Rail Blockades Disrupt Supply Chains For Food

Manufacturers are scrambling to deliver products, industry associations are warning of potential shortages of food items, propane, and chlorine for water treatment, and mining companies are curtailing production as rail blockades by Indigenous groups and environmental activists continue to paralyze Canada’s transportation infrastructure

by Naomi Powell – Financial Post

Canadian National Railway began shutting down all operations in Eastern Canada and Via Rail cancelled most passenger service nationwide Friday as protests in support of Wet’suwet’en Nation opposition to the Coastal GasLink pipeline in northern British Columbia moved into a second week.

Demonstrators have blocked railways in B.C. and Ontario, crippling crucial arteries for industrial supply chains that operate on a just-in time basis. And as trains ground to a halt, unions were notified by CN, Canada’s biggest cargo railway, to be prepared for potential layoffs.

“This is not the kind of thing you can take a wait and see approach on for too long because this is potentially a catastrophe for the Canadian economy”

 

“Rail is the backbone of infrastructure in this country, critical for industry but also for inter-city movement of goods,” said Brian Kingston, vice president of policy, international and fiscal Issues at the business council of Canada. “This is not the kind of thing you can take a wait and see approach on for too long because this is potentially a catastrophe for the Canadian economy.”

The crisis in the nation’s rail system is hitting at a particularly difficult time for the economy, already wounded by the coronavirus and still recovering from an eight-day strike that shut down CN’s operations in November. Half of Canadian exports move via rail to ports and then on to global markets, with CN alone moving $250 billion in goods annually, Kingston said.

The Parliamentary Budget Officer recently downgraded fourth quarter growth to 0.3 per cent from 1.6 per cent, citing the strikes at CN strike and General Motors. Projected first quarter growth was subsequently reduced too, to 1.5 per cent from 1.8 per cent — largely due to concerns about the impact of the ongoing coronavirus outbreak.

Those dampened figures cast doubt over the prospects for an already slowing economy, expected to grow at just 1.6 per cent in 2020, according to the federal government’s forecast, Kingston said.

“That’s half the speed of the average growth of the G20 so it’s not like were at the top of the table to begin with,” he said. “Then factor in the downgrade for coronavirus, plus this rail situation and it becomes very difficult to see how we achieve even that very modest growth forecast.”

Retailers and food producers warned that an extended strike could lead to shortages of groceries and household products on shelves, and the “spoilage of fresh foods.” While urban centres would not escape the impact, smaller communities would be particularly affected.

“This is not solely a food supply issue,” the Retail Council of Canada and Food and Consumer Products Canada said in a joint statement. “Among the type of goods impacted are items like personal hygiene products, infant formula, fire alarms and the type of cleaning and sanitary products that help deal with concerns about the spread of influenza and other infectious diseases.”

As in other sectors, firms were switching to alternate transportation already in short supply, including trucking, the statement said. But for some goods including bulk agricultural commodities, mining products and hazardous chemicals, trains are the only way to move products.

Chlorine to treat drinking water, jet fuel and chemicals used in de-icing fluid are all particularly dependent on rail.

“When you get into hazardous products like chlorine, you can’t put it on a truck and send it down the 401 (Highway) at 100 km an hour,” said Bob Masterson, chief executive of the Chemistry Industry Association of Canada. “These things are very important to public safety and they’re not getting through. So how long can this go on before we are in a crisis? We are dangerously close to finding out the answer to that question.”

Meantime, some mining companies — which rely heavily on rail to ship raw materials into their operations and carry products out to market — are experiencing serious disruptions while others have had their service severed altogether.

In 2018, the industry was responsible for 20 per cent of Canada’s exports, valued $104.5 billion.

“Not all of that moves by rail but most does,” said Brendan Marshall, vice president of economic and northern affairs at the Mining Association of Canada.

“I’ve been talking to companies across the country and some have already begun operational curtailments knowing they only have so much storage space before they shut down.”

Worn down by a string of rail disruptions, some customers, he says, are considering shifting their supply source away from Canada, he added.

“This is indicative of the level of concern out there.”

It’s too soon to say how much the blockade, now on its eighth day, will cost CN. But the impact on its operations is comparable to the recent labour strike, when 3,200 conductors and rail workers walked off the job during collective bargaining, forcing the railway to scale back operations to 10 per cent of capacity.

At the time, CN warned the labour action would cut earnings by an estimated 15 cent per share. In January, it reported revenue fell $224 million to $3.58 billion in the last three months of 2019, down 6 per cent from the same quarter in 2018. Operating profit fell 16 per cent to $1.21 billion.

The railway blamed both the strike and weaker economic conditions for the revenue drop, although it did not allocate a dollar figure to the strike. Once a tentative deal was struck, it took about three weeks for normal operations to resume. But new government rules that’s expected to slow down train traffic means it could take longer for CN to recover from the blockades.

Last week, Transport Minister Marc Garneau issued a ministerial order forcing trains carrying dangerous goods to slow down in response to three derailments of trains carrying crude oil over the last year. The 30-day order cuts the speed limit in half to 25 miles per hour from 50 mph across the country and down to 20 mph from 40 mph in metropolitan areas with populations over 10,000 people.

Passenger train carrier Via Rail also shut down the vast majority of its operations given its trains run on CN tracks. Tens of thousands of customers have been affected, with Via offering refunds for passengers whose travel plans were cancelled.

Via Rail did not reply to questions about how much the disruption is expected to cost.