Cdn businesses fear a big hit from CN strike

Alicja Siekierska
Locomotives move through the Canadian National (CN) railyards in Edmonton February 22, 2015. CN Railway said on Sunday it is meeting with Unifor, the union representing 4,800 of its mechanical, clerical and intermodal staff, and hoped to reach a negotiated settlement or an agreement to enter binding arbitration over their contract dispute. Canada's No. 1 railway had called for binding arbitration on Friday when it first announced it was preparing to lock out employees represented by the union, a move it said could come as soon as Monday. REUTERS/Dan Riedlhuber  (CANADA - Tags: BUSINESS TRANSPORT EMPLOYMENT)
About 3,000 CN workers went on strike shortly after midnight on Tuesday. REUTERS/Dan Riedlhuber

Canadian industries are raising concerns about what Canadian National Railway (CNR.TO) describes as “a significant disruption to service” after about 3,000 of its rail workers walked off the job on Tuesday.

Teamsters Canada Rail Conference, which represents about 3,000 CN conductors, trainperson and yardworkers, went on strike just after midnight after the union and company failed to reach a negotiated settlement. Teamsters says that wages are not a sticking point in the negotiations, but that the union is “hitting a wall on issues related to health and safety.” The union is looking for changes to operating practices that it says are dangerous and is refusing to accept a lifetime cap on prescription drug coverage.

“We are disappointed that the TCRC has initiated strike action which will result in a significant disruption to service,” Janet Drysdale, CN’s vice president of financial planning, told an investor conference gathered in Toronto on Tuesday.

“We apologize to our customers, but we do appreciate their understanding that safety is always our first priority.”

The strike, the first at CN in a decade, could impact a range of industries that rely on Canada’s largest railroad to transport more than $250 billion worth of goods each year, including grain, oil and other chemicals.

Bob Masterson, president of the Chemistry Industry Association of Canada which represents more than 50 members in the chemical sector, said in an interview with Yahoo Finance Canada that the impact of the strike will be immediate, as CN began scaling back operations as of last weekend. Masterson said 80 per cent of the CIAC’s nearly $60 billion in business is shipped by CN, leaving many companies without alternatives

“Our average facilities are losing about $1 million a day,” Masterson said in an interview. “Some will be continuing to operate in the hopes that this can be settled in a day or two. But I would say for nearly all of our companies, if service isn’t restored within three days, they will have to suspend operations.”

For many grain farmers, the strike comes during an already challenging time, said Hannah Konschuh, an Alberta farmer and director at the Alberta Wheat Commission. This year, she says many farmers in the province faced a difficult growing season as well as a challenging harvest. Many crops have yet to be harvested.

“That, coupled with market conditions that have not been very favourable for farmers, has really affected farmers. To then add the strike on top of that is extremely concerning,” Konschuh said in an interview.

“If I’m not able to deliver my grain, I don’t get paid. And if I don’t get paid, it affects my bottom line. We’re really hoping the government will take whatever steps they can to avert the strike.”

While negotiations between CN and Teamsters continued on Tuesday with the assistance of federal mediators, some are calling on the federal government to intervene. Conservative leader Andrew Scheer and Alberta Energy Minister Sonya Savage both urged Prime Minister Justin Trudeau to recall parliament and enact emergency back-to-work legislation.

Trudeau has said he plans on reconvening parliament on Dec. 5. The Liberals, which secured a minority government in the October election, would have to get support from some members of opposition parties in order to pass back-to-work legislation.

Canada’s Labour Minister Patty Hajdu and Transport Minister Marc Garneau met with both parties in Montreal on Monday in hopes of reaching a deal before the strike deadline.

“The Government of Canada understands the importance of the rail industry and its workers to the Canadian economy,” Hajdu said in a statement released Tuesday.

“While we are concerned about the impact of a work stoppage on Canadians, we remain hopeful they will reach an agreement.”

The strike comes as CN cuts jobs and grapples with weakening sectors in the North American economy that has slowed demand for rail transportation.

Drysdale told investors Tuesday that the company has so far seen volume measured by revenue ton mile fall 11 per cent in the fourth quarter when compared to the same time last year. The weakness is most pronounced in manufacturing and commodities segments, she said.

“We are, like all of our peers in the transportation industry, dealing with a much weaker economic environment,” Drysdale said, adding that the company is now in the process of “recalibrating” resources to reflect the lower volume environment.

“We also had to take the difficult decision to adjust our labour workforce and are in the process of undertaking layoffs and some permanent adjustments across the network... We’re really trying to swiftly adjust to the reality of the volume that we’re seeing.”

CN faced significant service issues last year due to capacity constraints that slowed its network, particularly in Western Canada. While the company poured significant capital into improving its network, it hasn’t prevented some shippers from switching to its chief rival, Canadian Pacific Railway.

According to RBC Capital Markets analyst Walter Spracklin, shippers have been shifting market share from CN to CP in 2019, and that trend is expected to continue next year.

“For the third consecutive year, more shippers expect to transfer freight from CN to CP next year,” Spracklin wrote in the note to clients released last week.

“Despite CN’s investments in capacity, shippers are still planning to continue transferring freight from CN to CP in 2020 (net 11%).”

Download the Yahoo Finance app, available for Apple and Android.