Industry, shippers brace for Canadian rail shutdown, fear ‘catastrophe’ By Reuters

By David Ljunggren and Promit Mukherjee

OTTAWA (Reuters) – North American industry groups and shippers are bracing for an unprecedented simultaneous shutdown of both of Canada’s main rail companies that could cause billions of dollars in economic damage.

Canada is the second largest country in the world by land area and relies heavily on trains to transport grain, beans, automobiles, potash, coal and other goods.

“It’s a catastrophe. Literally nothing would move,” said Greg Northey, vice-president of public affairs at Pulse Canada.

Discussions between Canadian National Railway (TSX:) and Canadian Pacific (NYSE: ) Kansas City, on the one hand, and the Teamsters union, on the other, have been deadlocked, each side accusing the other of bad faith.

The rail companies say they will begin locking out workers on August 22 if they cannot reach a labor agreement, while the union says it is ready to strike on that date.

Industry groups want Prime Minister Justin Trudeau’s Liberal government to prevent a shutdown, noting that Canada’s rail transports about $380 billion ($277 billion) worth of freight annually.

“Considering the millions of Canadian jobs that would be affected, the scale of the disruption is daunting,” the Business Council of Canada lobbying group said in an open letter to Trudeau and Labor Minister Steven MacKinnon.

US FREIGHT TRAFFIC IMPACTED

A shutdown would also hit the United States, given the degree of integration between the two economies. Canada sends about 75% of all goods exports south of the border.

The networks of the two Canadian rail operators, CN and CPKC, connect to several key US rail and shipping hubs such as Chicago, New Orleans, Minneapolis and Memphis. The CPKC network also extends further south, connecting with ports on the east and west coasts of Mexico.

CN said Tuesday it is implementing an embargo on any new reservations for the movement of hazardous materials, security-sensitive goods or refrigerated containers originating in Canada starting Thursday.

It also announced it was embargoing all intermodal traffic originating from more than a half-dozen U.S. hubs its network connects to, starting Friday.

Separately, the US rail operator South Norfolk (NYSE: ) informed customers on Tuesday that it is embargoing all dangerous and security-sensitive cargo to or from the CN and CPKC networks effective immediately. He said additional embargoes could occur in the event of any work stoppages at Canadian rail operators.

Some US companies find it more efficient to use Montreal or Vancouver for imports and exports.

US logistics firm CH Robinson, which handles more than 650,000 loads across the border a year, said it was lining up additional shipping capacity on both sides of the border.

“When all the trains serving the entire country could literally be stopped on their tracks, that’s another level of disruption,” said Scott Shannon, chief executive at CH Robinson.

PRESSURE MOUNTS

Industry groups say MacKinnon has the power to take the dispute to the country’s labor relations board and thereby avoid a shutdown.

MacKinnon has said so far that he wants the two sides to reach an agreement at the negotiating table.

Pressure on the city of Ottawa looks set to intensify in the coming days as industry groups look at the potential costs of a shutdown.

Earlier this week, Morgan Stanley, in a note to clients, said each week of shipping disruptions could hurt mining giant Glencore’s ( OTC: ) pretax earnings by about $100 million or more, because a rail shutdown would disrupt coal shipments from its majority-owned unit, Elk Valley Resources.

The Chemical Industry Association of Canada said shipments of chlorine will soon become unavailable, reaching drinking water quality within two weeks.

“There are very large municipalities that — if the strike continues — will be under a boil water advisory,” CEO Bob Masterson said by phone, noting the industry moves more than 500 railcars a day.

“There’s no plan B … to carry that kind of volume you’re going to need 2,000 trucks, roughly. It’s not 2,000 trucks and it’s not 2,000 drivers,” he said.

($1 = 1.3721 Canadian dollars)