Why a Canadian labor dispute could make your life more difficult

Canada’s two main rail lines locked out rail workers early Thursday morning amid tense contract negotiations between the railways and the Canada Teamsters Rail Conference, which represents nearly 10,000 rail workers. Canadian Prime Minister Justin Trudeau said his government would resolve the dispute, and late Thursday, officials ordered the two sides to enter arbitration proceedings. Even if they are successful, however, the work stoppage could have a serious impact on the Canadian economy, as well as supply chains in both the US and Canada.

The rail companies, Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC), and the union have been negotiating for months, but remain far apart. The stoppage is the result of the rail companies barring their workers from work, rather than a strike. The companies argued a lockout was necessary to ensure a safe and controlled drawdown of operations and that if they waited for operators to walk off the job, the companies wouldn’t have had time to secure hazardous materials or work out supply arrangements with key customers. The two rail lines facilitate the transit of people and about $740 million worth of goods across the country’s vast interior each day.

For now, the impact of the work stoppage is mainly on the Canadian economy, but because about 75 percent of Canadian exports — including coal and agricultural products — are sold to the US, there could be an impact on the US supply chain if the dispute isn’t resolved soon.

What went wrong with Canadian railways and what it means for Canada’s supply chain

The two railway systems had contracts with the Teamsters union that expired in December 2023. Since then, each side has accused the other of refusing to accept reasonable terms. 

The union’s primary concerns, according to its public communications, have been over worker safety and rest periods, as well as predictable scheduling. They also claim that Canada National is issuing them unworkable relocation notices — forcing workers to move for months at a time in order to deal with staffing shortages.

The rail workers voted to authorize a strike as early as May of this year, claiming that the rail companies weren’t bargaining in good faith and were attempting to undercut progress on working conditions, proposing a shift to an hourly wage rather than a salary for some positions, and removing scheduling provisions for adequate rest.

“Across Canada, we have trains [that] are carrying goods, they are carrying energy, they are carrying chemicals,” François Laporte, national president of Teamsters Canada, told the BBC Thursday. “And we want to make sure that those [trains] are operated by people who get the proper rest, who are safe, who are not fatigued.”

Canadian railways carry goods like coal and potash — an important ingredient in fertilizer — as well as cooking oil, propane, and frozen food.

Many shipments both within Canada and between Canada and the US were already paused; by Tuesday, CPKC had already stopped shipments that started in the US and were bound for Canada. Under the work stoppage, around 2,500 US train cars bound for Canada will be halted each day.

Some organizations, like the US Chamber of Commerce, the American Farm Bureau Federation, and the National Cotton Council warned of devastating effects on the US supply chain and economy should the work stoppage persist. 

The American Farm Bureau Federation and the National Cotton Council, among others, claimed in a Monday letter to President Joe Biden that the work stoppage could cause “harmful consequences for Canadian and American agricultural producers, the agricultural industry, and both domestic and global food security” if it persisted, the Washington Post reported.

Though it’s difficult to say exactly what the impact will be on the US economy, some prices on agricultural products could go up should the work stoppage stretch on, affecting consumers already struggling with high food costs. Sanitation could be affected, as the chlorine that many sanitation departments rely on to treat wastewater is shipped from Canada. The automotive industry could be impacted, too; according to June numbers from the Bureau of Transportation Statistics, automobiles and auto parts made up the bulk of rail shipments from the US to Canada in June. Some US auto plants could be forced to shut down before the week is out if there’s no agreement. 

Container ships unable to unload at Canadian ports will likely need to reroute to the US, potentially causing a backup at US ports, which could cause supply chain disruptions.

Supply chain problems will become more pronounced the longer the lockout continues. The Canadian government had two options to try to solve the problem: either pass return-to-work legislation or force the companies and the union into private arbitration. The companies had signaled openness to arbitration, though the union — as well as Trudeau and his allies — seemed cool to it. Ultimately, however, arbitration was the route the government chose. 

It’s possible the arbitration process will only paper over the real disputes without solving them, as the US return-to-work legislation in December 2022 did. Without a resolution and a new contract, forcing the workers to return to their trains will only kick the problem down the track.

Update, August 22, 2024, 8:30 pm ET: This story, first published earlier on August 22, has been updated to reflect the Canadian government ordering the rail companies and union into arbitration.