Canadian Railway Strike Poses Threat to Global Supply Chain

A strike at the country’s two largest rail networks would disrupt production and deliveries across a wide variety of industries.

Nvb Stocker Adobe Stock 375988948
NVB Stocker AdobeStock_375988948

Canadian businesses that rely on rail shipments dodged a bullet recently, though perhaps only temporarily, when the Canada Industrial Relations Board (CIRB) paused a looming strike at Canada’s two major railroads while it reviews the potential impact of a strike on public safety.

With the review underway, a strike likely wouldn’t start until mid-July. But the reprieve could leave business operations—ranging from chemical and fertilizer producers to automotive manufacturers and e-commerce companies—uncertain of how to prepare for a strike, which would affect the more than 900,000 tons of cargo that moves daily on Canada’s railways and have a significant impact on the supply chain.

Ahead of a strike, companies need to assess their supply chains, identify priority shipments of critical materials within the chain that currently travel by rail and develop alternative plans for receiving those supplies in the event the strike proceeds. In making their plans, they should expect disruptions and possible delivery delays across a wide variety of industries.

The far-reaching impacts of a strike

More than 9,000 workers at the Canadian National (CN) Railway Co. and Canadian Pacific Kansas City Ltd. (CPKC) voted May 1 to authorize a strike, with plans to walk out as early as May 22. Canada’s federal labor minister, however, referred the matter to CIRB, asking it to review whether supply chain disruptions for products such as heavy fuel, propane, food and water treatment chemicals posed potential safety and health issues.

Workers at the two railroad companies—said to be the largest in Canada, together accounting for 90% of the country’s rail traffic—cannot strike until CIRB issues a decision, which is not likely before mid-July. The Teamsters Canada Rail Conference (TCRC), which represents the workers, said it would give 72 hours’ notice of a strike if it decides to move forward.

If it happens, disruptions from a strike would ripple through the supply chain—in Canada, North America and globally. In fact, some industry sectors are already feeling the fallout from just the potential for a strike.

Maritime ports. Ocean shipping, which is connected with rail, would be affected, with cargo backlogs triggering potential production stoppages. Intermodal cargo services at Canadian containerized marine terminals, which are supported by CN and CPKC, would experience increased port congestion. The Ports of Vancouver and Montreal—where dwell times are currently the longest they’ve been in 12 months as operators work through backlogs—would be particularly affected, along with other ports such as those at Prince Rupert and Halifax.

Agriculture and fertilizer. Among the industries most likely to feel a significant impact are agriculture and fertilizer. The agriculture sector relies extensively on rail, which handles 94% of Canadian grain shipments and has no competition for transport because of the country’s vast size. The loss of rail transportation could create congestion and limited capacity at grain storage facilities, limiting the amount of product that can be sold. Even with the strike on hold and the possibility it could be avoided, grain farmers expect to experience slow sales as producers seek to minimize port congestion fees and contract penalties in case a strike is called.

Canada’s fertilizer and potash industries are also critically dependent on rail, which carries 75% of fertilizers. Canada ranks as the world’s third largest producer of fertilizers and the largest producers of potash, an ingredient in many fertilizers. Potash mines have a regular, nearly immediate need for rail access, since the mines have storage space for only five to seven days before they have to halt production.

Automotive. The automotive industry faces severe potential impacts from a strike because of the transportation CN and CPKC provide for vehicles in Canada and parts imported from Asia. CPKC also is the only rail network with service directly to Canada, the United States and Mexico.

Automotive plants could be forced to stop production if they can’t get the parts they need or are unable to ship finished vehicles from their plants. Operations also could be affected at U.S. facilities. Assembly plants in the Midwest that rely on CPKC for rail transportation would also be affected.

Production of electric vehicle batteries also could be disrupted because Canada’s mining and smelting industries produce nickel, cobalt, graphite and other raw materials used in the batteries.

Petrochemicals. The petrochemical industry is tied tightly to Canada’s major railroads, with petrochemicals making up the second-largest market share for CPKC and the third largest for CN. A strike would have a severe impact on the sector.

Mitigating the impact of disruptions

In the event of a strike, disruptions and delivery delays are unavoidable, but companies can be prepared to mitigate the fallout. A checklist to help companies navigate a strike would include:

ü Know your supply chain. Have a full accounting of which items from your direct supplies are shipped by rail at any point in the supply chain. Even if they arrive at your company, say, by truck, products may have gotten to the trucking company by rail, and so would be affected by the strike.

ü  Identify the most critical shipments. Define priority shipments of products or components critical for production, particularly focusing on shipments that would occur within two weeks of a strike.

ü  Be ready to choose alternative transportation. Change shipment schedules after the beginning of a strike and arrange alternative transportation, either via railroad networks other than CPKC and CN, or via truck or air freight if possible.

ü  Consider changing suppliers. Explore potential second-source suppliers that are more local and from whom you can get materials more quickly—even if the costs are higher—to bridge the supply chain gaps resulting from a strike.

Any company reliant on rail would likely benefit from taking precautions.

The probability of a strike may be uncertain at the moment, though the union and the railroads reportedly have made no progress in negotiations since the CIRB review began. The two sides have been at odds since the union’s contract expired in December 2023, with the Teamsters raising safety concerns over the companies’ plan to remove provisions for mandatory rest periods, and the railroads pursuing a more modern contract agreement with hourly pay rates.

Considering the potential supply chain disruptions, companies that rely on rail would be wise to prepare.

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