North American Strikes Halt Rail and Port Operations

Freight operations in Canada have come to a grinding halt as simultaneous strikes by rail workers severely disrupt the nation's supply chains, which are still reeling from previous setbacks. These disruptions are creating cascading effects across various industries, exacerbating delays, shortages and rising costs.

Canadian National Railway Co. (CN) and Canadian Pacific Kansas City Ltd. (CPKC), the country's two largest rail companies, have locked out 9,300 workers after contract negotiations collapsed. The resulting cessation of freight traffic is now crippling supply chains that are heavily reliant on rail for the movement of goods, especially in sectors like agriculture, mining and retail.

The stoppage has left critical commodities such as grain, minerals and consumer goods stranded at ports, warehouses and production facilities, further straining an already-fragile supply chain.

Companies are facing mounting challenges in sourcing materials and delivering products on time, leading to increased pressure on alternative transport modes like trucking, which are also experiencing capacity constraints.

The lockouts, which involve engineers, conductors and yard workers, have also led to significant disruptions in passenger services across major Canadian cities like Toronto, Montreal and Vancouver, adding another layer of complexity to the logistical challenges.

Negotiations between the rail companies and the Teamsters Canada Rail Conference (TCRC) had been tense for months.

The talks extended late into Wednesday (21 August) night but collapsed just before the midnight deadline, with both sides pointing fingers at each other.

Teamsters President, Paul Boucher, accused the railways of being indifferent to the broader impact, saying: "The railroads don't care about farmers, small businesses, supply chains or their own employees. Their sole focus is boosting their bottom line, even if it means jeopardising the entire economy."

CN, however, defended its position, claiming it had negotiated in good faith, offering better pay, improved rest periods and more predictable schedules.

The company expressed frustration with the union’s stance, stating: "The Teamsters have not shown any urgency or desire to reach a deal that is good for employees, the company and the economy."

CPKC echoed similar sentiments, criticising the union’s demands as "unrealistic" and calling for binding arbitration. Business groups have supported this call, urging government intervention to prevent further economic damage.

Canadian Prime Minister Justin Trudeau has urged both parties to resolve their differences at the bargaining table, stressing the significant economic and social consequences that a prolonged disruption could bring.

Far-reaching economic implications

The economic fallout from the rail stoppage is extensive.

The Railway Association of Canada estimates that CN and CPKC collectively transport US$1bn worth of goods daily.

Key sectors like auto-making, energy and construction – all heavily reliant on rail transport – are facing significant operational challenges. Shipments had already been halted in anticipation of the work stoppage, severely disrupting the flow of goods.

US railways are also refusing Canada-bound shipments, worsening the situation – and the disruption isn’t confined to Canada.

American railways, interconnected with the Canadian network, have had to refuse Canada-bound shipments, leading to a ripple effect across North America. CPKC’s network, which reaches the Gulf of Mexico and several Mexican ports, means the strikes could have significant cross-border impacts.

Canadian ports are now bracing for container pile-ups as cargo remains unmoved, potentially leading to severe congestion. Some carriers might be forced to reroute shipments to US ports to avoid delays, further complicating the logistics landscape.

“Shippers have brought forward orders in light of the Red Sea crisis," explains Niki Frank, CEO, DHL Global Forwarding Asia Pacific.

"Concerns around port congestion and possible strikes or union action at ports in Europe and the United States over the summer and into the peak season add to the capacity pressure. This is creating an elongated peak season and tight ocean freight markets with new capacity additions quickly absorbed by southern African diversions."

Impact on daily life and the logistics industry

The strikes have hit more than just the freight sector, with over 32,000 rail commuters in Vancouver, Toronto and Montreal experiencing significant disruptions.

In Vancouver, TransLink’s West Coast Express has been affected, while in Toronto, Metrolinx's Milton line and the Hamilton GO station on the Lakeshore line have been impacted. In Montreal, Exo's Candiac, Saint-Jerome and Vaudreuil/Hudson routes are among the affected lines.

As the strikes loom, companies are scrambling to mitigate the impact.

Hapag-Lloyd, a major player in container shipping, has introduced a diversion fee of US$350 per Bill of Lading for containers bound for Canadian ports with inland delivery in the U.S. The company is also advising customers to explore alternative trucking options for deliveries within Canada and to consider US ports as an alternative for exports.

Meanwhile, CMA CGM has issued a notice detailing potential rerouting of vessels to US ports and restrictions on certain rail shipments. The company has implemented embargoes on specific intermodal shipments, including hazardous materials and temperature-controlled containers, across its network.

The rail strike in Canada could have a significant ripple effect, not only disrupting trade within the country but also affecting its key trading partners. Many of Canada’s major exports, such as grain and manufactured goods, are transported by rail to ports for shipment overseas.

A strike disrupts this flow, leading to delays in exports and causing congestion at ports as containers pile up. Similarly, imported goods, which rely on railways for distribution across the country, face delays in reaching their final destinations, leading to supply chain bottlenecks and increased costs for businesses.

Frank Kenney, Director of Industry Solutions at Cleo, highlights the gravity of the situation: "For years, businesses across North America have depended heavily on Canada’s extensive rail network to transport essential goods.

"But as we've seen from past disruptions, this kind of dependence can leave supply chains dangerously exposed, particularly in a country like Canada where population and resource hubs are few and far between."

The logistics industry faces a daunting challenge, with companies needing to adapt swiftly to maintain the flow of goods across the continent.

“Given our ongoing forecasts of elevated inventories, we anticipated a potential decline in freight rates in the near term," comments Christian Roeloffs, Co-Founder and CEO of Container xChange, an online marketplace for container trading and leasing based in Hamburg, Germany.  

"However, with the looming strikes at Canadian railways and US ports, we may see an immediate uptick in freight rates as market participants brace for significant disruptions. This is a common reaction to potential disruptions, as uncertainty drives up costs.

"The possibility of simultaneous strikes at US ports and Canadian railways present a perfect storm for North American trade."

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