Morning Market Brief August 23, 2024

Lockout at Canada’s two largest railways

Canada’s two largest railways locked out employees yesterday, which is likely to have a major impact on Canada’s supply chain. The lockout comes after Canadian National Railway and Canadian Pacific Kansas City were unable to reach an agreement with the union representing its employees. With the transit of many critical goods, going both domestically and abroad, grinding to a halt, Canadian economic activity could slow considerably.

• After months of negotiations, both sides were unable to reach an agreement, resulting in yesterday’s lockout. The lockout will also negatively impact commuters in major lines such as Toronto, Montreal and Vancouver as a result of traffic controllers being locked out.
• According to the Railway Association of Canada, the two railways transport $1 billion worth of goods daily. Canada’s supply chain will be severely impacted. Besides the producers of these goods, companies down the line, including many foreign companies, could be impacted. Both railways carry goods into the US, while Canadian Pacific Kansas City also carries goods into Mexico.
• Several industries will be negatively impacted by the lockout, particularly those that cannot always turn to trucks to ship their goods. This includes the automotive, agriculture, mining, energy, retail and construction industries, among others.
• Businesses have voiced their concern about the lockout, requesting the government step in. The Canadian federal government has encouraged the companies and the union to come to an agreement as swiftly as possible. Any prolonged work stoppage could force the government to act, which could include binding arbitration.

Canada’s economy experienced significant challenges in its supply chain amid the pandemic and last year when the ports were closed in response to a work stoppage. Canada’s economy is highly reliant on its exports, which could suffer considerably during this standstill. The railways and ports were preparing for the potential work stoppage, slowing shipments ahead of yesterday’s deadline. Even when a deal is reached, the backlog might take some time to return to normal.

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