The two largest rail companies in Canada locked out nearly 10,000 unionized employees Thursday after failed labor talks, leading to a freight stoppage projected to cost the economy hundreds of millions a day and threatening significant disruptions to the North American supply chain.
Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC) both locked out workers represented by the Teamsters Canada Rail Conference (TCRC) after failing to reach an agreement with the union after nine months of negotiations.
Both sides blame each other for the breakdown.
Industry, agriculture, retail and trade groups warned ahead of time that any work stoppage in the rail system could lead to a substantial impact on trade between Canada and the U.S. and reverberate to other parts of the continent, depending on how long it lasts.
Anderson Economic Group estimates the stoppage would cost the Canadian economy $303 million ($403 million CAN) if it lasts three days. If it extends to a week, the costs would top more than $1 billion.
The firm said the costs in its initial estimates would be borne nearly entirely by the Canadian economy, but the U.S. would have some losses while American ports and shippers would see some gains due to the disruptions.
"The shutdown of Canadian rail will hit parts of Canada hard, particularly those areas reliant on shipping from ports, agricultural products and sensitive chemicals and energy products," said Patrick Anderson, principal and CEO of Anderson Economic Group. "We expect the U.S. economy will largely shrug off the impacts for the first week, outside of local areas dependent on Canadian agriculture and energy products."
In the U.S., Canada's rail freight shutdown is expected to cause the most significant loss in grains and agricultural products originating from Canada, which the USDA says could cost as much as $40 million per day, AEG said.
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It will also be felt by Americans whose homes are reliant on propane or other petroleum products shipped via Canadian rail. If the stoppage extends beyond a few days, there could also be disruptions to supply lines for manufactured products, particularly automobiles. And extended delays of fertilizer from Canada could impact cross yields and drive up the cost of packaging and other goods.
The longer the work stoppage lasts, the higher the pressure will be on the railroads and the union to make a deal, and the Canadian government led by Prime Minister Justin Trudeau is already facing calls to step in and force an agreement between the two sides.
"It is unusual that, in this case, the very liberal Trudeau government has not intervened, whereas the United States government, which had a 70-year history of staying neutral on these things, actually had the president of the United States go to a picket line with the UAW," Anderson told FOX Business in an interview. "So, this is a real turnabout in terms of style by the country's leaders."
Anderson said Canadians tend to be more diplomatic and more inclined to make agreements than U.S. labor leaders, "but this is 2024, and rail is very important in Canada. And they can't help but look across the border and see the success that the UAW got by being very militant and thinking they might try that."
Labor expert Jason Greer, founder of Greer Consulting, says he expects there to be an extended Canadian rail freight stoppage due to the labor dispute and that the U.S. could eventually get involved.
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"I think that this is going to go on for some time because both parties are at such an impasse," Greer told FOX Business. He predicts President Biden will reach out to the Canadian government about the situation because the rail disruptions eventually could "have a dire impact on the U.S. economy."
