Now, a homegrown crisis threatens to hobble its export industries and stunt its already weak growth.
This week, thousands of workers at Canada’s largest rail company walked off the job in one of the largest nationwide labor strikes in recent memory. Shipments of exports like wheat, crude oil and aluminum — largely from its inland prairies and bound for the U.S. and the world — are grinding to a halt. Freight traffic has clogged up at the border. And shortages of propane risk leaving thousands in the two largest provinces without heat.
While the dispute itself, over working conditions and benefits for some 3,200 conductors and yard operators at Canadian National Railway Co., might sound like a local affair, the economic fallout is anything but. The five-day-old strike could shave off a quarter-point from growth this quarter if it lasts through Dec. 5, when lawmakers, who have the power to break the impasse, return from a hiatus. That’s considerable considering economists see Canada expanding at just a 1.3% annual rate during the period.
And crucially, it’s yet another blow to Canada’s beleaguered manufacturing and agricultural industries, which have been beset in recent years by trade tensions with the U.S., low commodity prices and high input costs.
“We’re going to take a further hit here,” said Pedro Antunes, the chief economist at the Conference Board of Canada. The strike exacerbates a “fundamental, underlying problem that is essentially the competitiveness, attractiveness of investment in Canada.”
Economic growth is already decelerating in Canada, partly as a result of ongoing global trade turmoil. For the year, economists see growth of just 1.5% — which would be half the country’s output in 2017.
In recent years, rail strikes have rarely lasted more than a few days. Talks between the company and union officials are ongoing in Montreal, but have shown few signs of an immediate resolution. On Thursday, CN Rail Chief Executive Officer Jean-Jacques Ruest said the company offered the union binding arbitration. The Teamsters Canada Rail Conference union, which has been without a contract since July, rejected that option.
Fresh signs of acrimony arose Friday, when the union put out a statement accusing the railway of manufacturing shortages of propane in order to force legislators to intervene.
The government, for its part, is urging the two parties to resolve the issue themselves and has shown reluctance to issue back-to-work legislation. That’s despite pressure from provincial ministers and industry associations, who say the disruptions will hurt every sector of the economy and are calling on lawmakers to return earlier to force workers back on the job.
In some ways, the strike is the first test for Prime Minister Justin Trudeau since his Liberal party’s hold on power was weakened in elections last month. As a minority government, Trudeau needs to rely on other parties to pass legislation. While Trudeau has the support of the Conservatives to end the strike, the risk is that pushing too hard could alienate the New Democratic Party, whose pro-labor members he’ll need to get other bills passed.
The stakes are high. Exports account for over 30% of Canada’s economic output, more than every other Group of Eight nation except Germany.
Its rail networks play a key role by transporting consumer goods, as well as canola, wheat, potash and other natural resources, to the seaports and points south. Oil exporters have increasingly turned to rail because of pipeline bottlenecks in Alberta’s oil sands.
Last year, more than C$92 billion ($69.3 billion) of exports were carried by rail in Canada, a fifth of total exports. CN Rail is one of its two main players and owns more than half of the nation’s tracks. (Goods are still flowing on the country’s other main network, Canadian Pacific Railway Ltd.)
In dollar terms, the strike could easily cost the Canadian economy more than C$3 billion in lost output by early December, according to TD Bank economists. That’s the conservative figure, they said. A lengthy halt in shipments would have knock-on effects on corporate profits. Canadian crude prices have already reacted to the news, falling to their lowest in a week.
The strike has almost halted shipments of crude oil at some rail terminals in Alberta at a time when pipelines are filled to capacity and trains are essential to maintaining exports of Canada’s most important commodity. The Tank Tiger, a terminal storage clearinghouse, received an inquiry to store about 30 rail tank cars for 30 days in the U.S. Pacific Northwest, after the cars couldn’t deliver crude to a terminal due to the strike.
Mining companies are also feeling the impact. If the strike continues, Hudbay Minerals Inc. could see an inventory buildup of zinc-copper concentrate and lagging sales in the fourth quarter, according to Credit Suisse.
Farmers in Ontario and Quebec, meanwhile, are being urged to limit drying of corn and soybeans as heating for residents and livestock is prioritized.
“This disruption comes at a challenging time for the Canadian economy,” said Brian DePratto, an economist at TD. “More pain is hardly what the manufacturing or agriculture sectors need right now.”