolve the matter at the negotiating table.

As pressure mounts on Ottawa, industry advocates emphasize the financial ramifications of a stoppage. Morgan Stanley recently indicated that weekly shipment disruptions could cost mining giant Glencore (OTC:GLNCY) around $100 million, primarily affecting coal shipments.

The Chemistry Industry Association of Canada warned that chlorine shipments will soon become unavailable, risking the quality of drinking water within two weeks. CEO Bob Masterson mentioned municipalities could face boil water advisories if the strike persists, noting that transporting such volume would require 2,000 trucks, which are not available.

“There is no plan B… to transport this kind of volume you will need 2,000 trucks, roughly. There aren’t 2,000 trucks, and there aren’t 2,000 drivers,” he said.

($1 = 1.3721 Canadian dollars)