How a Canadian Rail Strike Could Disrupt US Supply Chains and Businesses

US businesses face significant challenges as an impending Canadian rail strike threatens to disrupt the supply chain.

At a Glance

A potential strike involving Canadian Pacific Kansas City (CPKC) and Canadian National (CN) railroads with the Teamsters Union looms.
The strike could significantly disrupt supply chains across North America, delaying shipments and escalating costs.
The Teamsters Union represents nearly 10,000 rail workers, with disputes over wages, working conditions, and job security.
CPKC and CN issued lockout notices effective as early as Thursday, August 22, if no agreement is reached.
The federal government and Labour Minister Steven MacKinnon urge negotiations but have not intervened.

Potential Supply Chain Disruption

Negotiations between the Teamsters Union and Canada’s major railroads, Canadian Pacific Kansas City (CPKC) and Canadian National (CN), have stalled. A potential strike threatens US businesses relying on steadfast cross-border transportation of goods. If the rail workers strike later this month, it could disrupt the supply of over 900,000 metric tons of goods daily, affecting $1 billion worth of goods.

The conflict centers around wages, working conditions, job security, and accusations from the Teamsters Union of “unfair labor practices,” including understaffing and excessive work hours. The railroads emphasize operational flexibility and cost management needs. Labour Minister Steven MacKinnon has encouraged negotiation but has not intervened directly.

The looming strike could have significant repercussions for various sectors such as manufacturing, agriculture, and automotive, leading to inventory shortages, increased transportation costs, and a slowdown in North American supply chains. Logistics managers have been preparing for potential shutdowns since May. Canada’s western ports, particularly Vancouver and Prince Rupert, would be among the first affected by halted operations.

Economic Impact and Sector-Specific Concerns

The possibility of both strikes happening simultaneously in railways and longshoremen associations has alarmed US and Canadian logistics sectors. Freight movement between the US and Canada depends heavily on railroads. A concurrent labor standstill could paralyze North American commerce and spike trucking rates due to the sudden necessity to reroute freight.

“If workers at both railroads strike, it could paralyze the ports and trucking rates could spike because a whole lot of freight would have to find another way to travel,” Shannon said.

Industries dependent on raw materials, minerals, agriculture, and food products will face significant challenges. The agriculture and automotive industries are particularly vulnerable. For instance, a high percentage of agricultural products transported by rail will see delays, impacting livestock feed shipments and crop transportation just as harvests begin.

Possible Mitigation and Future Steps

US businesses must proactively assess alternatives to mitigate potential disruptions from a rail strike. Contingency plans include increasing inventory levels, using alternative transportation like trucking, or sourcing materials from different suppliers. However, logistics experts warn against relying solely on trucking due to capacity limitations.

“The best operational plan to avoid these challenges is to terminate imports at the port of entry and use dray off, transload, and one-way trucking to get freight into DC networks,” he said.

In 2022, Canada’s railroads transported $380 billion worth of goods, underlining the critical nature of railway operations for the economy. A potential concurrent strike by the International Longshoremen’s Association in US East Coast and Gulf Coast ports adds to the vulnerabilities facing North American supply chains.

“Past negotiations have often ended with a deal because everyone knows a prolonged strike would hurt all sides,” Khachatryan says.

Businesses and logistics managers must closely monitor ongoing negotiations and adjust their operations promptly. The impending Canadian rail strike presents a stark reminder of the delicate balance of global supply chains and the cascading effects even minor disruptions can cause across sectors and borders.