CN and CPKC have locked out employees as of 12:01 a.m. Thursday. The industries to be most heavily impacted are those in bulk commodities. Canada is a major producer of grain, potash and metallurgical coal. In general, those industries have no reasonable method to get their products to market, which largely involves movement to ports for export, without the railways. Other impacted industries that move via rail carload include automotive, forest products, chemicals and petroleum. Grain producers might have it the worst since their storage capacity is limited and given the late summer/early fall timing, as illustrated below.
The work stoppage comes at an inopportune time for Canadian grain producers – the volume they move on rail starts to surge seasonally in early September. (SONAR: RTOGR.CAN)
In addition to the carload business, Canadian rail intermodal volume is being negatively impacted by the lockout. While truckload is often a viable substitute for rail intermodal in many lanes, in Canada, the modes are generally less interchangeable. Canadian intermodal is much more weighted toward international intermodal (primarily moving 40-foot oceangoing containers) rather than domestic intermodal (which uses domestic equipment and could be more easily rerouted by a multimodal intermodal provider). SONAR data shows that international/domestic is about a 70/30 split in Canada versus about a 45/55 split in the U.S. Plus, Canadian intermodal lengths of haul are longer. Major lanes include Vancouver, British Columbia, to Toronto and Prince Rupert, British Columbia, to Chicago. In short, it’s harder in Canada for truckload to pick up the slack.
Here are a few areas to watch in SONAR data as the lockout unfolds:
Vancouver
Vancouver is the largest Canadian port and is the biggest intermodal origination point. SONAR data shows that about 90% of the outbound Vancouver volume is international intermodal and Toronto is the largest destination, making up about half of total outbound Vancouver intermodal unit volume.
Intermodal waybills produced with Vancouver to Toronto as the origin-destination pair spiked in recent days, likely as a rush before a potential work stoppage. (Chart: SONAR – ORAIL.VANTOR)
Prince Rupert
Rail volume outbound from Prince Rupert has shown weakness since early July (see SONAR chart below). On their most recent earnings calls, both Canadian National (CN) and Union Pacific management teams said that vessels were being diverted from Canada to US West Coast ports; CN highlighted Prince Rupert as the Canadian port that is most impacted. Unlike most port cities, Prince Rupert has essentially no local consumption and is not a viable truck market since it’s so remote, so a lack of rail service would keep containers stuck in no-man’s land. Containerized imports at Prince Rupert are also largely for U.S. consumption centers, such as Chicago, which makes volume more vulnerable to diversion to the U.S. West Coast ports.
Prince Rupert has suffered from vessel diversions in anticipation of a work stoppage. Chart: SONAR – ORAIL.PRG.
Cross-border
Ahead of the work stoppage, cross-border shipments had been embargoed. That includes volume originating at the ports in the northeast U.S. destined for the cities in eastern Canada.
Cross-border containerized intermodal units from Canada to the U.S. and from the U.S. to Canada are shown in white and purple, respectively. (Chart: SONAR – ORAIL.CANUSA, ORAIL.USACAN)
Containerized rail shipments from Newark, New Jersey to Toronto. (Chart: SONAR – ORAIL.EWRTOR)
US West Coast
The U.S. West Coast ports and Class I railroads are seeing higher volume as a result of vessel diversions. That positive volume impact can negatively impact service if it puts too much pressure on the intermodal networks and equipment availability. Accordingly, Union Pacific issued a customer service alert Wednesday declaring Southern California a constrained market for domestic container capacity with pressure on the EMP and UMAX container fleets and is applying surcharges of $300-$500 per shipment.
Impacted by vessel diversions, international intermodal volume outbound from LA (which includes Long Beach) surged in recent days. (Chart: SONAR – ORAILINTL.LAX)