Canada government reluctant to intervene as freight rail shutdown begins

TORONTO (ICIS)–As the unprecedented work stoppage at both of Canada’s freight railroads began on Thursday at 00:01 Eastern Time, it remains unclear how or when it may end as the government is reluctant to intervene.

• Long-awaited rail shutdown starts
• Government reluctant to intervene
• Industry warns of economic and public health impacts

Following lockout and strike notices, more than 9,000 workers at railroads Canadian Pacific Kansas City (CPKC) and Canadian National (CN) were locked out at midnight, labor union Teamsters Canada Rail Conference (TCRC) and the rail companies confirmed.

TCRC said that the parties were still far apart in their negotiations but added that it would remain at the bargaining table.

CPKC called on the government for binding arbitration to end the dispute, but Canada’s federal labor minister last week already rejected a similar call by CN.

Speaking to Canadian public broadcaster CBC/RDI a few hours before the rail shutdown began, minister Steven MacKinnon said that the government would rely on the collective bargaining process to resolve the dispute, which is about wages, benefits, work scheduling and safety issues.

Collective bargaining was “a tried-and-true method” that helped create prosperity for Canadian companies and workers and build the country over decades, he said.

“It works when people put the work in that is required to get a deal, to make those compromises at the table, and those are the most enduring results, and that’s our plan, that’s the only plan,” the minister said.

Asked about using “back-to-work legislation” to end the dispute, he noted that Parliament is currently not sitting.

However, the government was “always prepared for any eventuality”, he indicated but did not provide details.

INDUSTRY SAYS GOVERNMENT MUST ACT NOW
Canadian and US trade groups, including the US Chamber of Commerce, have called on the Canadian government to step in and end the dispute, potentially through binding arbitration, or if need be, back-to-work legislation.

The two railroads each day ship goods worth more than Canadian dollar (C$) 1 billion (US$735 million), and the shutdown threatens to shut down the country’s entire economy and harm trade with the US, the groups said.

Bob Masterson, president of trade group Chemistry Industry Association of Canada (CIAC), said that the rail disruption was no longer an ordinary labor dispute that could be resolved through bargaining between two parties, with the government standing on the sidelines, but rather involved important public safety and health issues.

One of the railroads stopped accepting critical chemicals, in particular chlorine and derivatives for use in drinking water, already on 12 August, as it began winding down operations ahead of the work stoppage, and the other railroad stopped accepting those products shortly afterwards, he said.

With about 95% of the population relying on treated drinking water, as of 12 August the rail dispute therefore became “the interest of every Canadian across the country”, Masterson said.

Due to its dangerous nature, under law chlorine can only be moved by rail, he noted.

The country was “on the road to a public health crisis” and municipalities may soon need to issue water boil advisories, “if you don’t interrupt this now and return service on the railways,” he said.

“The train towards a crisis is moving, it gets faster and harder to stop every day, and the time to stop it is now, and the only people that have the responsibility and the tools and authority to do so are the government of Canada,” he said.

The chemical industry was at the front end of this supply squeeze, “and we want all elected officials to be focused on that”, he added.

HARM TO THE ECONOMY
In a separate statement to ICIS, trade group CIAC reminded of the impacts of the rail disruption on the overall Canadian economy, the chemical industry, and chemical trade with the US.

In Canada, about 80% of chemical production goes into export, with about 80% of those exports going to the US, according to CIAC.

At the same time, Canada-based chemical producers rely on rail to ship more than 70% of their products, with some exclusively using rail.

US-Canada chemical trade, 2023:

• Canadian exports of industrial chemicals to the US: Canadian dollar C$18.9 billion, according to CIAC data.
• Canadian imports of industrial chemicals from the US: C$17.5 billion.

More than C$76 million of industrial chemical products move on Canada’s rail network daily, which comes to about C$28 billion a year.

Industrial chemicals include basic chemicals, synthetic resins, rubbers and synthetic fibers. Chemicals account for nearly 10% of total Canadian freight rail traffic.

Furthermore, the chemical industry’s customers in the automobile, forest products, construction, minerals and other industries rely on rail to ship their products.

According to estimates by the Conference Board of Canada, a two-week rail shutdown would result in a C$3 billion loss in nominal GDP this year.

A four-week shutdown could lower GDP by nearly C$10 billion in 2024 and result in nearly 50,000 job losses, the board said.

The lost income would be felt by households, businesses and government, the board said.

Canada’s trucking industry was not a viable alternative to rail as it does not have the required capacity or enough drivers, the board noted.

Industry commentators said that the government could not allow the rail stoppage to last more than 7-10 days, after which it would likely need to use back-to-work legislation or binding arbitration to end the dispute.

However, binding arbitration takes time, and even with Parliament sitting and working at an expedited pace, it would take a couple of days for back-to-work legislation to become law.

In another complication, Prime Minister Justin Trudeau’s Liberal-led minority government relies on support from the left-leaning New Democratic Party (NDP) to keep it in power.

The NDP, however, is close to labor unions and has warned Trudeau against imposing binding arbitration or back-to-work legislation.

While the work stoppage started on 22 August, its negative impacts for chemical producers and other industries kicked in earlier as they needed to rearrange logistics and prepare for potential plant shutdowns.

In the chemical industry, it can be costly to ramp down and restart large petrochemical plants as they are in continuous operation and require a reliable, uninterrupted rail service.

Depending on how long a rail disruption lasts, it can take weeks, if not months, for the chemical producers to get production rate back to normal.

The following table by the American Association of Railroads (AAR) shows Canadian freight rail traffic, including chemicals, for the week ended 17 August and the first 33 weeks of 2024:

(US$1 = C$1.36)

Thumbnail photo source: CN

Focus article by Stefan Baumgarten