Two of Canada’s largest rail companies, Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC), are bracing for a nationwide work stoppage that could take effect on August 22, 2024. Both companies have issued lockout notices to the Teamsters Canada Rail Conference (TCRC), representing over 9,000 employees across the two firms. Despite ongoing negotiations, the parties remain deeply divided, threatening a shutdown of Canada’s critical rail network. This would have significant repercussions for industries across North America and beyond, impacting the transportation of essential goods like grain, chemicals, and fertilizers.
The current labor impasse began earlier this year when CN made multiple attempts to negotiate a new collective agreement with the TCRC. CN initially proposed a deal to enhance wages, work-life balance, and safety protocols. The union rejected the offer, leading to several revised proposals incorporating additional improvements. The latest proposal, which offered wages of $75 per hour for locomotive engineers and $65 per hour for conductors, along with guaranteed earnings and predictable days off, was also declined. After failing to reach an agreement, CN proposed binding arbitration, a neutral process in which an independent arbitrator determines the terms of a settlement. The TCRC likewise rejected this offer.
Amid the impasse, CN has initiated a phased and progressive shutdown of its network to ensure the safety of communities and customers’ goods, with additional embargoes on shipments taking effect. CPKC has similarly prepared for a potential lockout, issuing notices to its employees and imposing embargoes on transporting hazardous materials. The situation has left industries reliant on rail freight scrambling to mitigate the possible fallout from a prolonged disruption.
The impending work stoppage could significantly disrupt the Canadian economy, which relies heavily on rail transport to move goods. CN and CPKC collectively move over $732 million in products daily. According to the Business Council of Canada, the shutdown’s impact could extend well beyond the immediate value of goods transported daily, potentially resulting in billions of dollars in lost revenue, wages, and international contracts.
For example, fertilizer manufacturers like Nutrien Ltd., which rely on rail to transport products to farmers, have already begun implementing contingency plans to safeguard supply chains. Fertilizer Canada, an industry group, has expressed concerns about food security if rail transport halts, as 75% of fertilizer in Canada moves by train. Alternatives like trucking are limited and costly, creating challenges for companies trying to navigate the uncertainty.
Similarly, Canada’s grain industry faces the prospect of a near-total shutdown if the rail stoppage occurs. Over 90% of Canadian grain moves by rail, and without alternative transport options, the country’s agricultural exports could come to a standstill. Grain exporters risk incurring demurrage fees, contract penalties, or even sales defaults due to the inability to fulfill international orders.
The chemicals industry is also at risk, as many products require specialized rail transport for safety reasons. Industrial chemicals constitute around 10% of Class 1 freight traffic in Canada, with an estimated value of $55 million moving by rail daily. With CN and CPKC halting new shipments of hazardous chemicals, the industry is bracing for significant disruptions. Bob Masterson, CEO of the Chemistry Industry Association of Canada, warned that the countdown to a supply chain crisis has already begun.
The ramifications of a work stoppage extend far beyond Canada’s borders. CN and CPKC operate cross-border routes into the United States, meaning the shutdown effects would be felt across North America. Industries dependent on Canadian railroads have started exploring alternative routes through U.S. ports, but this solution is far from ideal. Rail freight holds the equivalent of 300 truckloads of goods, and shifting to road transport could spike trucking rates by as much as 20%, according to transport industry experts.
The economic risks of a protracted labor dispute have prompted increasing concern among Canadian businesses and international trade partners. The country’s global reputation as a reliable trading partner is at stake. If the rail network proves to be an unreliable link in the supply chain, customers and trading partners may look to adjust their sourcing strategies, further exacerbating Canada’s economic vulnerabilities.
CN and CPKC have expressed a commitment to continuing negotiations in good faith. Still, without an agreement or acceptance of binding arbitration, both companies appear poised to lock out their workers on August 22. While intended to protect supply chains from further disruption, this move carries risks and challenges. For now, industries are left in a precarious position, forced to prepare for the worst while hoping for a last-minute resolution.
