Canada rail shutdown adds to multi-billion-dollar financial woes

The Canadian rail shutdown is expected to lead to higher trucking costs and bring billions of dollars of container trade to a standstill. The two North American neighbors are highly dependent on mobile trade, but consumer goods, intermediate parts, fertilizers, cement, coal, lumber, cars and more remain at a standstill due to the work stoppage of 9,000 railway union workers.

Also read: Canadian rail outage raises concerns about U.S. economic disruption

Every day, about $572 million in containerized trade flows from Canada to the U.S. Over time, customers may turn to more expensive alternatives, such as traditional road transport, to improve the situation. After months of failed negotiations, Canadian Pacific Kansas City and Canadian National Railway have locked out freight rail workers represented by the Canadian Teamsters union.

The timing couldn’t be worse, with the back-to-school season just around the corner and the holiday rush just around the corner. Employees up and down the supply chain rely on a steady flow of goods from Ford, Walmart, Nike, General Motors, Procter & Gamble, and hundreds of other companies. Ocean carriers announced contingency plans before the shutdowns, and even declared force majeure, the legal right to refuse to honor a contract agreement due to circumstances beyond their control.

Canada is the largest exporter of chemicals to the United States, and the United States imports about $24.3 billion from its northern neighbor each year. Industry insiders believe that the two sides will reach a contract settlement through negotiations, or in the worst case, the Canadian government will intervene. In the summer of 2023, the ILWU Canadian union went on strike for nearly two weeks. Nearly $380 million in trade was affected every day, and the current situation is expected to deteriorate significantly.

One looming question is how long it will take for large supply chains to resume operations once they are up and running. Experts say it takes three to five days to recover for every day of disruption. In this case, two railways were affected, so some speculate that it could take up to six to eight days.

All parties hope to reach a deal through negotiations without government interference. The talks have lasted about nine months, with the length of railway workers’ shifts and rest breaks being the most contentious sticking point.