Canadian freight railroads were shut down, a potential blow to North America’s economy

New York
CNN
—

Canada’s two major freight railroads have halted operations, locking out 9,000 members of the Teamsters union that operates the trains and facing a potential blow to both the Canadian and U.S. economies, according to management at two companies.

Almost a third of the freight handled by two railroads, Canadian National (CN) and Canadian Pacific Kansas City Southern (CBKC), crosses the US-Canadian border, and the shutdown could disrupt operations in many US industries, including agriculture. Autos, home construction and energy, depending on how long the shutdown lasts.

„The CBKC protects Canada’s supply chains and all stakeholders from further uncertainty and widespread disruption, and if this dispute drags on, it could lead to work stoppages during the peak shipping period of the fall.” The company said in a statement Thursday shortly after the lockdown began at 12:01 a.m. ET. „Delaying a resolution to this labor dispute will only make things worse.”

Shutdown Given how closely linked the economies of the two countries are, many industries depend on the free movement of goods across borders for their efficient operations.

For example, some U.S. auto plants may be temporarily closed if Canadian plants cannot make engines, transmissions, or stampings. American farmers could see shortages of fertilizers and American water treatment plants near the Canadian border could run out of the chlorine they use to treat water.

This is the first time that two major Canadian railway lines have been shut down at the same time due to a labor dispute. The industry’s most recent strike is a 60-hour strike at Canadian Pacific in 2022. Before that, there was a nine-day strike at the Canadian National in 2019.

Thursday’s action is different from a strike, in which union members refuse to go to work. In this case, the administration says nearly 9,000 Teamsters cannot work.

CPKC spokesman Patrick Waldron said it would be better for the union to suspend operations now and come to an end rather than go on strike later this fall.

„We’re up against the fall peak shipping season. You have a new Canadian grain crop coming in, the first not affected by drought in two years,” Waldron told CNN ahead of the lockout. Containers arriving at ports contain Christmas presents. If it pushes further into the fall shipping season, the consequences will be dire.

The Teamsters union says it wants a deal both sides can live with, but the railroads’ demands would reduce rest levels and increase safety risks.

„Throughout this process, CN and CPKC have compromised rail safety and are willing to tear families apart to make an extra buck. The railroads don’t care about farmers, small businesses, supply chains, or their own employees. Their only focus is boosting their bottom line, even if it puts the entire economy at risk. Paul Boucher, president of the Teamsters Canada Rail Conference, said in a statement early Thursday.

But the railroads denied the changes they were seeking would increase safety risks, saying all the plans would provide more safety safeguards than required by recently strengthened Canadian regulations.

The companies said it was the union’s fault for not reaching an agreement before the deadline. They both called for the government to intervene and refer the dispute to binding arbitration, which it has so far refused to do.

Chambers of commerce in both the United States and Canada issued a joint statement Tuesday calling on the Canadian government to take action to keep the railroads running.

„Discontinuation of rail service would be devastating for Canadian businesses and families and impose significant impacts on the U.S. economy,” they said. „With significant two-way trade and deeply integrated supply chains between Canada and the United States, any significant rail disruption would affect the livelihoods of workers in many industries on both sides of the border.”

Economists say the trucks don’t have enough capacity to handle the freight typically carried by Canadian railroads.

A Tuesday report from Andersen Economic Group, a Michigan research firm that specializes in estimating the economic impact of strikes, said the three-day strike could cost $300 million. (407 million Canadian dollars) in economic damage, the seven-day strike could bring losses of over $1 billion (1.4 billion Canadian dollars).

A shutdown of only a few days would reduce the economic impact but still cause problems, said Kristin Dziczek, policy adviser in the research, policy and public engagement division of the Federal Reserve Bank of Chicago.

„It will take weeks to resolve issues caused by a few days of shutdown because things will end up where they should be,” he said.

Due to the risk of a strike, the two railways stopped exporting various hazardous materials last week. They were stuck on trains unable to deliver. That’s already causing some disruption, according to John Drake, U.S. Chamber vice president of transportation, infrastructure and supply chain policy.

„We are already hearing that businesses are not seeing their shipments move,” he said.

Railway spokesmen said management had to move forward with lockout plans because the union could not wait to strike on them with the 72-hour notice required by Canadian law.

„We can’t shut down a rail network by flipping a switch,” Canadian National’s spokesman Jonathan Abegasis told CNN Wednesday ahead of the shutdown. „We need to initiate a safe and secure shutdown.”

Canada doesn’t have the same railway labor law as the U.S., which allows Prime Minister Justin Trudeau to block a strike or lockout while a committee weighs both sides’ demands and makes recommendations. That’s what happened in 2022 when President Joe Biden and Congress each took action To prevent 13 railroad unions from striking at four major US railroads.

Canadian Labor Minister Steve McKinnon Union and management negotiators have met in recent days in an unsuccessful attempt to reach an agreement. He has the authority to refer the matter to binding arbitration, which is requested by the railroads and opposed by the unions. But so far, the Trudeau administration has rejected that option.

„We hope he will reconsider his position,” CN’s Abecasis said.

At a press conference Thursday, Canadian Prime Minister Justin Trudeau would not commit to that move. He said MacKinnon was directly involved in trying to find a way to end the shutdown.

„We’re not taking this lightly because Canadians across the country are concerned about this,” Trudeau said. „We will soon be talking about what we are doing to ensure that the right solution is found for the economy as soon as possible.”

— CNN’s Paula Newton contributed to this report.

This story has been updated with additional context and reporting.