Rail giants plan to shut down Canada network after union talks fail

The two largest Canadian railroad companies are set to shut down operations Thursday if no agreement is reached with their union workers, as industries brace for billions of dollars in losses.

Canadian National Railway Co. and Canadian Pacific Kansas City Ltd. 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.

A strike would affect movement of products including wheat, chemicals and fertilizers throughout Canada and the US. The two rail operators already started a phased shutdown of the network last week. 

“The economic harm will extend well beyond the C$1 billion ($732 million) of goods that are transported by rail each day,” Goldy Hyder, chief executive officer of the Business Council of Canada, said in an email. 

“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.”

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

“We are concerned that labor 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 email.

Canada is the world’s top potash producer. Contingency planning for a strike is difficult since there are limited other options with 75% of fertilizer moving by rail, said Karen Proud, CEO of Fertilizer Canada.  

“There is some ability to move to trucking, but the cost is quite significantly higher and it’s really not something that we can plan for,” she said.

Canadian potash mines may also be impacted because if they can’t free up storage space in advance of a strike, they may have to halt operations during a rail stoppage.

Over 90% of Canadian grain moves by rail, so with both of the two major railways disrupted by the potential strike, there could be a near-total stoppage of grain movement in the country. 

“There is no plan B,” said Wade Sobkowich, Western Grain Elevator Association’s executive director. “There’s nothing that compares to rail in terms of moving the volumes of grain that need to move at economical rates.”

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 travel by rail due to specialized containers for safety. Industrial chemicals make up around 10% of class one freight rail traffic in Canada, transporting product worth about C$75 million each day, according to the Chemistry Industry Association of Canada. 

Both railways have stopped transporting new shipments of hazardous chemicals that can’t be left unattended in advance of a work stoppage.

“The countdown towards the crisis has already started,” said Bob Masterson, CEO of the chemistry industry group.

While some industries that depend on rail can switch to trucks, that’s 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%, said 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.

Canada’s labor minister told the railways and the union last week that he would not be imposing binding arbitration on them.

With potential labor stoppages at railways this year and disruptions to Canada’s ports last year, concerns are growing about the country’s international reputation. 

“Customers have a choice on where they get their goods from,” said 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.”