Labor Battle Shuts Down Canada’s Railroads, Leaving Supply Chain at Standstill
Canada’s two major railroads fully shut down after midnight Thursday morning, with Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC) locking out more than 9,300 workers after they failed to come to agreement on a new union contract.
Concerns of a worker strike have been prevalent for months as engineers, conductors and yard workers represented by the Teamsters Canada Rail Conference authorized the threat of a work stoppage in May.
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With CN and CPKC getting out in front of strike action by locking the union workers out, the movement of goods throughout the country is at a standstill, backing up the supply chain not just on the railroads, but in trucking and at ports in Canada and the U.S.
A Tuesday report from Anderson Economic Group, a Michigan research firm that has expertise estimating the economic impact of work stoppages, said a three-day strike would cause $407 million Canadian dollars ($300 million) of economic damage. A seven-day strike would bring losses of more than 1.4 billion Canadian dollars ($1 billion).
Impacted goods are heavily focused on fertilizer, iron ore, grain, cement, salt, potash, coal, cars and wood/timber, but containers loaded with consumer goods will also be held up—concerning retailers and brands reliant on the rail traffic to move product. Apparel retailers that prepared ahead of time now must deal with potential inventory glut if trucking and warehouse capacity gets worse during the backlogs.
Steve Lamar, president and CEO of the American Apparel & Footwear Association (AAFA), noted that a rail shutdown comes at a critical time for back-to-school and the start of the holiday inventory rush.
“Approximately 30 percent of clothes, shoes, and accessories move by rail. Those goods include children’s apparel, backpacks, winter coats and boots, work shoes, uniforms—including those for essential workers, and many more everyday essentials,” said Lamar in a statement provided to Sourcing Journal. “Amid numerous supply chain disruptions by sea, companies are already diverting cargo and facing distressed trucking routes. It is imperative that all logistics stakeholders continue to work together to support modern and efficient systems, and ensure there are safe and responsible workplaces that power them.”
In anticipation of the potential rail strike, ocean carriers started to divert cargo from Canada’s British Columbia ports in Vancouver and Prince Rupert to alternative U.S. ports including Seattle, Tacoma, Los Angeles and Long Beach.
“The number of vessel arrivals at container terminals in the Port of Vancouver has dropped from 73 to 61 for the second week of August, the second lowest number of arrivals throughout 2024,” said Mirko Woitzik, global director of intelligence for Everstream Analytics, in a statement. “Percentage-wise, the number of vessel arrivals in Vancouver has fallen by 22 percent since the middle of July.”
And transit times for all rail shipments originating or ending in Canada have already seen an uptick in the past three weeks, according to data from supply chain visibility platform Project44. It is unclear if this is directly related to labor tensions, the company said, but it is expected to continue increasing as the strike commences.
Industry associations and lawmakers alike had called on Canada’s federal government and Prime Minister Justin Trudeau to intervene in the stalling negotiations. But Trudeau has been steadfast in letting the parties play it out. Government intervention has been a topic of concern since former Labour Minister Seamus O’Regan requested that the country’s industrial labor board review whether a rail strike would pose a threat to national safety.
The board ruled that a work stoppage would not pose serious danger, effectively allowing the Teamsters to issue a strike notice.
“It is in the best interest of both sides to continue doing the hard work at the table to find a negotiated resolution,” the Prime Minister told reporters Wednesday.
According to a statement from CPKC, federal intervention has been required in some form in nine of the 10 rounds of collective bargaining negotiations since 1993.
Labour Minister Steven MacKinnon had met with the parties on Tuesday and Wednesday with the hope of brokering a last-minute deal, but neither union budged ahead of the negotiation deadline. MacKinnon declined a request from CN to impose binding arbitration last week. Both railroads have reiterated that they still want to resolve the contract dispute via the arbitration process.
The Teamsters said in a Thursday statement that the parties are still “far apart” in negotiations. The union claims it has put forward multiple offers, “none of which were seriously considered by either company. “
CN said in an update that it made four offers to the Teamsters, but that the union has an “inability or unwilling to negotiate seriously.” CPKC said the union makes “unrealistic demands that would fundamentally impair the railway’s ability to serve our customers.”
CPKC and CN said their contract offers have included raises consistent with recent deals in the industry. Engineers at CN make about $150,000 a year, whereas conductors earn $120,000, and CPKC says its wages are comparable.
The unions has cited fatigue management, rest periods and scheduling as key sticking points in the negotiations. Both railroads had proposed shifting away from the existing system, which pays workers based on the miles in a trip, to an hourly system they said would make it easier to provide predictable time off.
All rail traffic in Canada and all shipments crossing the U.S. border have stopped, although CPKC and CN’s trains will continue to operate in the U.S. and Mexico. American businesses will feel the impact, with the National Association of Manufacturers noting that trade flows between Canada and the U.S. via rail in June 2024 totaled $9.1 billion—with $5.3 billion worth of goods being U.S. imports.