Chemtrade hopes for short Canada rail disruption; minister declines to intervene

TORONTO (ICIS)–Chemtrade Logistics hopes that a freight rail disruption in Canada, should it occur, will be short, the top executives of the Toronto-based industrial chemicals producer said in a webcast earnings call on Thursday.

Meanwhile, the country’s federal labor minister rejected a call for binding arbitration to settle the rail labor dispute that has been looming over Canada’s chemicals and other industries for months now.

Canada’s two major railroads – Canadian Pacific Kansas City (CPKC) and Canadian National (CN) – have said that they may start to lock out workers on 22 August if no progress is made on reaching new collective agreements.

Ahead of a potential lockout, the railroads already started to embargo certain shipments.

While hoping that any rail disruption will be short, Chemtrade CEO Scott Rook and CFO Rohit Bhardwaj would not speculate how long a disruption may last or how long the company will be able to operate without rail services.

CHLORINE
Chemtrade is beginning to see impacts “even as of today” as poison inhalation hazards (PIH) materials are no longer moving on rail, Rook noted.

The PIH issue, in particular chlorine for use in drinking water treatment, was being discussed at the highest level of governments this week in both Canada and the US, Rook said, adding that Chemtrade thinks that authorities will consider chlorine for drinking water as “essential”.

Chemtrade’s North Vancouver chloralkali plant plays an important role in ensuring supplies of liquid chlorine for use in safe drinking water in both western Canada and the US West, Rook stressed.

The plant produces more than 40% of all available liquid chlorine in Canada, and regionally it produces more than 70% of the liquid chlorine used to treat drinking water in Canada’s British Columbia and Alberta provinces, he said.

A declaration of chlorine as essential, however, would contradict last week’s ruling by  the Canada Industrial Relations Board (CIRB) that no essential freight rail activities needed to be maintained in case of a rail strike or lockout.

Canada’s chemical and other industries had urged the tribunal to order that minimum rail services be maintained during industrial action to ensure the continued rail delivery of essential goods such as fuels, food or chlorine for water-treatment facilities. During the CIRB process the right to a legal strike or lockout was suspended.

CUSTOMERS STOCKED UP AHEAD OF DISRUPTION
The market has been expecting a rail disruption in Canada for several months and customers therefore raised their inventories in anticipation of a disruption, the executives said.

The volumes customers brought forward contributed “a meaningful number” to Chemtrade’s stronger than expected Q2 results, CFO Bhardwaj said.

The company raised its guidance for 2024 full-year adjusted earnings before interest, tax, depreciation and amortization (EBITDA) to Canadian dollar (C$) 430-460 million (US$314-336 million), from previous guidance of C$395-435 million.

The new guidance assumes no rail disruption at its upper point but some disruption at the mid- and lower points, Bhardwaj said.

Even if there is no strike or lockout, the looming industrial action is causing disruptions in supply chains as companies need to prepare, he added.

Canadian chemical producers rely on rail to ship more than 70% of their product, with some exclusively using rail, while in the fertilizer industry 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, midstream energy firms Pembina and Keyera, as well as fertilizer major Nutrien and others raised the looming rail disruption as a concern, and railroad CN reduced its 2024 earnings guidance, citing the impact of the labor uncertainty.

MINISTER DECLINES TO INTERVENE
Meanwhile, Canada’s Federal Labor Minister Steven MacKinnon said on Thursday that he will not accede to a request by CN to intervene and refer the dispute to the CIRB for binding arbitration.

“The Government firmly believes in the collective bargaining process and trusts that mutually beneficial agreements are within reach at the bargaining table,” the minister said.

(US$1 = C$1.37)

With additional reporting by Adam Yanelli

Thumbnail photo source: Chemtrade Logistics