Shipper Alert! Canada’s Rails Shut Down But Should Reopen in Days After Government Orders Arbitration

It’s almost like the old firing/quitting cliché, eh, Canada? “You can’t go on strike; you’re locked out!” “You can’t lock me out; I’m going on strike!” Sorry. That would almost be funny if the situation wasn’t so painful.

Nearly all rail in Canada shut down today (Thursday, August 22nd) as negotiations failed between the country’s two major railways and union railroad workers. When the clock struck midnight and no resolution had been reached in the parties’ negotiation disputes, the railways implemented a lockout at the same time as a strike notice from the union was to go into effect.

Mark Mann and Laura Curtis reported in Bloomberg:

Canadian National Railway Co. and Canadian Pacific Kansas City Ltd. locked out more than than 9,000 Teamsters Canada Rail Conference workers after a 12:01 a.m. New York time deadline elapsed on Thursday. The union had issued a strike notice against Canadian Pacific that took effect at the same time.

Within the day, Canada’s federal government ordered arbitration and an end to the rail shutdown, but it will probably take some days. Ian Austen reported in the New York Times:

Less than 17 hours after almost all rail freight traffic in Canada came to a standstill Thursday following a lockout by the country’s two main rail companies of 10,000 employees, the federal government told a labor board to end the shutdown and ordered arbitration.

…

Steve MacKinnon, Canada’s labor minister, said at a news conference in Ottawa on Thursday that he had told the Canada Industrial Relations Board to formally order the railways to restart service. He said that he expected trains would be rolling “within days.”

He also told the labor board to extend the contracts between the Teamsters Canada Rail Conference — the union that represents the workers locked out — and the railway companies: Canadian National and Canadian Pacific Kansas City. The contracts expired at the end of the last year.

It’s not a surprise the federal government stepped in quickly after the stoppage. In fact, it’s more surprising the government didn’t step in before the stoppage occurred, given how important Canada’s trains are.

Austen reported, “Last week, the two railway companies had asked Mr. MacKinnon to impose arbitration to in advance of a Thursday’s deadline for a strike or lockout. Mr. MacKinnon turned them down then, but he said on Thursday that the situation had changed.”

Yeah, the situation changed. Rail shut down. Predictably, even if it was the first time historically that both of the country’s major railways stopped at the same time.

A Canadian rail stoppage is a major problem for the country’s economy. Not even mentioning the problems on the passenger transport end, that Canada’s the second largest country in the world in terms of land mass makes its supply chains particularly dependent on railways. Trains not running in Canada also has a big impact on U.S. supply chains.

Jessica Murphy reported in the BBC that “Canada sends around 75% of all the goods it exports to the US, mostly over rail…”

Those Canadian exports to the U.S. can be measured in the hundreds of billions of dollars. That’s a lot, eh.

According to the Office of the U.S. Trade Representative (USTR), U.S imports from Canada were valued at $436.6 billion. That number should be higher now, as the general trend for decades has been increased imports from Canada. In fact, that 2022 number was a 22.2% increase from the year prior and a 35% increase from 2012.

The U.S. has a trade deficit with Canada, but we still export a great many goods to Canada each year. And exports, of course, will be seriously impacted by Canada’s rail shutdown too. “U.S. exports to Canada account for 17.3 percent of overall U.S. exports in 2022. The U.S. goods trade deficit with Canada was $80.1 billion in 2022…” reports the USTR.

Hopefully, the railways get moving quickly again. The longer they’re closed, the bigger the impact will be on Canadian and U.S. supply chains. Congestion backing all the way up to the ports could divert cargo to U.S. ports. That could quickly cause issues too as we’re still in peak season shipping and there’s a looming strike threat that could shut down East and Gulf Coast ports in the U.S. that’s already affecting cargo volumes here.

However, as long as the rail shutdown in Canada ends quickly, the impact on the thousands of containers that enter the U.S. via Canadian ports each year on top of the Canadian exports sent here should be fairly minimal. But disruptions easily stack upon disruptions when it comes to supply chains, so this is an area we’ll have to keep our eyes on, eh.