Canada’s economy could be impacted by a possible railway strike south of the border that could halt the transportation of key imports and exports, experts warn.
The threat of a U.S. railway strike intensified as roughly 4,900 union members voted to reject a tentative agreement with the National Carriers’ Conference Committee (NCCC) on Wednesday. Negotiations have centered around securing more pay, changes to sick leave policy and working conditions. U.S. President Joe Biden and members of the Cabinet have been in touch with unions and companies throughout the talks in an attempt to avoid a national railway shutdown.
Michael Gullo, vice president of policy at the Business Council of Canada, said if U.S. freight workers walk off the job, it could hurt Canada’s economy, as 70 per cent of Canadian exports are sold to U.S. buyers, and rail is crucial for the supply chain.
"Moving freight by rail is critical to Canada’s economic success," Gullo said.
Rail trade between the U.S. and Canada accounts for 16 per cent of total cross-border trade, according to data from the U.S. Bureau of Transportation Statistics.
The Association of American Railroads estimates that a shutdown could cost the U.S. economy US$2 billion a day.
“We can only assume that a $2-billion daily impact on the American economy will spill over to Canada,” Gullo said. He is also a former senior director at the Railway Association of Canada.
He added that the implications could be broad-based for key exports, including agriculture, fertilizer, energy and manufactured goods.
Should negotiations between unions and employers fail, the U.S. government has started working on a contingency plan to use trucks and air freight to move products throughout the country, U.S. Press Secretary Karine Jean-Pierre said in a briefing on Tuesday.
Moving goods across North America is complex, and involves railways interchanging with each other, and different modes of transportation working together, Gullo said. Companies and railways have commercial contracts to uphold and goods change hands several times before they arrive to market in a timely manner, he added.
One sector in Canada that would be particularly vulnerable to a U.S. railway strike is agriculture, according to Sylvain Charlebois, the senior director of the Agri-Food Analytics Lab at Dalhousie University.
“There couldn’t be a worse time for this strike to possibly take place, since right now is harvesting season,” Charlebois said.
Farmers rely on these few weeks to get their products south of the border, and without trains, this will be very difficult, Charlebois added. Among the top agricultural exports that would be impacted are corn, followed by wheat, soya, sugar and rice, he said.
Another sector that would see outsized impacts is the fertilizer industry.
“We anticipate impacts to begin as soon as yesterday,” Kayla FitzPatrick, the director of communications of Fertilizer Canada, said in an email.
She added the war in Ukraine has already had an immense impact on the fertilizer industry, and it is crucial the North American fertilizer supply does not face disruptions.
“The uncertainty created for businesses is concerning. Moving inventories is a top priority across every sector of the economy,” Maryscott Greenwood, the chief executive officer of the Canadian American Business Council, said.
She stressed the urgency to resolve the situation at a time when businesses are already struggling with inflation and supply chain constraints.
Two of Canada's largest railway companies, Canadian National Railway Co. and Canadian Pacific Railway Ltd., could face challenges in moving products across the border amid a strike.
CN Rail derives 47 per cent of its revenue from its U.S. business, either through cross-border trade, or U.S. domestic operations. The company had no comment on the strike situation.
CP Rail is not a part of the NCCC and is not involved in ongoing labour negotiations, according to a customer notice issued Tuesday.
“As such, in the event of a service interruption at other railroads in the U.S, CP will continue to fully operate in Canada as well as in the U.S., subject only to any applicable embargo imposed by any of the U.S. railroads,” the customer notice states.
CP has not yet initiated embargoes in relation to potential service disruptions stemming from U.S. labour disputes, but it is monitoring the situation to “evaluate any potential impact to shipments on CP’s network,” according to the notice.
“Other railroads have started to issue embargoes, some of which include permits, that may impact CP’s ability to move equipment from some locations on our North American network,” the notice said.
Canada's federal government is "monitoring the situation," a spokesperson for the Office of the Minister of Transport said in an email.
“The Canadian and American economies are very integrated and we are analyzing the potential impacts this could have on our economy and on Canadians. We are in contact with the United States and our stakeholders, and we encourage all parties to find a solution at the bargaining table,” a spokesperson said.
“The stakes are high for Canada and the U.S., as products need to move seamlessly back and forth across our common border in order for us to compete in the world,” Greenwood said.
-- With files from Daniel Johnson
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