U.S. economy could be hit hard by lockouts at Canada's two major freight rail companies

Canada's two major freight railways have been completely shut down due to a contract dispute with their workers, a standoff that could cause significant economic harm to businesses and consumers in Canada and the United States if trains don't resume running soon.

Canadian National Railway and CPKC both locked out their workers after the 12:01 a.m. Eastern deadline passed without new agreements being reached with the Teamsters Canada Rail Conference, which represents some 10,000 engineers, conductors and dispatchers.

All rail traffic within Canada and all shipments crossing the U.S. border have been halted, although CPKC and CN trains will continue to operate in the United States and Mexico.

According to the U.S. Department of Transportation, billions of dollars worth of goods move between Canada and the United States by rail each month.

“If rail service is disrupted, businesses and families across the country will feel the impact,” Jay Timmons, president and CEO of the National Association of Manufacturers, said in a statement. “Manufacturing workers, their communities and consumers of all kinds of products will be reeling from supply chain disruptions.”

A worker boards a locomotive at a CPKC rail yard on Aug. 21, 2024, in Kansas City, Mo. Charlie Riedel/AP

There will also be other impacts, including on the more than 30,000 commuters in Vancouver, Toronto and Montreal who will have to scramble to find a new way to get to work because their trains will not be able to run on CPKC tracks during the rail closure.

Business groups have urged the government to intervene, but Prime Minister Justin Trudeau has refused to force the two sides into arbitration for now.

CN said it was awaiting a response to a final offer made Wednesday night during the workers' lockout. Patrick Waldron, a spokesman for the CPKC, said the union rejected the last offer CEO Keith Creel made in person at the bargaining table. Both railroads have said they would end the lockout if the union agrees to binding arbitration.

“Despite the lockout, the Teamsters remain at the negotiating table with both companies,” the union said in a statement.

CN had been negotiating with the Teamsters for nine months while the CPKC had been trying to reach an agreement for a year, the unions said.

Potential impact of lockouts

Many companies across all sectors rely on railways to deliver their raw materials and finished products. Without regular rail service, they could be forced to reduce their operations or even close.

That's why the U.S. government prevented railroad workers from striking two years ago and forced them to accept a contract despite their concerns about demanding schedules and lack of paid sick leave.

Manufacturing companies may have to cut production or even shut it down if they can't get rail service, while ports and grain elevators will quickly become clogged with shipments waiting to be shipped. And if the dispute drags on for a few weeks, water treatment plants across Canada could be left scrambling without new chlorine deliveries.

“If the railways don't handle the cargo coming in by ship, your terminals will soon be full. At that point, you won't be able to accommodate any more ships at the terminal,” said Victor Pang, chief financial officer of the Vancouver Fraser Port Authority.

He pointed to the 13-day strike by 7,400 longshoremen in British Columbia last summer, which manufacturers say blocked the flow of goods worth C$500 million (US$368 million) each day.

Some companies would probably use trucking to transport some of their products, but it is impossible to compensate for the volume of goods transported by rail. It would take about 300 trucks to transport everything that a single train can carry.

Canadian railways have occasionally been temporarily shut down in the past during contract negotiations (the most recent case was in March 2022, CPKC), but it is rare for both lines to shut down at the same time. The impact on businesses will be amplified because both CN and CPKC have ceased operations.

Since last week, CN and CPKC have begun to gradually close their tracks in anticipation of the contract expiry. Shipments of hazardous chemicals and perishable goods have been the first to be stopped, so that they do not get stuck somewhere on the tracks.

As negotiations on the Canadian contract drew to a close, one of the largest U.S. railroads, CSX, ended the U.S. freight rail industry's longstanding practice of negotiating jointly with unions for years. CSX reached an agreement with several of its 13 unions, representing 25 percent of its workers, ahead of the start of national negotiations later this year.

The new five-year contracts include 17.5 percent raises, better benefits and vacation time if ratified. Unions that have signed deals with CSX include part of the SMART-TD union that represents drivers in one region, the Transportation Communications Union, the Brotherhood of Railway Carmen and the Transport Workers Union. TCU President Artie Maratea said he was proud his union reached a deal “without years of unnecessary delays and stalling tactics.”

Trudeau's Dilemma

Trudeau has been reluctant to force arbitration because he doesn't want to offend the Teamsters Canada Rail Conference and other unions, but he urged the two sides to reach a deal Wednesday because of the enormous economic damage that would follow a full shutdown.

“It’s in the interest of both sides to continue to work hard at the negotiating table,” Trudeau told reporters in Gatineau, Que. “Millions of Canadians, workers, farmers and businesses across the country are counting on both sides to work and reach a solution.”

Many business groups are urging Trudeau to act.

Trudeau said Labour Minister Steven MacKinnon met with both sides of the CN talks Tuesday in Montreal and would be at the CPKC talks in Calgary, Alta. MacKinnon later said he had concluded his meetings with the railways and the Teamsters.

“Workers, farmers, commuters and businesses cannot wait. Canadians need negotiations to happen urgently. The parties must reach agreements now,” he wrote on the social platform X.

Negotiations have stalled over issues related to how rail workers are scheduled and concerns about rules designed to prevent fatigue and ensure adequate rest for train crews. Both rail companies have proposed moving from the current system, which pays workers based on the miles traveled on a trip, to an hourly system that they say would make it easier to provide predictable time off.

The railways said their contract offers included increases in line with recent industry agreements. Engineers earn about $150,000 a year at Canadian National, while conductors earn $120,000, and CPKC says its salaries are comparable.

More information on CBS News

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