Canadian freight rail lines shut down, potentially hitting North American economy

New York
CNN
—

Canada’s two main freight rail companies have halted operations, according to management, locking out 9,000 members of the truckers’ union who run the trains and dealing a potential blow to the Canadian and U.S. economies.

Nearly a third of the freight handled by the two railroads — Canadian National (CN) and Canadian Pacific Kansas City Southern (CPKC) — crosses the U.S.-Canada border, and the shutdown could disrupt operations in a number of U.S. industries, including agriculture, automotive, homebuilding and energy, depending on the duration of the shutdown.

“CPKC is working to protect Canadian supply chains, and all stakeholders, from further uncertainty and more widespread disruptions that could arise if this dispute continues leading to potential work stoppages during the peak shipping period in the fall.” “Delaying the resolution of this labor dispute will only make matters worse,” the company said in a statement Thursday shortly after the shutdown began at 12:01 a.m. ET.

The closure will underscore how closely linked the two countries’ economies are, with many industries relying on the free movement of goods across borders for their efficient operations.

For example, some U.S. auto plants might temporarily close if they can’t repair engines, transmissions or stamping operations at their Canadian plants. U.S. farmers might face fertilizer shortages, and U.S. water treatment plants near the Canadian border might run out of chlorine, which purifies water.

This is the first time Canada’s two major rail companies have stopped work at the same time due to a labour dispute. The last work stoppage in the industry was a 60-hour strike at Canadian Pacific in 2022. Before that, there was a nine-day strike at Canadian National in 2019.

Thursday’s protests are different from a strike, where union members refuse to go to work. In this case, it’s management telling nearly 9,000 truckers’ union members that they can’t work.

Patrick Waldron, spokesman for the Kent County Miners’ Union, said it was better to stop operations now and reach a conclusion, rather than allow the union to strike later this fall.

“We’re entering the peak fall shipping season. You have a new Canadian grain crop coming in, the first in two years that hasn’t been affected by drought,” Waldron told CNN before the shutdown. “You have Christmas presents in containers arriving at ports. If this goes on beyond the fall shipping season, the consequences are going to be worse.”

The truck drivers’ union says it was seeking a mutually satisfactory deal, but the railroads’ demands would reduce comfort and increase safety risks.

“Throughout this process, CN and CPKC have shown their willingness to compromise rail safety and tear families apart to earn an extra dollar,” said Paul Bouchet, president of the Canadian Railway Congress, in a statement early Thursday. “Rail companies do not care about farmers, small businesses, supply chains or their employees. Their sole focus is to boost their bottom line, even if it means putting the entire economy at risk.”

But rail companies deny that the changes they seek would increase safety risks, saying all the proposals provide greater safety protections than recently tightened Canadian regulations require.

The companies said the union was responsible for not reaching an agreement by the deadline. The two companies called on the government to intervene and refer the dispute to binding arbitration, which the government has so far refused to do.

The chambers of commerce in the United States and Canada issued a joint statement on Tuesday calling on the Canadian government to take action to keep the railways running.

“A disruption to rail services would be devastating to Canadian businesses and families and would have significant impacts on the U.S. economy,” they said. “The significant bilateral trade and deeply integrated supply chains between Canada and the United States mean that any major disruption to rail would put the livelihoods of workers in many industries on both sides of the border at risk.”

Economists say there is not enough truck capacity available to handle the freight that Canadian railways typically carry.

A three-day strike could cause $300 million in losses, according to a report released Tuesday by the Anderson Economic Group, a Michigan research firm with expertise in estimating the economic impact of work stoppages. ($407 million CAD) in economic damage, while a seven-day strike would bring losses of more than $1 billion CAD ($1.4 billion CAD).

A shutdown of just a few days would limit the economic impact, but it would still cause problems, said Kristin Dziczek, policy counsel in the research, policy and public engagement department at the Federal Reserve Bank of Chicago.

“It will take weeks to resolve the problems caused by the closure even for a few days because things will end up not where they should be,” she said.

Due to the risk of work stoppages, the two railway companies stopped receiving shipments of various hazardous materials last week so that these materials would not be stored. Many people are stuck on trains that can no longer connect. That’s already causing some disruption, according to John Drake, the U.S. Chamber of Commerce’s vice president for transportation, infrastructure and supply chain policy.

“We have already heard from companies that their shipments have not moved,” he said.

Rail spokesmen said management needed to move forward with the shutdown plans because it could not wait for the union to declare a strike with just the 72-hour notice required by Canadian law.

“We can’t just flip a switch and shut down the railway,” Jonathan Abecassis, a spokesman for Canadian National Railways, told CNN on Wednesday before the shutdown. “We needed to initiate a safe shutdown.”

Canada does not have the same rail labor law as the United States, which would allow Prime Minister Justin Trudeau to prevent a strike or lockout while a committee weighs the two sides’ demands and makes recommendations. This is what happened in 2022 when both President Joe Biden and Congress took action. To prevent a strike by 13 railroad unions spread across the four major railroad companies in the United States.

Canadian Minister of Labour Steve MacKinnon Trudeau has met with union and management negotiators in recent days in an unsuccessful attempt to reach a deal. He has the power to refer the matter to binding arbitration, a solution sought by the rail companies and opposed by the unions. But so far, the Trudeau administration has rejected that option.

“We hope he reconsider his position,” Abecassis told CNN.

This story has been updated with additional context and reporting.