(Reuters) – Canada’s freight rail transport could come to a grinding halt as the country’s two biggest railroad operators plan an unprecedented, simultaneous work stoppage following deadlocked talks over labor contracts.
Both Canadian National Railway (TSX:) and Canadian Pacific (NYSE:) Kansas City will lock out workers on Thursday if last-minute talks with the Teamsters Union fail to avert a costly stoppage.
Canada, the world’s second-largest country by area, relies heavily on rails to transport grain, automobiles, potash, coal and other goods. The railways transport about C$380 billion ($277 billion) worth of goods and commodities annually, and the impact of the rail stoppage is expected to be felt across North America.
Rating agency Moody’s (NYSE:) estimates the simultaneous stoppage could cost the Canadian economy C$341 million per day.
Here are some sectors set to be damaged by a potential rail stoppage:
FERTILIZERS
* Fertilizers account for the third-highest volume among commodities shipped by Canadian railways, and 75% of all fertilizer produced and used in the country is moved by rail.
* The railways move an average of 69,000 metric tons of fertilizer product per day, equivalent to four to five trains daily.
* Fertilizer Canada, which represents producers such as CF Industries (NYSE:) and Nutrien (NYSE:), has estimated C$55 million to C$63 million per day in lost sales revenue from disruptions of all rail services.
* Top potash producer Nutrien said the potential stoppage could hamper its full-year potash sales.
TRUCKING
* About 85% of U.S.-Canada cross-border freight in either direction is primarily handled by Canadian trucking carriers.
* Truckers say they can absorb some of the increased demand, but cannot replace long-haul rail distribution, especially for bulk commodities such as coal, potash and food grains.
* Truckload shippers with spot freight, as well as rail shippers looking to convert to truck, should expect not only higher costs but also longer lead times, says U.S. freight forwarder C.H. Robinson.
COAL
* Coal is one of Canada’s top bulk commodities transported by rail, with over 30 million metric tons moved annually, according to the Coal Association of Canada.
* Shipment disruptions could affect mining giant Glencore (OTC:) and its majority-owned unit, Elk Valley Resources.
CRUDE OIL
* An average of 94,400 barrels per day of has been exported via rails this year, according to the Canada Energy Regulator.
* The strike is, however, unlikely to significantly reduce oil exports to the United States, due to excess capacity on Trans Mountain and other pipelines.
GRAINS AND AGRI PRODUCTS
* Canadian farmers rely on the railways to move their products to the market. As much as 94% of grain is shipped by rail, according to Grain Growers of Canada.
* A stoppage would crimp shipments of U.S. spring wheat from Minnesota, North Dakota and South Dakota to the Pacific Northwest for export.
* Nearly three dozen North American agriculture groups warn a simultaneous stoppage would be particularly severe on bulk commodity exporters in both Canada and the United States.
TIMBER
* With exports worth C$45.5 billion in 2022, as per Canadian government data, the forest sector is an important contributor to the country’s economy.
* Pulp producer Mercer International (NASDAQ:) said it was working on contingency plans including alternative transport methods in anticipation of a rail stoppage, while Conifex Timber is reducing its sawmill operating schedule at its Mackenzie, British Columbia site * Canadian National Railway is North America’s largest rail carrier of forest products, according to its website.
AUTOS
* The U.S. imported and exported transportation equipment worth about $73 billion respectively in 2023 from Canada, according to the International Trade Administration.* Canadian National’s website said it handles over 2 million finished vehicles on an annual basis, catering to over 12 North American vehicle assembly plants.
* Canadian Pacific Kansas City caters to about 90% of automotive assembly plants in Mexico, it said on its website.
WINE INDUSTRY* Canada exported 219.78 kilolitres of wine in 2023 and imported 407.38 kilolitres, per government data.
* Ontario Craft Wineries, a local trade association, said a rail stoppage could apply supply-chain pressure on several inputs such as glass bottles, corks, and barrels and affect its members’ ability to export wines to other countries or slow down the rate of imported bulk wine into Canada.
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