A drone view shows loaded freight rail cars sitting in a Canadian National Railway Co. yard in North Vancouver on Aug. 22.Jesse Winter/Reuters
Fraser Johnson is the Leenders Supply Chain Management Association Chair at the Ivey Business School at Western University in London, Ont.
Canada’s transportation network is a cornerstone of our national economy. The safe and efficient movement of people and goods is essential to our position as one of the world’s most advanced economies.
Unfortunately, a major labour disruption in the rail sector has shaken our supply chains and showed us how crucial railways are to Canada’s economic well-being.
After several months of labour negotiations, a lockout, strike notices and government intervention, the situation is still playing out. Railways are slowly resuming service after the Canada Industrial Relations Board imposed binding arbitration at Ottawa’s request, ordering union members back to work. The Teamsters union is planning to challenge the decision in court, meaning further disruption could be ahead.
How did we get here? Tight-fisted railway companies? Greedy unions? Ineffective political leadership? At this point, what is clear is that the system for negotiating labour agreements in the Canadian rail sector is broken and changes need to be made.
I propose that the Federal Government recognize the critical importance of our railroads and classify the industry as an essential service.
In Canada, people in jobs considered essential to public safety and security, such as health care and utilities, must continue reporting to work during a strike. Employers and unions agree on which roles are essential to ensure their work is not interrupted. I believe railways should be recognized as essential, too, given how crucial this service is to Canada’s economic well-being.
This proposal is not a radical concept. For example, the Railroad Labor Act has allowed the United States to avoid major disruptions to its railroad system through an established, industry-specific process of negotiation and mediation procedures.
Canada’s two Class I freight railways, Canadian Pacific Kansas City Ltd. (CPKC) CP-T and Canadian National Railway Co. (CNR) CNR-T, haul approximately $380-billion in freight each year. Their services are vital to supply chains for the agriculture, forestry, mining, and auto manufacturing industries. Ports in Vancouver, Montreal, and Halifax rely heavily on rail for inbound and outbound freight, and farmers need the ability to ship their crops to markets.
These industries do not have a Plan B to replace rail. Substituting trucks is not an option for a number of practical reasons. The materials management and logistics processes in these supply chains are set up for rail. Trucking is much more expensive and the industry is grappling with capacity and congestion issues, as well as driver shortages.
It may take weeks for the supply chain to recover from the brief shutdown that affected Canada’s railways last week, and full economic impact is not yet known.
A longer shutdown of the rail system would be devastating for Canadian farmers, businesses and workers. The Conference Board of Canada estimates that a two-week rail strike would result in a $3-billion loss in nominal GDP, including $1.3-billion loss in labour income and $1.25-billion loss in corporate profits. The lower economic activity would also erode provincial and federal government revenues. Canadians would start to see the effects with rising prices for food and other essentials.
This is not just a Canadian issue. A protracted shutdown of the rail system would have major supply chain implications for our other global trading partners. We are a trading nation, with $1.54-trillion of merchandise trade (imports and exports combined) in 2023. The U.S. is our largest trading partner with about $3-billion in goods flowing across the border each day.
U.S. Secretary of Transportation Pete Buttigieg has said his department is closely monitoring the negotiations with an eye toward any potential supply chain impacts. The Canada-United States-Mexico Trade Agreement comes up for review in 2026, and I expect the risks to integrated North American supply chains from Canadian rail disruptions will be an issue in negotiations.
I recognize that my proposal for designating rail as an essential service comes with significant challenges. Labour negotiations are complex, with multifaceted of monetary and nonmonetary issues, and both parties need to be committed to the final outcome. Unions and some legal scholars will be concerned about interfering with workers’ rights to collectively bargain and strike. Railways will want assurances that their contracts will not fall out of line with industry peers.
I get it – change is difficult. However, the consequences of not changing are too significant. Canadians can no longer afford to endure the costs and uncertainties caused by intransigent stakeholders during the railway contract negotiation cycle every three years.
We are not out of woods yet in the latest labour dispute. There will certainly be more legal arguments and posturing ahead. In the meantime, the damage to our economy and international reputation has been done.