Rail system shuts down amid labour dispute, bringing Canada’s economy to a crawl
Rail workers picket in front of CN headquarters in Montreal, Thursday, Aug. 22, 2024, the first day of a nationwide rail shutdown. THE CANADIAN PRESS/Ryan Remiorz
Canada’s rail freight system has virtually ground to a halt as the nation’s two largest rail companies and their unions remain deadlocked over new collective agreements.
Workers at Canadian Pacific Kansas City Limited (CPKC) went on strike as of 12:01 a.m. Thursday, coinciding with lockouts by both CN Rail and CPKC. The rail shutdown will disrupt supply chains, drive up costs for businesses and cause billions worth of economic damage and lost activity.
“Without an agreement or binding arbitration, CN had no choice but to finalize a safe and orderly shutdown and proceed with a lockout,” CN Rail said in a statement.
Here is CPKC’s take: “CPKC is acting to protect Canada’s supply chains, and all stakeholders, from further uncertainty and the more widespread disruption that would be created should this dispute drag out further resulting in a potential work stoppage occurring during the fall peak shipping period.”
The Teamsters Canada Rail Conference, which represents the workers, is pinning the blame on the companies. “Over the past several days, the Teamsters have put forward multiple offers, none of which were seriously considered by either company.”
A few observations on the situation:
This is no ordinary labour disruption. CN Rail and CPKC, the only two nationwide carriers, control more than 80 per cent of the country’s rail network. With more than 9,000 workers off the job, this could quickly become one of the largest transport strikes in Canadian history, comparable to the B.C. port strike in 2023, CP’s 2012 job action and CN’s massive 2004 labour disruption.
In Canada, transportation strikes may generate fewer lost work days than public sector strikes, but their economic impact is disproportionately large due to spillover effects.
Economic fallout
Rail is a crucial conduit not only for the transport sector but also for merchandise trade. The Business Council of Canada estimates railways move about $380 billion worth of goods annually, accounting for half the country’s exports. The economic fallout from this strike could easily surpass last year’s 13-day maritime strike in B.C., which halted shipments off the Pacific coast, reduced Canada's GDP by as much as $980 million and disrupted $10 billion in merchandise shipments, according to Transport Canada calculations.
The Conference Board of Canada estimates a two-week strike will cost the economy $3 billion in lost GDP and reduce growth by one-tenth of a percentage point this year.
These figures don’t account for indirect costs — such as freight business that’s permanently lost because it shifts to U.S. ports and the broader reputational damage to Canada as a reliable trading partner.
How will it show up in economic data? We’ll likely see the impact most clearly in export figures. Large transportation strikes typically cause significant disruptions to shipments abroad.
In the third quarter last year, the B.C. port strike coincided with a sharp decline in exports that shaved a full percentage point off annualized GDP growth. During a CN rail strike at the end of 2019, exports cut 2.7 percentage points from annualized growth that quarter.
Interestingly, business investment also declined during both strikes. We saw a similar pattern in 2012, when a series of transport sector labour disruptions, including at Air Canada and Canada Post, coincided with weak exports.
The strike will almost certainly derail forecasts for third-quarter growth. The Bank of Canada projects 2.8 per cent annualized growth this quarter, partly on expectations that exports would be robust. Major Canadian banks are more cautious, predicting growth between 1 per cent and 2 per cent. A prolonged strike could easily tip the balance toward negative growth for the quarter.
There’s also the risk of reigniting inflation just as price pressures have been easing. This is how Scotiabank economist Derek Holt put it:
“Near-term price pressures depend on how long the strike lasts and its broader effects. With both sides far apart and the federal government’s pro-union stance, the risk of supply shocks at a key time for retailers ordering goods for the holiday season is real. A short strike is manageable, but a prolonged one could disrupt stocking and prices, particularly for key commodities like potash and wheat.”
The good news is that rail strikes in Canada don’t tend to last long. Since 1980, large rail strikes have averaged around 10 days, with seven of the 10 largest resolved through back-to-work legislation. However, Prime Minister Justin Trudeau’s government has been hesitant to use this tool since teaming up with the left-leaning NDP. Nor is it likely to appeal to the main opposition Conservatives, who are courting organized labour. Back-to-work legislation would also require Parliament to reconvene from summer break, making it an impractical option.
Instead, the Liberals face pressure to end the strike through binding arbitration — a move the Teamsters have already rejected. Earlier this year, the Liberals used binding arbitration to prevent a strike at WestJet, but that case also showed the limits of this approach, as WestJet workers walked off the job despite the order.
For new Labour Minister Steven MacKinnon, who’s been on the job for just over one month, the strike is a baptism of fire.
In an interview with CTV News hours before the lockout, MacKinnon said issues between the parties involved “remained significant.”
“The parties are still at the table, and we are making sure that they are focused on trying to get a deal,” MacKinnon said.
Business leaders have learned from last year’s damaging port strike and are mounting a more proactive campaign to pressure the government, including enlisting U.S. business groups. Dozens of organizations are calling on the government to prevent a stoppage.
Here’s a roundup of their efforts:
More than 70 associations and chambers sent a letter to Trudeau and MacKinnon
The restaurant industry released a statement outlining its concerns
The Canadian Chamber of Commerce and its U.S. counterpart issued a joint statement
The Canadian Manufacturers & Exporters had this to say
North Dakota Senator Kevin Cramer emphasized his concerns in this conversation with Canadian Ambassador to the U.S. Kirsten Hillman
The Canadian Federation of Independent Business called for called for an immediate agreement
The Business Council, the Canadian Chamber, CFIB, and Canadian Manufacturers released a joint statement
Canadian agriculture groups launched a campaign and website
