Unprecedented Canadian rail strikes could have significant impact on U.S. economy

Something happening more than a thousand miles away could have some interesting impacts on North Texas. In the early hours of Thursday, freight traffic on Canada's two largest railways came to a stop for the first time ever.

The U.S. and Canadian chambers of commerce have warned that the rail stoppage could have a "significant impact" on their economies, and experts in the states believe it could also significantly affect the U.S. supply chain.

“The U.S. Chamber of Commerce and Canadian Chamber of Commerce are calling on the Government of Canada to immediately intervene to avert a disruption in the Canadian rail network. A stoppage of rail service will be devastating to Canadian businesses and families and impose significant impacts on the U.S. economy,” the groups said in a statement.

The Canadian National Railway Company and Canadian Pacific Kansas City locked out over 9,000 engineers, conductors, and yard workers after the parties failed to agree on a new contract before the midnight deadline on Wednesday night. Strikers, among other grievances, demand a better quality of life and improved scheduling.

Click here to read more about the complexities of negotiations.

The rail stoppage is bad news for the U.S. supply chain because experts said U.S. and Canadian rail networks are closely intertwined.

"Canadians move a lot of their product by rail because of the mass amounts of area that they have to cover. Unlike here in the United States, where a majority of our product is moved by trucks, rail is a very primary method of transportation for Canada,” said Dr. Patti Jordan, a professor in the Supply Chain Management Department at Texas Christian University. “With that said, with the United States-Mexican-Canadian freight agreements that we have, a lot of product flows from Canada to the U.S. to Mexico and back and forth. In today's world, all three of us are pretty much intertwined."

The two rail companies haul a combined $1 billion in goods daily. Shipping operations south of the border also rely on the two rail giants because the tracks run to the Gulf of Mexico and onward to ports in Mexico.

The industries impacted include:

• Lumber & timber — This could hit Texas's construction and home-building industries.
• Fertilizers — A lack of available fertilizers could impact farmers and other related operations in the United States as they prepare for fall crops and could impact yields.
• Autos — This industry already struggled during the pandemic, so the supply chain could feel the pinch if the stoppage lasts for weeks.
• Consumer goods — Canadian ports fear cargo will pile up on the docks, prompting some carriers to reroute to U.S. terminals.
• Coal — Coal is one of Canada's top goods transported by rail.
• Food grains — About $50 million of grain moves daily, which could impact customers worldwide who need food ingredients.
• Fuel and chemicals — Many petrochemicals, petroleum, and oils are made in Canada and shipped to the U.S. According to the Associated Press, depending on how many supplies they have on hand and how much storage space they have for finished products, some chemical plants may have to start cutting production or even consider shutting down quickly.

"Most companies will be fine for a week or so -- they have the resilience, they have the stockpiles to be able to move it over through that," said Jordan.

However, there's also a risk that the cost of goods could increase because of the strike.

"Companies are going to have to figure out what they're going to do with the additional costs that this may cost them. And do they absorb that cost into their profits or do they pass that on to the consumer?" said Jordan.

Truckers might be able to absorb the increased demand in the meantime, but they cannot replace the long-haul distribution that trains handle.      

"If it's something that's more prolonged, that's when you will start seeing a rippling effect through the industries. So you may not see it immediately. It may take weeks for it to ripple through the supply chain,” said Jordan.

She predicts this strike could last up to two weeks. Anything beyond that could push the Canadian economy to the brink.

"I don't think the Canadian economy could handle a longer strike than that … If you look back in history, the last time there was a strike that lasted over nine days was in 2012 in Canada, and that one, the government did come in and intervene," said Jordan. "So there is a possibility that if the strike goes for very long that the government, the Canadian government would intervene and possibly require the workers to go back to work."

“The Canadian economy can't handle more than that before the government will have to intervene,” she said.

Pressure from industry groups and both governments to resolve this has been mounting for weeks, so there was anticipation that a strike could happen. That’s why many shipments were pre-emptively stopped to avoid stranding cargo, especially dangerous goods.

Negotiations have been ongoing since last November, and contracts expired at the end of 2023. They were extended as talks continued.

Outside of cargo, more than 32,000 commuters in Toronto, Montreal, and Vancouver will have to figure out a way to get to work on Thursday as well, according to the Associated Press. They normally rely on CPKC dispatchers to direct those trains over that freight railroad’s tracks.