Canada's Freight Rail Crisis: How the Looming Strike Could Skyrocket Trucking Costs and Disrupt Supply Chains
By Anna Mehler Paperny and Nivedita Balu
TORONTO (Multibagger) - Canada is on the brink of a significant freight rail stoppage, with potential ramifications across multiple sectors, including automotive and agriculture. The trucking industry, already stretched thin, is sounding alarms over an impending demand surge that it cannot fulfill.
Rail Strike: An Unprecedented Halt in Canadian National and Canadian Pacific Operations
Without imminent labor agreements, Canadian National Railway (TSX:) and Canadian Pacific (NYSE:) Kansas City—forming a duopoly in Canada's rail sector—are set to indefinitely halt operations this Thursday for the first time in history. This could severely impact the nation's heavy reliance on railways for transporting goods and commodities. Trains are already winding down as the strike or lockout looms closer.
Trucking Industry Under Siege
Daman Grewal, a senior operations manager at British Columbia-based Centurion Trucking, usually sees 20 to 30 online postings from shippers seeking routes east across Canada on a typical August Monday. However, this Monday, Grewal was hit with over 500 requests.
"Last week is when a lot of the panic started to set in," said Grewal, noting that trips which cost C$7,000 ($5,139) a few days ago now run up to C$9,000. "Similar to COVID, you see the scarcity in supply chain."
Centurion Trucking aims to increase capacity by 10% to 20%, mainly by reducing driver downtime. "We would just have to turn the drivers around a little bit quicker," Grewal added.
Industry's Limited Capacity to Adapt
Industry officials acknowledge that some softening in the economy has left room to increase capacity, but not enough to compensate for halted railways. Alberta Motor Transport Association president Robert Harper noted that some rail shippers have been trying to book additional truck capacity since February in anticipation of a disruption.
"The industry can help out in the short term by reallocating assets, but long-term solutions are impractical," Harper said. "You simply cannot replace long-haul rail distribution with trucks, as the industry lacks the necessary equipment and capacity."
No Plan B: The Domino Effect on U.S.-Canada Trade
U.S. freight forwarder C.H. Robinson estimates that 85% of U.S.-Canada cross-border road freight is handled by Canadian trucking carriers. "Any event causing a surge in trucking demand and sudden tightening of capacity can dramatically increase spot market costs. We've seen rates in Canada double overnight in the past," said Scott Shannon, C.H. Robinson's Vice President for Canada. This will not only result in higher costs but also longer lead times.
CN and CPKC have begun phased shutdowns of their networks ahead of the looming stoppage. The severity of the disruption will depend on its duration, according to Joseph Towers, a senior rail analyst at FTR Transportation Intelligence.
Government Intervention: The Last Resort?
Canada's federal government may have no choice but to intervene to end a stoppage that could cripple industries, suggested Fraser Johnson, a supply chain expert at Western University.
"There is no Plan B for these industries because it's not practical to substitute trucks for established supply chains that use rail. You can't snap your fingers and increase your capacity in terms of trucking."
($1 = 1.3620 Canadian dollars)
Breakdown: What This Means for You and Your Finances
Let's simplify this complex situation:
- Rail Strike: Two major railway companies in Canada might stop operating due to labor issues.
- Trucking Demand Surge: This stoppage would cause a dramatic increase in demand for trucking services, leading to higher costs.
- Scarcity and Costs: Just like during COVID-19, the supply chain will face scarcity, making transportation more expensive.
- Limited Alternatives: The trucking industry can't fully replace the capacity lost from halted railways, leading to potential delays and higher prices for goods.
- Government Intervention: The Canadian government may need to step in to resolve the issue to avoid severe economic impacts.
How It Affects You: If you're a consumer or business reliant on goods transported across Canada, prepare for potential delays and higher costs. This situation could lead to increased prices for everyday items, affecting your finances. Understanding these dynamics can help you make informed decisions and better prepare for any economic ripple effects.
By breaking down the rail stoppage's impact, we hope to make it clear how significant such an event could be for Canada's economy and your personal finances.