Canada’s rail work stoppage could disrupt Canada’s supply chains, costing billions of dollars and tens of thousands of jobs. Supply chain snarl could also put upward pressures on prices just as inflation returns to 2.5%.
But on a broader scale, the impact would be minimal and short-lived if workers return to work quickly.
The Canadian Pacific Kansas City railway and Canadian National Railway were shut down on Thursday as nearly 10,000 unionized workers were locked out in a labour dispute.
Although the Canadian government swiftly stepped in to end if after just a single day, the Canadian National Railway union with 6,500 members was preparing to strike on Monday.
The swift government action speaks to the vital role of the Canadian rail shipping networks that serve as the backbone of transportation of materials and finished products.
The two companies carry about $1 billion of goods each day and 375 million tons of freight a year, connecting Canada from coast to coast and carrying goods across Canada, the United States and Mexico.
To put things into context, Canadian Pacific Kansas City railway and Canadian National Railway together account for three quarters of the railway industry’s tracks and the overall tonnage carried by the rail sector.
One of the most immediate and visible impacts of a rail strike is the disruption of supply chains. A rail strike puts a stoppage to the delivery of raw materials and finished goods, halting production.
Read more of RSM Canada’s insights on the supply chain, the economy and the middle market.
The industrial sector, especially the auto industry, and agricultural products might be the hardest hit as they rely on timely transportation.
Such a significant disruption would force auto manufacturers to pause production as they run out of parts. Agricultural products could be perishable, and delayed transportation could lead to spoilage and financial losses.
For businesses using just-in-time supply chains with leaner inventory, the impact is even more severe because they would run out of parts more quickly.
The series of supply chain disruptions that began with the COVID-19 pandemic seems to keep continuing.
Canada’s growth has already been lackluster this year because of high interest rates. The rail strike, if prolonged, threatens to lower output, undermine growth and raise inflation, which would further delay recovery.
Even if the strike is resolved quickly and significant damage is avoided, this strike is the latest of events that highlight the need for companies to develop supply chain resiliency to address the wide range of risks to operations.
