Rail Giants Plan to Shut Down Canada Network After Union Talks Fail

(Bloomberg) — The two largest Canadian railroad companies will shut down operations Thursday if no agreement is reached with their unionized workers, forcing industries to 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.

The looming strike has already begun to affect the movement of products including wheat, chemicals and fertilizers throughout Canada and the US. The two rail operators started a phased shutdown of the network last week, while AP Moller-Maersk said Monday it is 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 ($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.”

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 Thursday. 

CN said despite negotiations over the weekend, the parties remain “very far apart,” while Canadian Pacific said it’s offered competitive wage increases and work rules that comply with regulatory requirements for rest.

The disruption is set to affect some of Canada’s largest industries. The country is the world’s top potash producer and 75% of fertilizer moves by rail, said Karen Proud, CEO of Fertilizer Canada.  

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.

Over 90% of Canadian grain moves by rail, so there could be a near-total stoppage of grain movement.

“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. In advance of a work stoppage, both railways have halted transporting new shipments of hazardous chemicals that can’t be left unattended.

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 impose binding arbitration on them. Steven MacKinnon said Monday the parties must work hard to reach deals at the bargaining table.

At the same time, dock workers in British Columbia are threatening to strike over the impact of automation. After 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.”

–With assistance from Randy Thanthong-Knight and Thomas Seal.

(Updates commuter impacts in paragraph six.)

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