Rail freight traffic in Canada came to a standstill early Thursday as the country’s two main rail companies locked out about 10,000 employees due to a labor dispute, a move that could cause supply chain disruptions in the United States and serious economic consequences within Canada.
The move follows months of contract talks that failed to reach an agreement. The two companies, Canadian National and Canadian Pacific Kansas City, said before the lockout that their extensive operations in the United States would continue normally, but many businesses there are likely to be affected.
About 6,500 containers enter the United States by rail from Canada every day, according to the Railway Association of Canada, an industry lobbying group. That includes cargo from Asia and Europe that lands in Canadian ports. Rail shipments into Canada from the United States will also be halted.
For Canada’s export-dependent economy, a prolonged shutdown could have severe economic repercussions. The railway association estimates that half of all Canadian exports are moved on trains and that railroads carried 380 billion Canadian dollars, about $279 million, worth of goods during 2022.
The effect on intercity passenger trains, which mostly use Canadian National’s tracks, and on commuter lines may be less pronounced. And while the railways move grains and other products for global export, they transport relatively few of the food products found in Canadian grocery stores.
Canadian Pacific Kansas City said that its operations in Mexico, which largely handle traffic to and from the United States, would also continue normal operations.
“I don’t think it can last very long, simply because of the impact on the general economy,” Barry Prentice, the director of the transport institute at the University of Manitoba in Winnipeg, said before the labor action took place. “In the past, every time these sorts of things occurred, the government was forced to recall Parliament and passed legislation that put the railways back to work.”
In 2015, a two-day strike by 3,000 locomotive engineers at Canadian Pacific — as the company was known before it acquired an American competitor, Kansas City Southern, last year — ended with the two sides agreeing to arbitration hours before the then-Conservative government introduced back-to-work legislation. In 2019, workers at Canadian National struck for eight days before negotiating a deal.
The two companies’ labor contracts previously expired on alternating years, which avoided a near-total rail shutdown. But to accommodate changing federal regulations, Canadian National secured a one-year extension of its last agreement. The contracts with both companies expired at the end of last year. Negotiations began last September.
The main points of contention for the railway workers appear to be scheduling, work hours and fatigue management. Hunter Harrison, a longtime American railway executive who ran both railways at separate times, introduced a system known as precision-scheduled railroading. To boost efficiency, he put trains on rigid, consistent schedules and cut back on equipment and employees through steps like running extremely long trains.
His approach bolstered profits, and the legacy of Mr. Harrison — who has not been part of either system since the end of 2009 — remains significantly intact at both railways.
In June, the Teamsters Canada Rail Conference, which represents the workers now off the job, said the two railways were “trying to squeeze even more availability” out of workers. It said that would mean “train crews would be forced to stay awake even longer, increasing the risk of derailments and other accidents.”
Without offering details, Canadian National said in a recent statement that it had proposed “a modernized agreement that improved safety, wages and work/life balance.” Canadian Pacific said its offer “maintains the status quo for all work rules,” adding that it “fully complies with new regulatory requirements for rest and does not in any way compromise safety.”
Steve MacKinnon, the federal labor minister, earlier rejected a request from the two railways to send the contract talks to binding arbitration to avoid a shutdown. He traveled to Canadian National’s headquarters in Montreal on Tuesday and met with executives of Canadian Pacific Kansas City at its headquarters in Calgary, Alberta, the following day.
The Liberal government of Prime Minister Justin Trudeau keeps its hold on power in the House of Commons with the voting support of the New Democratic Party, which was partly founded by organized labor. On Monday, Jagmeet Singh, that party’s leader, warned Mr. Trudeau against passing legislation that would force rail employees to return to work.
“For too long we have seen Liberals and Conservatives interfere in these types of labor disputes to the advantage of the employer, to the detriment of the worker,” Mr. Singh told reporters. “That is wrong, and we will oppose that.”
The shutdown’s effects are likely to stretch across several sectors of Canada’s economy, including agriculture, mining, forestry, oil and manufacturing.
Many shippers who use rail freight in Canada cannot simply move their cargo to trucks. Ships are not an alternative outside of the Great Lakes and St. Lawrence River system. And the overwhelming majority of cars and trucks made in Canada are sent to the United States largely by train.
“Parts and components come into the plants largely via trucks, and finished vehicles go out largely on rails,” said David Adams, the president and chief executive of Global Automakers of Canada, a group that includes Honda and Toyota. Both companies have major operations in Canada. “There would be very limited, if any, capability to transfer finished vehicle shipments from rail to truck.”
Wade Sobkowich, the executive director of the Western Grain Elevator Association, said that the shutdown came just as his members were starting to purchase this year’s grain harvest from farmers. Now, he said, farmers will have to stockpile their grain and wait to be paid.
“We tend not to bring in grain unless we know we can load it onto a train and get it out,” he said from Winnipeg. “It’s terrible timing, right at the start of harvest. We’ll be playing catch up for the rest of the year.”
Via Rail Canada, the government-owned passenger system, said in an email that most of its trains, which run mainly on Canadian National’s tracks, would be unaffected. Dispatchers at Canadian National remain on the job, unlike their counterparts at Canadian Pacific Kansas City.
Exo, a commuter rail service in the Montreal area, said it would shut down service on three lines owned by Canadian Pacific Kansas City that carry about 24,000 passengers a day.
“The bus shuttles that will be proposed will not be able to replace the usual train service, especially during the back-to-school period,” Eric Edström, a spokesman, said.
Metrolinx, which runs commuter services in the Toronto area, said that most of its trains travel on Canadian National’s lines and would not be affected. It will cancel service, however, on a single route that carries about 6,000 passengers a day.
In British Columbia, commuter rail service will be suspended on a line that runs to and from the former Canadian Pacific station on Vancouver’s waterfront. TransLink, its operator, estimates that the route carries 3,000 passengers on weekdays.
Read More: Labor Dispute Halts Rail Freight in Canada, Raising Supply Chain Concerns
