With Canada’s railway system grinding to a halt due to a labour dispute, Canadian business groups are worried about the massive impact this is going to have on the national economy.
Canadian National Railway Co. and Canadian Pacific Kansas City Ltd. locked out 9,300 engineers, conductors and yard workers on Thursday after the parties could not come to a new contract agreement before the midnight deadline.
A report by the Conference Board of Canada suggests a two-week rail disruption would result in a $3 billion loss in nominal GDP this year in Canada.
The loss would be felt by both households, with a $1.3 billion loss in labour income, and businesses, with a $1.25 billion loss in corporate profits, said the Conference Board.
Gary Newbury, a retail supply chain expert, strategic advisor and delivery executive with RetailAID, said It is clear, the public do not understand how integrated the rail mode of transportation is in getting stuff onto their local retail shelves, unfortunately, they are about to have an armchair lesson.
“The rail companies have spent the last few days refusing various categories of goods (perishables, hazardous et al) onto their networks to avoid being left holding them during the lock-out,” he said.
“Frankly, at short notice, the road transportation network simply does not have the surge capacity to cope with the sheer scale of volume that railroads shift across the country everyday (estimated $1 billion/daily) and with a harvest looming, and retailers doing their final moves for peak trading, there will be an almighty fight between categories of shippers to secure capacity to get their products to market. By the end of the weekend, road freight charges are set to escalate rapidly, not dissimilar to the situation that container prices did during the pandemic.
“From a retail point of view, this development will be devastating for their “just in time” logistics. Not dissimilar to when the ports were on strike, the implications will only be much more severe with stock either held at port with limited options to move from port onto the road network, or staged on cross country routes, now inaccessible. Inbound container ships may be held “at sea” as there will not be enough capacity to process their freight, which means even if the strike is called off over the next week, there will be a delay before the normal flows resume. For each week of delay, it could take four to six weeks for the flow to resume.”
Newbury said moves between major cities will become hampered very quickly as a significant proportion of freight is moved via rail which is low cost and reasonably reliable.
“Very soon shelves of perishables will run dry, promotions will cease, prices may start to rise sharply and we see retailers taking the opportunity to clear their excess stock held in their warehouses to fill the gaps on the shelves,” he added.
“The challenge for retailers and consumers alike is to keep a calm head and trust the railroad companies and unions will be persuaded to land on a negotiated settlement and resume operations, however, if this has not happened by early next week, and positions are hardened by the other party’s negotiating position, the country could be looking at severe challenges with food, healthcare, fuel and heating oils, essential maintenance items affecting the whole population, particularly those fixed and low-income households, and the most vulnerable in our society.”
The complete shutdown of Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC) operations will have a massive impact on Canada’s economy, small businesses and consumers, said Dan Kelly, President and CEO of the Canadian Federation of Independent Business.
“CFIB has already been hearing from businesses concerned about not getting essential shipments of aviation gas for forest fighting equipment, manufacturing inputs, vehicle parts, retail products, and agricultural equipment,” he said.
“Not only will the work stoppage negatively affect shipments of raw materials and goods essential for small business operations, but it will also lead to a decreased on-shelf availability of consumer products, including grocery and drugstore essentials and even baby formula. Thousands of commuters in Canada’s three biggest cities will be affected as well. Some small businesses are already reporting they will need to halt operations as they will no longer be able to receive critical inputs or meet their contractual obligations to customers.
“Small businesses will be left with very few alternatives, especially as trucking capacity is already strained and shipments are now stuck in the system. And as many businesses are already very weak due to increased post-pandemic debt, weak demand and dramatically higher operating costs, this couldn’t come at a worse time.
“We’re calling on the federal government to intervene immediately by introducing binding arbitration or enacting back-to-work legislation. Longer term, Canada needs a better way of addressing labour disputes for critical supply chain industry players.”
The Conference Board of Canada has modeled what the potential impacts of a two-week stoppage would be on Canada’s overall economy.
Key insights include:
- Mining, agriculture, manufacturing take the brunt of the hit among goods producing industries, while wholesale trade and transportation suffer the bigger losses among service producers
- Canada’s trucking industry is already struggling with congestion and a shortage of drivers, making it difficult for Canadian importers and exporters to find alternate transportation if rail stoppages occur
‘Lower economic activity would also erode government revenues. Federal government revenues would fall $391 million while aggregate provincial and territorial government revenues would be eroded by $533 million,” said the Conference Board report.
“The potential impacts are widespread across industries. Mining, agriculture, manufacturing take the brunt of the hit among goods producing industries, while wholesale trade and transportation suffer the bigger losses among service producers. The impact on transportation goes beyond rail since port traffic, trucking and other segments are highly dependent on rail.
A two-week strike would reduce Canada’s GDP by 0.1 per cent this year. If the strike were to last twice as long, the negative economic repercussions would more than double, forcing Canadian exporters and other industry players into more substantial production cuts. A four-week strike could lower GDP by nearly $10 billion in 2024, and result in 49,000 job losses on average in the year. Our economic outlook for Canada in 2024 is weak, with much of the support for any positive growth relying heavily on trade.”
Earlier this week, the Canadian Chamber of Commerce, the Business Council of Canada, the Canadian Federation of Independent Business and Canadian Manufacturers & Exporters released a joint statement calling on the federal government to take immediate action to ensure the continuation of rail services.
“The Government of Canada has a responsibility to protect the Canadian public and maintain national security, and it is time to act decisively to fulfill that obligation,” it said.
“Under section 107 of the Canada Labour Code, the Minister of Labour can refer the dispute to the Canada Industrial Relations Board (CIRB) for binding arbitration and prohibit a strike, lockout or end any ongoing stoppage pending a resolution. Alternatively, the government can also reconvene Parliament and introduce back-to-work legislation.
“This is not about siding with either party; it is about standing up for Canadians. The federal government must show leadership and act before our trains – and with them, our economy – grind to a halt. Otherwise, the steep price of inaction will be paid by Canadian families, workers, and businesses.”
A recent CME survey of 226 manufacturers revealed the destructive impacts that a nationwide rail stoppage will have on Canada’s industrial economy:
- 66 per cent of manufacturers said a strike will have severe consequences on their operations.
- 92 per cent of manufacturers expect delivery delays, 76 per cent expect to face increased costs, 57 per cent expect reduced sales and 49 per cent say it will reduce competitiveness.
- Manufacturers would incur an average financial impact of $275,000 each day of a stoppage (combined decreases in revenues and increases in expenses).
- 77 per cent of manufacturers believe these labour stoppages have negatively influenced foreign investors’ views of Canada.
- 88 per cent of manufacturers support federal government intervention to prevent strikes at critical infrastructure sites, including railways.
