Trucking industry and logistics leaders said the lockout by Canada’s two largest railroads on Thursday could produce severe consequences for domestic and cross-border carriers.
The contract dispute between Canadian National (CN) and Canadian Pacific Kansas City (CPKC) and 9,300 employees represented by the Teamsters Canada Rail Conference (TCRC) is centered around higher pay and improved benefits, as well as provisions for more predictable work scheduling.
The railroads and the TCRC said a lockout was underway after both sides failed to reach an agreement on a new employment contract by 12:01 a.m. Eastern time Thursday. CN and CPKC have been negotiating with the union for the past five months.
“The impact is going to be horrific on our supply chain,” Mike Millian, president of the Private Motor Truck Council of Canada (PMTC), told FreightWaves in an email. “The removal of one train load requires roughly 300 trucks to move the same product. We simply do not have that kind of capacity available in the network.”
PMTC is an association representing private fleet operators across Canada.
“Ports are going to be affected, with many ships being diverted to other ports out of a concern that their product will not be able to be moved as most ports rely heavily on rail to move containers out of their port and across the country,” Millian said. “One of our members reached out and indicated that they have invested heavily in their intermodal network in the last several years and the rail shutdown will affect 65% of their revenue, which will be catastrophic, and in the near term is going to lead to having to park trucks and lay off workers.”
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Scott Shannon, vice president for Canada at C.H. Robinson, said the rail lockout could cause a spike in trucking spot rates.
“Any time you have an event that causes a surge in trucking demand and sudden tightening of capacity, costs in the spot market can increase dramatically. In the past, we’ve seen rates in Canada double overnight,” Shannon said in an email to FreightWaves.
Freight between the U.S. and Canada totaled $774 billion in 2023, according to the Bureau of Transportation Statistics. In 2022, trucks accounted for 55% of freight movements between the U.S. and Canada, compared to 16% by rail.
Freight forwarding giant C.H. Robinson handles about 650,000 cross-border shipments between Canada and the U.S. each year.
“Starting last Thursday, carrier spot rates began to creep up and kept going up each day as the strike date got closer,” Shannon said. “Now they’re increasing rapidly, particularly for loads within Canada traveling east to west. From west to east, we may see those rates edge up as more vessels arrive with cargo that can’t get on the rails. Truckload shippers with spot freight as well as rail shippers looking to convert should expect not only higher costs but also longer lead times.”
David Spencer, vice president of market intelligence at freight brokerage Arrive Logistics, said the company is already seeing an increase in demand for transloading services, especially in the Pacific Northwest.
“With rail lines shut down in Canada, there is a greater demand for trans-loading services converting freight from rail equipment to van equipment, especially in Vancouver, Seattle and the Northwest Canada region going east, and the greater Toronto area heading both east and west,” Spencer said in an email to FreightWaves. “Transloading activity indicates increased spot market demand, and we are just starting to see a correlated spike in spot rates. We are also seeing a spike in tender rejections in the Canadian market, indicating further increased transportation prices, should things continue.”
In the event that the lockout goes on for a prolonged period, Shannon advised shippers to talk to their logistics providers about contingency plans.
“It’s especially our retail customers bringing in goods from Asia and Europe that are now tapping into our trucking capacity to keep their supply chains flowing,” Shannon said. “Simply put, retail goods that don’t make it to a shelf don’t get sold. But we’re advising customers to ship only the most critical freight, while we hold back their less urgent shipments until conditions are more favorable.”
Millian said if the lockout continues very long, it could have a huge impact on Canada’s economy.
“Many of our members rely on the rail network to move their products. Our members produce/supply such essential items as groceries, medical glasses, blood, chemicals for drinking water, fuel for autos, and many more,” Millian said. “These products will be affected and could lead to serious health and safety issues. The fact that we are in a situation where the citizens of our country are being held hostage by both of our major rail networks not operating at the same time is nothing short of ludicrous.”