Despite efforts to avoid a strike or lockout, freight trains across Canada shut down early Thursday morning as thousands of rail employees were locked out of the job by Canada’s two major railways.
Now, industry groups are warning that the rail shutdown could put Canadian manufacturers and exporters in serious jeopardy.
“About three-quarters of everything we produce goes to the U.S. And rail is a key component in moving those goods,” Dennis Darby, president and CEO of Canadian Manufacturers and Exporters, told Global News.
According to the Canadian Manufacturers and Exporters, Canada’s railways transport $380 billion worth of goods annually – that’s over $1 billion each day. Of that, the association estimates that approximately $531 million of manufactured goods will be stranded each day of a stoppage.
Darby said they surveyed their members and found that 92 per cent expect some sort of delay or penalty if the shutdown stretches on.
“This is a high-stakes situation. The government has the opportunity to force the parties back to binding arbitration. They just have chosen so far not to use it,” he added.
Erik Johnson, senior economist at BMO Capital Markets, said nearly 20 per cent of Canada’s exports to the United States are moved by rail.
“It’s those really heavy shipments… (such as) chemicals, auto parts, farm products, as a well as pulp and paper,” he said.
Johnson said some manufacturers and exporters would already have felt the pinch.
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“Some manufacturers might have limited inventories, depending on how much of a just-in-time kind of supply chain they’re operating,” he said.
“The longer this goes on the more you’re likely to see kind of bigger disruptions there.”
According to Statistics Canada, Canadian railways carried 30.2 million tonnes of freight in June, up 4.9 per cent from June 2023. Higher shipments of iron ores, canola, potash and other cereal grains were the main contributors to this third straight month of year-over-year growth.
Johnson said the metals and mining sector will likely face major disruptions.
“A lot of those things are coming from far distances in Canada. A lot of those products are coming to market on the rail network,” he said.
According to the Grain Growers of Canada, the country has 65,000 grain farmers whose crops account for $35 billion in exports. The group estimates that the initial impact of this dual stoppage will cost grain farmers over $43 million a day in the first week alone, with losses expected to escalate to $50 million a day the week after and beyond if the stoppages continue.
“The total shutdown of Canada’s two national railways is an unprecedented crisis for the grain industry,” said Kyle Larkin, executive director of the Grain Growers of Canada.
“With work stoppages at both CN and CPKC, our entire supply chain is at risk. This disruption is happening at the worst possible moment, during the start of harvest season, when our farmers are most dependent on our rail network.”
Johnson said while some exporters might be able to move from rail to trucks, it will only serve to add additional pressure on the logistics sector.
“The more pressure we see on one segment of the logistics sector, the more other segments are going to have to kind of pick up the slack,” he said.
Stephen Laskowski, president of the Canadian Trucking Alliance, said that while the trucking industry has some additional capacity to step in, it is limited by its own labour and capital constraints in what it can do.
“All shippers across the country are now looking, if they can, to alternative mode of transportation, particularly trucking. They’re turning to trucking partners to see if there is additional capacity,” he said.
“That capacity is being quickly used up by the rail customers.”
Johnson said that while Canada has dealt with railway shutdowns before, the fact that both major railways have decided to lock out employees makes it unprecedented, making the outcomes of this shutdown hard to predict if it goes beyond a week.
“We don’t have a lot of historical analogs to draw from,” he said.
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