Canada’s freight train shutdown to end as government orders arbitration of labor dispute

Freight trains in Canada were expected to roll again soon after the government forced a contract dispute into arbitration Thursday, averting potentially dire economic consequences for businesses and consumers across the country and in the U.S.

Labour Minister Steven MacKinnon announced the decision to order the arbitration between the country’s two major freight railroads — Canadian National and CPKC — and Teamsters Canada Rail Conference, the union representing nearly 10,000 engineers, conductors and dispatchers.

MacKinnon’s announcement came moments after The Associated Press broke the news publicly, citing an official familiar with the situation who was not allowed to speak publicly before the announcement.

Both CN and CPKC have said that once the dispute enters arbitration the trains will be able to move again, but it wasn’t immediately clear how quickly that would happen. MacKinnon said he expects it will be within days.

The railroads locked out their employees after a 12:01 a.m. EDT deadline to resolve the dispute with the union passed without agreements.

Talks resumed later in the day — as workers picketed outside and business groups urged the government to force the arbitration.

MacKinnon said the government wanted to give negotiations every chance to succeed, but ultimately the economic risk was too great to allow the lockouts to continue. He had declined to order arbitration a week ago.

“Canada’s economy cannot wait for an agreement that has been delayed for a very long time and when there is a fundamental disagreement between the parties,” he said.

All of Canada’s freight handled by rail — worth more than $1 billion Canadian (US$730 million) a day and adding up to more than 375 million tons of freight last year — stopped Thursday along with rail shipments crossing the U.S. border. About 30,000 commuters in Canada were also affected because their trains use CPKC’s lines. CPKC and CN’s trains continued operating in the U.S. and Mexico during the lockout.

Many companies in both countries and across all industries rely on railroads to deliver their raw materials and finished products, so they were concerned about a crisis without regular rail service. Billions of dollars of goods move between Canada and the U.S. via rail each month, according to the U.S. Department of Transportation.

Paul Boucher, president of the Teamsters Canada Rail Conference, said Thursday morning that he believed the railroads were “holding the Canadian economy hostage to try and pressure the Liberal government to impose final binding arbitration and take your rights away to free collective bargaining.”

Trudeau decided not to force the parties into binding arbitration before the deadline passed for fear of offending unions and the leftist NDP party that his Liberal government relies on for support to remain in power.

In anticipation of the work stoppage, the White House convened a multi-agency Supply Chain Disruptions Task Force to assess the potential impact on U.S. consumers, businesses and workers, according to a Biden administration official. The official was not authorized to comment publicly and spoke on the condition of anonymity.

Most businesses probably have enough supplies on hand and room to store finished products to withstand a brief disruption. But ports and other railroads would have quickly become clogged with stranded shipments that Canadian National and CPKC won’t pick up.

Edward Jones analyst Jeff Windau said many companies made supply chain changes after the COVID-19 pandemic that can help them withstand a short disruption. The real trouble starts if it drags on.

Most previous Canadian rail stoppages have only lasted a day or two and usually involved only one of the big railroads, but some have stretched as long as eight or nine days. The impact was magnified this time because both railroads had stopped.

“They are so integrated and tied into the economy,” Windau said. “Just the breadth of products that they haul. … Ultimately, I think we need the rails to continue to be running.”

Chemical businesses and food distributors would have been the first to be affected. The railroads stopped accepting new shipments of hazardous materials and perishable goods as they began gradually shutting down last week, but most chemical plants had said they would be OK for about a week.

The auto industry also may have seen problems quickly because it relies on just-in-time shipments, with significant cross-border deliveries of engines, parts and finished vehicles. Flavio Volpe, President of the Automotive Parts Manufacturers’ Association, posted on X that about four of every five cars made in Canada are exported to the U.S. almost exclusively by rail. He said a prolonged lockout could cause temporary work stoppages similar to the impact of the five-day 2022 Ambassador Bridge blockade.

Union Pacific, one of the U.S. railroads that regularly hands off shipments to and from the Canadians, said the stoppage meant that “thousands of cars per day will not move across the border.”

“Everything from grain and fertilizer during the critical summer season, and lumber for building homes could be impacted,” Union Pacific said in a statement Thursday.

More than 30,000 commuters in Vancouver, Toronto and Montreal were the first to feel the pain of the lockouts. They had to scramble Thursday morning to find a new way to work because their commuter trains aren’t able to operate while CPKC is shut down.

CN had been negotiating with the Teamsters for nine months while CPKC had been trying to reach an agreement for a year, the union said.

The Canadian negotiations are stuck on issues related to the way rail workers are scheduled and concerns about rules designed to prevent fatigue and provide adequate rest to train crews. Both railroads had proposed shifting away from the existing system, which pays workers based on the miles in a trip, to an hourly system that they said would make it easier to provide predictable time off. The union said it doesn’t want to lose hard-fought fatigue protections.

The railroads said their contract offers have included raises consistent with recent deals in the industry. Engineers already make about $150,000 a year on Canadian National while conductors earn $120,000, and CPKC says its wages are comparable.