Canada rail disruption could shut economy down, harm trade relations with US

TORONTO (ICIS)–US and Canadian chemical distributors and other trade groups are warning about potentially “catastrophic” impacts of a rail disruption that could start in Canada next week.

Railroads Canadian Pacific Kansas City (CPKC) and Canadian National (CN) said they may start to lock out workers starting Thursday, 22 August, if no progress is made on reaching new collective agreements.

Ahead of the potential lockout, the railroads have already embargoed certain shipments.

The US Alliance for Chemical Distribution (ACD) and Canadian group Responsible Distribution Canada (RDC) said the disruption would affect “a myriad of hazardous materials”, in particular chlorine for drinking water.

Municipalities do not have weeks of chlorine stocks, meaning that a supply disruption will pose a risk to public health and safety, the groups said.

ACD and RDC member companies serve as intermediaries for municipalities, receiving rail shipments of chlorine and other water treatment chemicals and then shipping them to end-users.

The chemical distribution trade groups said Canada’s labor minister, Steven MacKinnon, needed to intervene.

However, he rejected the call by CN to step in and refer the dispute to the Canada Industrial Relations Board (CIRB) for binding arbitration.

Canada’s government believes in the collective bargaining process “and trusts that mutually beneficial agreements are within reach at the bargaining table,” the minister said on Thursday.

In a ruling last week, the CIRB held that no rail services, even for chlorine, needed to be maintained during a strike or lockout.

Canada’s chemical and other industries had urged the CIRB to order that minimum rail services be maintained during any industrial action to ensure the delivery of chlorine to water-treatment facilities, as well as other essential goods and fuels.

For chlorine, a chlor-alkali plant in North Vancouver supplies both Western Canada and the US West with liquid chlorine for use in drinking water.

TRADE WITH US AT STAKE
John Corey, president of the Freight Management Association of Canada, said a rail disruption would not only shut Canada’s economy down but it would also affect the US, given the high level of integration between the two countries.

CN and CPKC are Canada’s only two freight railroads and industry has no alternative to rail to ship product into and out of the country, Corey said in a webcast media briefing.

A rail disruption would further hurt Canada’s reputation in the US as a “legitimate trading partner”, he warned.

“The Americans are looking up at us and saying, ‘What are you doing to fix this?’,” he added.

The labor contracts at both CN and CPKC expired on 31 December 2023 – but the issue has yet to be resolved as Canada seems to be “sleep-walking”, he said.

He reminded of the damage caused by last year’s 13-day strike at Canada’s West Coast port strike and the 2022 blockade of the Ambassador Bridge from Windsor in Ontario to Detroit, Michigan – events from which Canada seems to have “learned very little”.

If Canada continues to have this kind of disruptions and is unable to deliver product to its largest trading partner by far, the US would have to think of alternatives, he said.

The current labor uncertainty has already impacted supply chains, he said.

If the rail service shuts down on 22 August, ports will shut down within two days because no product is able to get into and out of ports, he said.

For each day that the rail service is down it will take one week to get supply chains back to normal, meaning that a 10-day disruption could impact the supply chain until the end of the year, he noted.

Canada’s government needs to take “some action” if the rail service is disrupted  next week.

“Back-to-work legislation” was one option, but it was also an admission that the labor negotiation process is flawed, he said.

Binding arbitration, which is used to settle labor disputes involving police or firefighters, would be a better option, but the government seems to have ruled that out, he said.

CHEMICALS AND RAIL
The bulk of Canada’s chemical production is exported to the US and Canadian chemical producers rely on rail to ship more than 70% of their product, with some exclusively using rail.

Without a rail service, chemical producers could be forced to shut down plants within a week, trade group Chemistry Industry Association of Canada (CIAC) has said.

The Canadian chemical sector moves over 500 railcars/day and it requires over 1,500 road-based tanker trucks to carry the same load, according to the CIAC. However, the trucking industry does not have that kind of capacity.

Furthermore, the movement of many chemical products is restricted to rail due to their hazardous nature.

According to CIAC data, more than Canadian dollar (C$) 76 million (US$55 million) of industrial chemical products move on Canada’s rail network daily, or C$28 billion each year. Chemicals account for nearly 10% of all Canadian rail traffic.

Furthermore, the chemical industry’s customers in the automobile, forest products, minerals and other industries ship most of their product by rail.

Elsewhere, about 75% of all fertilizers produced and used in Canada is moved by rail.

The following table by the American Association of Railroads (AAR) shows Canadian freight rail traffic, including chemicals, for the week ended 10 August and the first 32 weeks of 2024:

In recent earnings calls, chemical company Chemtrade Logistics, midstream energy firms Pembina and Keyera, fertilizer major Nutrien and others have raised the rail disruption as a concern, and railroad CN reduced its 2024 earnings guidance citing the impact of the labor uncertainty.

The rail disruption threat comes as Canada’s economy is facing a shallow downturn.

(US$1 = C$1.37)

With additional reporting by Adam Yanelli

Thumbnail photo source: Canadian National