Canadian railways are transporting nearly $1 billion worth of goods every single day along the shared railways from the U.S. into and across Canada—that is, until a strike last week shut down the two largest railways. The impasse is creating a major headache for both the U.S. and Canada as businesses, including many in agriculture, are having to adjust to a growing and constantly changing situation. Last year, Canada was the third largest importer of U.S. agricultural goods valuing $28.2 billion dollars.
By all means, this stoppage has the indications that an agreement will soon come, but as of WLJ press time, the stalemate had continued. Prime Minister Justin Trudeau has chosen to stay neutral, forcing the Teamsters Canada Rail Conference union and two major railway companies, Canadian National Railway Co. and Canadian Pacific Kansas City Ltd., to come to an agreement outside of government intervention. On Thursday morning, railway workers were locked out of access to the rail centers. The ripple effect stopped all traffic immediately, including any freight carrying import and exported goods, as well as the public who use the trains to commute to work every single day.
Usually, union labor strikes are centered around wage rates in respect to annual inflation. In this case, worker conditions following the 2020 pandemic haven’t improved as much as unions would like to see, and the stalemate began to take form. The three largest issues were crew scheduling, safety and worker fatigue that shaped the demands of a new contract for the union’s nearly 10,000 workers.
From an economic standpoint, a challenge we face is that Canadian inflation didn’t peak as fast as the U.S. and recently felt a 40-month low at a rate of 2.5%. Canada is the first G7 country to lower interest rates, which they have now done twice in 2024. The U.S. has averaged 3.2% inflation per month through July of this year. Canada’s overnight interest rate currently sits at 4.5% while the U.S.’ prime interest rates hasn’t been lowered yet this year and sits at 8.5%. A majority of analysts expect rates to lower next month, but until this happens, we have to expect it to stay the same.
The log jam this is creating instantaneously will take weeks to sort through, even if an agreement is found immediately. Jim Vena, CEO of Union Pacific, wrote in a letter to Canadian Labor Minister Steve MacKinnon that upwards of 2,500 of his railroad’s cars could be stuck in Canada. “For every one day of disruption, you can expect at least 3-5 days of recovery—perhaps even more, given two Canadian railways are impacted,” he wrote.
According to rollcall.com, although the Canadian routes extend into the U.S., the Brotherhood of Locomotive Engineers and Trainmen, a union that represents U.S. rail workers, said each company’s workers would still be required to report for duty at their ongoing U.S. operations. Both unions are affiliated with the Teamsters.
The Canadian Federation of Agriculture wrote in an opposition letter when word of the strike was eminent that agriculture organizations would be majorly impacted with a stoppage of products including grain and feedstuffs for cattle, poultry and pets. An issue that is becoming more evident is that farming infrastructure in areas like British Columbia do not have adequate storage facilities to handle harvested grain. This jam has freshly harvested grain on halt hoping to be sent by rail immediately.
If this strike continues over an extended period of time, this grain stands the chance of being a complete loss. Farmers in the area are sitting on pins and needles hoping an agreement is made and commerce returns to normalcy. Ag products make up nearly 25% of railway shipments between the two impacted railways. This could have a major impact on individuals and businesses across the Canadian provinces as well as deep into the U.S.
The ripple effect this poses just adds into the long line of hits that seem to be stacking up against U.S. markets. Fundamentals and infrastructure continue to tell U.S. that things are going to balance out. The slide we’ve seen over the last 60 days can be blamed for quite a few things, but most of the reasoning is indirectly related to cattle production. This election year is creating headlines every day right now and November can’t come soon enough. Simply put, the markets need confidence again and constant derogatory news continues to give reason to suppress any chance of gains.
In other words, we need to get all the trains back on the tracks and get back to work. — LOGAN IPSEN
