Canada railway shutdown costing $341 million a day: Moody’s

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A labour stoppage closed Canada’s two main freight railways, Canadian National Railway Co. and Canadian Pacific Kansas City Ltd., on Thursday, causing significant consequences for the economy and trade.

“It’s devastating for our company and manufacturing in general,” said James White, chief executive of Wellmaster, a manufacturing and wholesale company in Tillsonburg, Ont., that produces goods for the groundwater, energy and horticultural sectors.

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His company exports across North America and globally, and he said his company is already losing money.

“A purchase order that was contingent on us being able to land certain amounts of specialty steel, and that material is in the Port of Vancouver, but because we can’t get it shipped here, that purchase order in excess of $200,000 is gone,” he said.

The manufacturing sector in Canada is also set to take a hit. The Canadian Manufacturers & Exporters estimates manufacturers are set to lose $275,000 each day of the work stoppage.

White said the ripple effects this will have across the broader economy when his sector is already in a vulnerable state due to overall economic weakness are frustrating.

The Railway Association of Canada estimates the two Canadian freight railways transport $1-billion worth of goods a day, as they own more than 80 per cent of all railway tracks in Canada, according to Transport Canada.

The overall cost of the work stoppage on the Canadian economy is estimated at $341 million per day, a rate equal to more than four per cent of the country’s gross domestic product, according to Moody’s Corp.

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“By this measure, the industries hit hardest by a rail strike would be paper and wood products, agriculture and farming, exporters, motor vehicles, metals, and quarrying,” Brendan LaCerda, director of economic research at Moody’s, said in a note to clients.

Andre Harpe, a canola and malt barley farmer who owns a 5,000-acre farm just northwest of Grande Prairie, Alta., said the impacts of the strike had already started last week when the wholesaler he sells his grain to stopped taking deliveries.

“We spent all our money last spring investing in the crop that we’ve grown, having to buy fertilizer, having to buy seed,” he said. “The thing is, now we will be scrambling to make sure we have enough storage and the right storage, because one of the details of our contracts with the grain we produce is we have to keep it in good quality.”

Harpe said the stoppage has come at the worst time for farmers since the harvest has started in Western Canada. Grain Growers of Canada estimates the grain industry is set to lose $43 million a day in the first week of the stoppage and $50 million a day during the second week.

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Businesses are now turning to the trucking industry to get their goods to market, which has many trucking companies scrambling to meet demand.

“I was talking to one trucking company yesterday, and they said they are absolutely overwhelmed,” Harpe said.

Small businesses will also be impacted. The Canadian Federation of Independent Business (CFIB) said its members are concerned about not receiving exports such as aviation gas for forest-fighting equipment, manufacturing inputs, auto parts, retail products and agricultural equipment.

“Not only will the work stoppage negatively affect shipments of raw materials and goods essential for small business operations, but it will also lead to a decreased on-shelf availability of consumer products, including grocery and drugstore essentials and even baby formula,” Dan Kelly, CFIB chief executive, said in a statement. “Some small businesses are already reporting they will need to halt operations as they will no longer be able to receive critical inputs or meet their contractual obligations to customers.”

Despite urgent calls by the federal government for all parties to reach a consensus, no deal has been reached despite months of negotiations. CN and CPKC issued a lockout notice to the 9,300 employees represented by the Teamsters Canada Rail Conference (TCRC), notifying the union of a labour stoppage if no deal was reached as of midnight on Thursday.

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TCRC also issued a strike notice to CPKC if the parties hadn’t reached a settlement by Thursday.

The main sticking points in negotiations are fatigue provisions for workers and what the union claims is a forced relocation scheme, which would have workers move across the country to fill labour shortages for months at a time away from their families.

“Without an agreement or binding arbitration, CN had no choice but to finalize a safe and orderly shutdown and proceed with a lockout,” CN Rail said in a statement. “Over the last nine months, CN has negotiated in good faith. The company consistently proposed serious offers with better pay, improved rest and more predictable schedules. The Teamsters have not shown any urgency or desire to reach a deal that is good for employees, the company and the economy.”

Business groups have noted the federal government has two tools at its disposal to end the work stoppage. For the first option, the labour minister could refer the dispute to the Canada Industrial Relations Board for binding arbitration under Section 107 of the Canada Labour Code.

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Labour Minister Steven MacKinnon initially rejected CN Rail’s request for binding arbitration a week ago.

The second option would be back-to-work legislation passed by Parliament, as it did to end a strike at Canada Post in 2018 and again in 2021 to end a strike at the Port of Montreal.

Apart from the material impact the stoppage will have on the Canadian economy, Canada’s place as a reliable trade partner is also being affected.

On Monday, the United States Chamber of Commerce issued a statement alongside the Canadian Chamber of Commerce that urged the Canadian government to prevent the rail stoppage given the two countries’ deeply intertwined supply chains.

“It’s devastating the impact on how Canada is being perceived,” White said. “People are just getting tired of Canada. We used to have a premium based on the fact that we had ‘Made in Canada’ printed on our parts; now it’s just a risk. Canada is not considered a serious trading partner anymore.”

• Email: jgowling@postmedia.com

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