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Tuesday, November 12, 2024

Canadian Rail Lockout: Is U.S. Trade Grounded to a Halt?

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Canada’s Rail Lockout: A $572 Million Daily Hit to US-Canadian Trade

The highly integrated trade relationship between Canada and the United States has ground to a halt as over 9,000 freight rail workers represented by the Teamsters Canada union were locked out by Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC) following months of failed negotiations. This shutdown has left billions of dollars worth of cargo stagnant, disrupting cross-border trade that accounts for 14% of total bilateral trade between the two countries.

Key Takeaways:

  • Billions in trade disrupted: The lockout is estimated to halt $572 million in daily container trade between the two nations.
  • Wide-reaching impact: The closure impacts transportation of various goods, from chemicals and auto parts to consumer goods and agricultural products.
  • Contingency plans activated: Ocean carriers and U.S. rail companies have implemented contingency plans and fees to mitigate disruptions.
  • Negotiations stalled: The two sides are at a standstill over issues surrounding working hours and rest periods for workers.
  • Government intervention possible: Logistics experts are hopeful for a quick settlement, either through a negotiated agreement or Canadian government intervention.

A Breakdown of the Economic Consequences

This lockout is causing ripples across various sectors of the US and Canadian economies. Here’s a closer look at the ramifications:

Beyond Auto Parts: A Multi-Industry Problem

The impact extends far beyond the transportation of auto parts. Dow Chemical and Ford and General Motors are relying on rail freight for their operations, while major retailers including Walmart, Target, Nike, Procter & Gamble and Canada Goose are facing disruptions in their import chains. This is impacting the supply of everything from chemicals and fertilizer to consumer goods and agricultural products.

A Significant Blow to Chemical Exports

The chemical industry is particularly vulnerable, with Univar Solutions, the largest chemical and ingredient distributor in North America, noting a potential loss of over $28.5 billion in exports to Canada. Critical chemicals such as sulfuric acid, phosphates, acetone, and sodium fluoride are all impacted. The lack of rail transport is forcing these goods onto roads, potentially driving up trucking costs and further straining supply chains.

Contingency Plans and Rising Prices

Companies are scrambling to adjust their logistics operations. Hapag-Lloyd has imposed a $350 per Bill of Lading diversion fee for imports originally destined for Canadian ports. Maersk and Norfolk Southern are also implementing revised plans. CMA CGM is rerouting vessels to US ports and limiting rail shipments. Embargoes on hazardous materials and temperature-controlled containers are being implemented across networks. These measures are likely to result in higher costs being passed on to consumers.

The Union’s Perspective

The Teamsters Canada insists that they are willing to return to the bargaining table but are awaiting a call from the railway companies. Union president Francois Laporte blames the railroads for initiating the lockout and emphasizes the need for negotiation in good faith. He also criticizes the companies’ lack of urgency and desire to reach a fair deal, comparing their behavior to "Trump University."

Stalemate Over Working Conditions

The dispute centers around working hours and rest periods for rail workers. The union is adamant about securing protections for members’ schedules. Laporte points out the companies’ decision to call for a lockout just two weeks after meeting with the Canadian Labor Minister, casting doubt on their commitment to negotiations.

Looking Ahead: Resolving the Stalemate

The impact of the lockout will continue to escalate if negotiations remain stalled. Paul Bingham of S&P Global Market Intelligence warns that a disruption lasting more than a day or two could have increasingly severe consequences. The longer the stoppage, the more difficult and expensive it will be to recover.

The potential for government intervention to bring the two sides together is high. However, the economic implications of a lengthy lockout are significant, with potential to disrupt back-to-school and holiday seasons. The pressure is on both parties to find common ground and prevent further damage to the already strained supply chain.

Article Reference

Amanda Turner
Amanda Turner
Amanda Turner curates and reports on the day's top headlines, ensuring readers are always informed.

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