What Will the Longer-Term Impacts of the Rail Shutdown Be?

Canadian Pacific Railway trains sit at the main CP Rail train yard in Toronto on March 21, 2022. The Canadian Press/Nathan Denette

The impacts of the national rail shutdown will be felt by businesses in every sector for weeks to come whether the lockout lasts one day, one week, or even one month, business and industry leaders say.

The federal government said on Aug. 22 that it is going to impose binding arbitration to get the trains moving again. Although it didn’t give a timeframe for arbitration, Labour Minister Steven MacKinnon told an Aug. 22 press conference the shutdown would be over “within days.”

Trains across the country came to a standstill at 12:01 a.m. EDT on Aug. 22 after contract negotiations broke down between Canada’s two primary rail companies and the union representing their 9,300 employees.

The shutdown marks the first-ever simultaneous work stoppage at Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC), raising concerns about potential disruptions to supply chains.

The strike is only one day old and already the Canadian Federation of Independent Business (CFIB) is hearing from businesses concerned about not getting the essential shipments they need to run their operations, director of national affairs Christina Santini told The Epoch Times.

Rail lines carry $380 billion worth of goods each year, meaning that more than $1 billion in goods is transported by train each day, according to the Railway Association of Canada. More than half of the country’s exports travel by rail.

That heavy reliance on rail means the work stoppage will take its toll on Canadian businesses quickly, Santini said, adding that each day of the strike is equal to between five to seven days of lost productivity.

“So if this lasts just one day, it’s not just this day that is impacted,” she said. “It’s created a backlog in the system that will take five to seven days to get through. So the reality is that it will impact operations, businesses, cash flow and, ultimately, viability the longer it lasts. And that is across all sectors in Canada.”

In the short term, businesses will lack the resources needed to create goods and services, Santini said.

“What it means, from a small business owner perspective, though, is they lose income or the opportunity to earn income, which hits the bottom line,” she said. “ And many of them are tight, especially coming out of COVID.”

Impact on Farmers

One of the sectors hardest hit by the rail shutdown is agriculture.

Canada’s more than 65,000 grain farmers, whose crops account for $35 billion in exports each year, are feeling the pinch, said Grain Growers of Canada executive director Kyle Larkin.

“With work stoppages at both CN and CPKC, our entire supply chain is at risk,” Larkin said in a statement. “This disruption is happening at the worst possible moment, during the start of harvest season, when our farmers are most dependent on our rail network.”

Grain growers depend on the railway system to distribute and sell their product, he said. With no other viable shipping options, the delays will result in a decline in sales, a deterioration in grain quality, and a considerable loss of confidence in the market.

Canola farmers are in a similar situation, according to Canola Council of Canada president and CEO Chris Davison. Producers are already harvesting crops in parts of the Prairies but have no way to ship their product.

“Each passing day without rail service puts greater pressure on our sector’s ability to operate, risking a complete shutdown in a matter of days,” Davison said in an emailed statement. “Lost exports of canola seed are currently estimated at approximately $11 million per day and halting canola processing will cost the industry approximately $20.5 million per day in lost sales of canola oil and meal, which will reverberate throughout the canola supply chain.”

Livestock farmers are facing the same difficulties when it comes to moving product.

At least one meat processing plant anticipates losing up to $3 million dollars per week if the shutdown goes that long, a Canadian Meat Council spokesperson Kristina Martin told The Epoch Times in an email.

“The initial impact will be a delay in customer deliveries,” she wrote. “A plant shutdown will be required within seven to 10 days of strike action and once the rails resume it will take two to five weeks for the plant to ramp back up to normal capacity.”

One of the council’s member companies has already racked up nearly half a million dollars in additional costs to secure alternative transportation, Martin said.

“A significant amount of Canadian meat products are exported to international markets, meaning that packers and distributors here in Canada will be left with an excess of meat at risk of going to waste,” she said. “A backlog of unsold meat products will lead to millions of dollars in losses.”

Confidence in Canada

Shippers south of the border rely on Canada’s two main railways, whose tracks run to the Gulf of Mexico. Canada sends roughly 75 percent of all goods exports south of the border.

That means the shutdown will affect trade relations with our southern neighbour, CFIB’s Santini said. But it is not just trade relations with the U.S. that are at stake.

“It’s also affecting the perception that Canada is a reliable trading partner,” she said.

The 13-day Vancouver Port strike and the eight-day St. Lawrence Seaway strike last year followed by the current lockdown does not cast Canada in a good light, she added.

“Businesses in Germany, France, Australia … might think twice before saying, ‘Oh, we’re going to bring this product in from Canada,’ when we’ve had so many disruptions.”

Grain Growers of Canada chair Andre Harpe also said that previous labour disruptions have already strained Canada’s trade relationships.

“Another prolonged stoppage could further damage our reputation as a reliable supplier,” Harpe said in a press release. “International buyers may turn to other countries for their grain needs, resulting in lost market share for Canadian farmers and long-term economic repercussions.”

Small Business

The rail strike is taking a toll not just on industry and the country’s international reputation, it is also impacting the backbone of the nation: business owners, Santini of CFIB said.

Many businesses have reduced how much inventory they keep on hand since the pandemic because they can no longer afford to purchase for several months in advance, she said. Other businesses have been forced to reduce their footprint to cut costs, and that means having less physical space for storage.

After speaking with members, Santini said she has found that some businesses keep no more than two weeks of inventory. While some have as much as three month’s worth, it’s rare for any business to be stocked six months ahead, she said.

“So the longer this strike lasts, the worse the impact is going to be,” she said, noting that if the strike goes on long enough some essential services like auto repair will grind to a halt because they can’t get the parts they need to perform maintenance and repairs.

That, she said, could have a snowball effect because without repairs for trucking fleets, delivery services, ambulances, fire trucks, and police cruisers some vehicles may have to come off the road making access to the services more difficult.

Another CFIB member, a small aircraft fuel provider, told Santini that he can’t get his product to his clients during the strike.

“And those are small aircraft, such as helicopters or small planes which provide forest fires monitoring and surveying capability, and we’re in the midst of a forest fire,” she said.