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Canada's Railway Shutdown Could Bring Hardship to US

Canada's Railway Shutdown Could Bring Hardship to US

Aug. 22, 2024
"North American manufacturing supply chains depend on functioning rail links," said Jay Timmons. of NAM.

At 12:01 am on Thursday August 22, Canadian National and CPKC railroads locked out employees as labor agreements between the railroads and the Teamsters Canada Rail Conference failed, according to AP. 

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.

Disruption of the supply chain will have a profound effect on the US.  Jay Timmons, CEO of the National Association of Manufacturers (NAM) made this statement prior to the stoppage. 

“North American manufacturing supply chains depend on functioning rail links," said Timmons. If rail traffic grinds to a halt, businesses and families across the country will feel the impact. Manufacturing workers, their communities and consumers of all sorts of products will be left reeling from supply chain disruptions. Rail transport between Canada and the United States moves billions of dollars of goods every month, and according to the U.S. Department of Transportation, 14% of the total trade value between our two countries in June 2024. We’ve seen the impact of disruptions at the Canadian border before, and it’s imperative that we avoid another stoppage.

“The flow of materials and products across the U.S.-Canada border is already slowing as preparations are made for a potential work stoppage. Policymakers in the U.S. and Canada must recognize that the stability and reliability of critical supply chains—which directly affects our quality of life—depends on efficient movement of goods across the border.”

The group noted that total trade flows between Canada and the U.S. via rail in June 2024 were $9.131 billion, representing roughly 14% of total trade flows between the two countries via all modes of transport.

Imports totaled $5.319 billion, while exports totaled $3.812 billion. 

In the first six months of 2024, total trade flows via rail were $55.657 billion. In 2023, total trade flows via rail were $113.860 billion.

"The Canadian rail shutdown is another factor that will have countries once again thinking about being more self-sustaining and it is another nail in the coffin for globalization," said Deborah Weinswig, CEO of Coresight Research. While we are starting to see food prices head into deflationary/disinflationary territory, this could send prices in a different direction.

"When the war in Ukraine first started, there were issues around raw materials and some companies had an outsized negative impact (for example, Revlon where the main ingredient in many of their products is safflower oil and Ukraine is the leading global exporter). With Canada the top exporter of canola, there could be a broad reach of what companies are impacted and a long tail of repercussions. The same is true with wheat, with Canada as the number three global wheat exporter. Indonesia, Japan, and the US are the largest importers of Canadian wheat. The US, China, and Mexico are major importers of the very high-quality Canadian canola oil and in addition to being used for cooking, canola is also used for food manufacturing and biofuels. "

 An analysis of industries that will be most impacted, provied by project44, is as follows:

Crude Oil and Petroleum Products

Crude oil is a key product transported by rail, especially from landlocked regions like Alberta, where pipelines may not reach. Each rail car can carry about 700 barrels of oil, equivalent to the capacity of several tanker trucks. Refined petroleum products such as gasoline and diesel also rely on rail for efficient distribution to markets. With the rail strike, oil producers will face challenges moving large volumes, leading to increased reliance on trucking, which is less efficient and more costly. This could cause supply chain disruptions and potential price hikes in energy markets.

Minerals and Metals

Canada’s vast mineral resources, including coal, iron ore, and potash, are primarily moved by rail due to their heavy weight and bulk. A single rail car can carry around 100 tons of iron ore or coal, making rail transport far more efficient than trucking. Rail disruptions will force mining companies to find alternative, more expensive transportation methods, such as trucks, which cannot match the volume and efficiency of rail. This shift will increase shipping costs, potentially affecting global supply chains, especially in steel production and agriculture, where these materials are essential.

Lumber and Forestry Products

Lumber and other forestry products like logs and pulpwood are traditionally transported by rail because of their large volume and bulk. Rail cars can carry a significant amount of timber, which would require multiple trucks to match. The rail strike means that forestry companies will need to shift to less efficient methods like trucking, leading to higher transportation costs and potential delays. This could impact industries dependent on these materials, such as construction and paper manufacturing, by driving up prices and causing supply shortages.

Automobiles and Parts

The automotive industry heavily relies on rail to transport finished vehicles from manufacturing plants to dealerships across North America. Each rail car can hold multiple vehicles, making rail transport far more efficient than using individual trucks. In addition to finished vehicles, rail is also used to move large volumes of automotive parts necessary for assembly. The rail strike will disrupt these supply chains, forcing manufacturers and distributors to depend on less efficient shipping methods like trucking, leading to increased costs, potential production slowdowns, and delays in vehicle availability.

Intermodal Containers

Intermodal containers, which carry a wide variety of goods ranging from electronics to clothing, are typically shipped by rail due to the efficiency of moving large volumes over long distances. Rail transport allows for containers to be stacked and moved in bulk, something that would require many trucks to achieve the same capacity. With peak season just around the corner, the rail strike will necessitate a shift to truck transport to ensure timely delivery, increasing costs and still causing potential delays in the delivery of consumer goods. Retailers and manufacturers could face disruptions in their supply chains, leading to shortages and higher prices for consumers. As Black Friday, Cyber Monday, and other holiday shopping deals approach, the increased costs in transportation could cause retailers to limit the amount of deep discounts given in order to recoup the loss. 

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