How Would a Rail Shutdown Impact Canada's Key Industries?

Moomoo News Canada wrote a column · Aug 22, 2024 16:11

Canada's key industries, such as mining, grain production, and major retail chains, are on high alert for potential work stoppages at the nation’s leading freight railway companies.

Both $Canadian National Railway Co (CNR.CA)$ and $Canadian Pacific Kansas City Ltd (CP.CA)$ have served lockout notices effective early Thursday morning amid strained labor discussions with the Teamsters union. More than 9,000 workers at Canadian National Railway Co. and Canadian Pacific Kansas City were locked out after the two companies were unable to reach a deal with the Teamsters union. Canada’s two major railways have shut down service after labour talks failed, which would likely result in transportation halts and stranded shipments of grains, minerals, and various other commodities.

The rail networks of these companies traverse Canada and extend into the U.S. and, for Canadian Pacific, even into Mexico. A strike would severely disrupt essential sectors across North America, including the agricultural, construction, automotive, and meat processing industries. It would also affect the daily commute for thousands in Canada’s major urban centers.

With limited alternatives to train freight—trucks can't match the capacity and aren't as plentiful—and often no viable options to switch rail services due to track configurations, a strike could have serious repercussions. Additionally, a CPKC strike would disrupt certain passenger rail services in cities such as Montreal, Toronto, and Vancouver.

John Corey, president of the Freight Management Association of Canada—representing members like Home Depot and Canadian Tire—emphasized the catastrophic impact a rail strike would have on the supply chain. He anticipates that the government would intervene with back-to-work legislation within a week to ten days, pushing the disputing parties toward arbitration.

Here are the industries that may be impacted:

Transportation

For most people, a freight rail stoppage won't have an immediate impact on their transportation. But more than 32,000 rail commuters in Toronto, Montreal, and Vancouver could be affected.

The commuter lines affected by the potential work stoppage are TransLink's West Coast Express in the Vancouver area, Metrolinx's Milton line and Hamilton GO station in the Greater Toronto Area, and Exo's Candiac, Saint-Jerome and Vaudreuil/Hudson lines in the Montreal area.

Grocery stores

Michael Graydon, chief executive officer of Food, Health & Consumer Products of Canada, an industry group, said some perishable food is already not being shipped by rail.

Graydon said frozen food, such as french fries, could already have stopped being shipped. Meat and fruit such as bananas, which often arrive in Canada by rail after first arriving in the United States, could also be affected, he said.

Stocks may be impacted: $Loblaw Companies Ltd (L.CA)$, $George Weston Ltd (WN.CA)$, $Metro Inc (MRU.CA)$ , etc.

Small businesses

If a strike were to drag on, a stoppage would have consequences for many businesses, particularly small ones with a smaller stockpile of goods and fewer options to get more.

"The impact would be huge," he said. "In retail, numerous goods imported into Canada rely on rail transport at some stage to reach their final destinations."

Agricultural Companies

Canada's agricultural sector, particularly in the Prairies, is heavily reliant on rail for shipping out its products.

"Farmers around the world rely on Canada's fertilizer industry to maximize crop yields, and the fertilizer industry relies on rail to get our products to market," Karen Proud, head of Fertilizer Canada, said in a statement.

Stocks may be impacted: $Nutrien Ltd (NTR.CA)$, $Ag Growth International Inc (AFN.CA)$, etc.

Automotive sector

In addition to the agricultural sector, the automotive sector and Canada's ports would be among those most affected by a stoppage, said Western University's Fraser Johnson.

Car manufacturers, for instance, "still receive a lot of components from suppliers via rail and certainly ship out cars from their assembly plants via rail as well," he said.

International shipping giant Maersk said it is making contingency plans, but for now continues to ship goods into Canadian ports.

Stocks may be impacted: $Magna International Inc (MG.CA)$, $Linamar Corp (LNR.CA)$, etc

Possible consequences

While an immediate price surge due to a rail stoppage is not anticipated, Johnson remarks that the primary concern is the possibility of lost sales, layoffs, and reduced income for workers in the affected industries.

How Would a Rail Shutdown Impact Canada's Key Industries?

He refers to a previous eight-day strike at CN in November 2019 involving over 3,000 Teamsters members, which, per an RBC analysis, only marginally affected the economy, reducing quarterly growth by 0.1 percentage points.

Source: CBC News

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TheAdamata : The longer the shutdown, the worse the consequences. A 8 day shutdown is significant but would mean nothing next to a 1-3 month long shutdown.

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