U.S. economy could be hit hard by lockouts at Canada’s 2 major freight railroads

Both of Canada’s major freight railroads have come to a full stop because of a contract dispute with their workers, an impasse that could bring significant economic harm to businesses and consumers in Canada and the U.S. if the trains don’t resume running soon.

Canadian National and CPKC railroads both locked out their employees after the deadline of 12:01 a.m. Eastern Thursday passed without new agreements with the Teamsters Canada Rail Conference, which represents some 10,000 engineers, conductors and dispatchers.

All rail traffic in Canada and all shipments crossing the U.S. border have stopped, although CPKC and CN’s trains will continue to operate in the U.S. and Mexico.

Billions of dollars of goods each month move between Canada and the U.S. via rail, according to the U.S. Department of Transportation.

“If rail traffic grinds to a halt, businesses and families across the country will feel the impact,” Jay Timmons, president and CEO of the National Association of Manufacturers, said in a statement. “Manufacturing workers, their communities and consumers of all sorts of products will be left reeling from supply chain disruptions.”

There will be other impacts as well, including on the more than 30,000 commuters in Vancouver, Toronto and Montreal who will be scrambling to find a new way into work because their trains won’t be able to operate over CPKC’s tracks while the railroad is shut down.

Business groups had urged the government to intervene, but Prime Minister Justin Trudeau has declined to force both sides into arbitration yet.

CN said it was waiting for a response on one final offer made late Wednesday when it locked the workers out. CPKC spokesperson Patrick Waldron said the union rejected its last offer that CEO Keith Creel made at the table in person. Both railroads have said they would end the lockout if the union agreed to binding arbitration.

“Despite the lockout, the Teamsters remain at the bargaining table with both companies,” the union said in a statement.

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

Lockouts’ potential impact 

Many companies across all industries rely on railroads to deliver their raw materials and finished products, so without regular rail service they may have to cut back or even close.

That’s why the U.S. government kept rail workers from going on strike two years ago and forced them to accept a contract despite their concerns about demanding schedules and the lack of paid sick time.

Manufacturing companies may have to scale back or even shut down production if they can’t get rail service, while ports and grain elevators will quickly become clogged with shipments waiting to move. And if the dispute drags on for a couple of weeks, water treatment plants all across Canada might have to scramble without new shipments of chlorine.

“If railways are not picking up the goods that are coming in by ships, then pretty soon your terminals get filled up. And at that point you cannot take any vessels at the terminal anymore,” said Victor Pang, chief financial officer at the Vancouver Fraser Port Authority.

He pointed to the 13-day strike by 7,400 British Columbia dockworkers last summer, which manufacturers said blocked the flow of $500 million Canadian ($368 million U.S.) worth of goods each day.

Some companies would undoubtedly turn to trucking to keep some of their products moving, but there’s no way to make up for the volume railroads deliver. It would take some 300 trucks to haul everything just one train can carry.

Canada’s railroads have sometimes shut down briefly in the past during contract negotiations – most recently CPKC was offline for a couple of days in March 2022 – but it’s rare for both lines to stop at the same time. The impact on businesses will be magnified because both CN and CPKC have stopped.

Both CN and CPKC had been gradually shutting down since last week ahead of the contract deadline. Shipments of hazardous chemicals and perishable goods were the first to be stopped so they wouldn’t be stranded somewhere on the tracks.

As the Canadian contract talks were coming down to the wire, one of the biggest U.S. railroads, CSX, broke with the U.S. freight rail industry’s longstanding practice of negotiating jointly for years with the unions. CSX reached a deal with several of its 13 unions that cover 25% of its workers ahead of the start of national bargaining later this year.

The new five-year contracts will provide 17.5% raises, better benefits and vacation time if they are ratified. The unions that have signed deals with CSX include part of the SMART-TD union representing conductors in one region, the Transportation Communications Union, the Brotherhood of Railway Carmen and the Transport Workers Union. TCU President Artie Maratea said he’s proud that his union reached a deal “without years of unnecessary delay and stall tactics.”

Trudeau’s dilemma

Trudeau has been reluctant to force arbitration because he doesn’t want to offend the Teamsters Canada Rail Conference and other unions, but he urged both sides to reach a deal Wednesday because of the tremendous economic damage that would follow a full shutdown.

“It is in the best interest of both sides to continue doing the hard work at the table,” Trudeau said to reporters in Gatineau, Quebec. “Millions of Canadians, workers, farmers, businesses, right across the country, are counting on both sides to do the work and get to a resolution.”

Numerous business groups have been urging Trudeau to act.

Trudeau said Labor Minister Steven MacKinnon met with both sides in the CN talks in Montreal on Tuesday and would be on hand for the CPKC talks in Calgary, Alberta. MacKinnon later said he wrapped up his meetings with the rail companies and the Teamsters.

‘Workers, farmers, commuters and businesses can’t wait. Canadians need urgency at the table. The parties need to get deals done now,” he posted on the social platform X.

The 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 they said would make it easier to provide predictable time off.

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