Update as of 5:30 p.m. ET, Friday Aug. 23: The Teamsters Canada Rail Conference has filed a 72-hour strike notice against Canadian National Railway, which means workers could go on strike as early as Monday, Aug. 26. "This is not about disobeying the minister’s order. It’s about exercising our right,” said Teamsters Canada President François Laporte. The stoppage at Canadian Pacific Kansas City continues.

Update as of 8:00 a.m. ET, Friday, Aug. 23: Canadian Labour Minister Steve MacKinnon has sent the dispute to the Canadian Industrial Relations Board for binding arbitration, which will force workers to return to their jobs, due to the critical role that rail plays in the North American economy and movement of goods. MacKinnon says train operations will resume "within days," though the railway companies say delays will last for a week or more. The Teamsters Canada Rail Conference calls the federal government's action "shameful." Still, at least some picket lines were reportedly already coming down on Friday.

Canada’s two largest rail networks were shut down this week after management failed to reach a deal on Thursday night with the union that represents thousands of workers. Now, the economic impacts of a lengthy stoppage may be far-reaching, including on the promo industry.

Almost 9,300 Teamsters union members that work for the Montreal-based Canadian National (CN) and Calgary-based Canadian Pacific Kansas City (CPKC) railways, including engineers, conductors and yard workers, were locked out at 12:00 a.m. ET on Thursday, Aug. 22, after failed talks over a new contract, particularly in the areas of wages, shift scheduling, work hours and fatigue management. Negotiations have been ongoing since last fall.

“The company consistently proposed serious offers, with better pay, improved rest and more predictable schedules,” said CN in a statement. “The Teamsters have not shown any urgency or desire to reach a deal that is good for employees, the company and the economy.”

The two railways control virtually all of the tracks in Canada – never before have workers at both companies been off the job at the same time. That raised significant concerns about the wide-ranging impact on the economy in Canada, both domestic and cross-border. The Railway Association of Canada estimates that about 6,500 containers cross from Canada into the U.S. by rail every day, including imports from Asia and Europe that have arrived at Canadian ports. Disruption to trains running from the U.S. into Canada is in play, too. Half of all Canadian exports, like grains, coal and timber, are moved on trains, according to the Association.

The Chambers of Commerce in both the U.S. and Canada have warned of “devastating” effects on both sides of the border. Indeed, U.S. officials are now worried about disruption to critical supply lines that serve a number of industries in the States, like agriculture, automotive, construction, energy and retail.

6,500
the number of containers that cross the border from Canada into the U.S. each day.(Railway Association of Canada)

“Throughout this process, CN and CPKC have shown themselves willing to compromise rail safety and tear families apart to earn an extra buck,” Paul Boucher, president of the Teamsters Canada Rail Conference, said after talks failed. “The railroads don’t care about farmers, small businesses, supply chains or their own employees. Their sole focus is boosting their bottom line, even if it means jeopardizing the entire economy.”

This week, as Labour Minister Steve MacKinnon traveled to both Montreal and Calgary to encourage a deal, Prime Minister Justin Trudeau also urged the two sides to come to an agreement. “Millions of Canadians, of workers, of farmers, of businesses across the country are counting on both sides to do the work and get to a resolution,” he said. Finance Minister Chrystia Freeland also decried the lack of a decision acceptable to both parties.

“It is entirely unacceptable for anyone to get in the way of that economic progress that we have all been making and that has been so hard-fought and so hard-won,” she said to reporters, adding that “we cannot tolerate a self-inflicted wound.”

Dennis Darby, president and CEO of Canadian Manufacturers and Exporters, told Canada’s Global News that a stoppage would be “catastrophic,” impacting more than $1 billion CAD in goods that the rail networks transport daily. He estimated that over $530 million worth of manufactured products would be stranded each day the lockout continues. Containers stuck at Canadian ports would cause major congestion and delays and force ships to reroute to U.S. terminals, which could result in slow-ups there as well.

$1 billion CAD
the value of the amount of goods transported by rail each day in Canada.(Railway Association of Canada)

Promo companies are now contending with uncertain days ahead. Before mid-day on Aug. 22, distributors were already receiving “shipment delayed” messages from delivery companies.

“Many of us woke up to our inboxes full of Delivery Exception Notices from UPS, mostly affecting shipments outside of Ontario and Carbon Neutral deliveries,” says Tonja Zander, bilingual account manager at TPS Promotions and Incentives (asi/341409) in Markham, ON. “It’s beyond our control, but we still feel the pressure from clients waiting on event-dated items. We’re hopeful this is short-lived, but even a three- or four-day stoppage can have effects lasting several weeks. We’re working on forecasting and managing possible longer-term impacts, including monitoring inbound shipments from offshore sources, urging clients to order holiday gifts earlier as stock replenishments may be delayed, and increasing timelines for all inbound and outbound shipments from our warehouse.”

Tierney Culmer, owner of Culmer Pen Company (asi/47848) in Mississauga, ON, is especially concerned about the effect the situation could have on Q4 sales, the industry’s busiest quarter. “We’re bracing for significant delays and major surcharges,” she says. Currently, Culmer Pen has several overseas shipments that are still on the water, which would have been railed to Ontario. Now, she’s working with her freight forwarder to figure out how to get the containers trucked from the Port of Vancouver to Toronto. It’s expensive though – Culmer is looking at about $5,400 extra on top of what was already quoted.

“If the stoppage continues for an extended period,” Culmer added, “it’s likely that both warehouse and trucking capacity will be strained, causing further delays, higher costs and overall major challenges across the Canadian supply chain.”

Indeed, companies across Canada have been exploring trucking as an alternative over the past few weeks, ahead of a possible stoppage. But capacity is limited, and the industry is short-staffed.

“One train is worth over 300 trucks,” said Darby. “There’s so much extra needed capacity. And for large items, for bulk items, for large machinery, there really is no alternative to rail.”

“The government will step in if it lasts too long in order to ensure the economy keeps moving forward. This is the last thing Canadian consumers and businesses need.” Sam Singh, Full Line Specialties (asi/199688)

Sam Singh, president and CEO of Full Line Specialties (asi/199688) in Surrey, BC, is optimistic that the lockout will be of short duration. “The entire country depends on the rail system for the movement of goods,” he said. “This is the last thing Canadian consumers and businesses need when you factor in the already high cost of goods, inflation and stock availability. We’ve started talking to clients about potential delays, and we’re preparing for air freight costs for some of our goods. Right now, we’re playing a wait-and-see game since we don’t feel it will last very long.”

Counselor Top 40 supplier alphabroder (asi/34063; Canada, 37143), recently acquired by Top 40 supplier S&S Activewear (asi/84358), has been preparing for a potential stoppage over the past few weeks.

“We’ve been working with our carrier partners to manage disruption, but we expect our inbound and outbound shipments, to and from Canada, to be impacted,” said Ted Simpson, the Richmond Hill, ON-based vice president of strategic accounts for Canada. He added that the company’s logistics team will have updates on disruption management plans, and they’re developing time lines on incoming inventory, transfers and orders of decorated hard goods that they’ll communicate with clients.

The stoppage will also affect commuter rail networks in major cities like Toronto, Montreal and Vancouver, as well as air transport – a large portion of the aviation fuel needed at Toronto’s Pearson Airport, the busiest in Canada, arrives by train.