Canadian Railroad Blockades Threaten Country's Productivity

Date : 02/20/2020 @ 2:28PM
Source : Dow Jones News
Stock : Canadian National Railway Company (CNR)
Quote : 111.87  4.14 (3.84%) @ 8:11PM

Canadian Railroad Blockades Threaten Country's Productivity

Canadian National Railway (TSX:CNR)
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2 Months : From Feb 2020 to Apr 2020

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By Paul Vieira 

OTTAWA -- Canada's economy is facing a blow from two weeks of protests that have blocked multiple railway lines, stranding shipments and snarling supply chains in key commercial corridors.

In the latest fallout from the blockades, the country's largest passenger-rail operator Wednesday issued temporary layoff notices for 1,000 workers, a day after Canadian National Railway Co. said it would temporarily lay off 450 workers of its own. Factories in central Canada could be next in sending workers home, said the head of a national lobby for manufacturers and exporters.

Economists said the stoppages threaten to shave 0.1% to 0.3% from economic output in February, adding the damage could be greater the longer the interruption drags on.

Protests obstructing rail lines in central Canada started Feb. 6, after police began enforcing a court order to remove people who were trying to prevent construction of a natural-gas pipeline in British Columbia. A group of indigenous leaders oppose the pipeline because of environmental concerns.

While one blockade has been resolved in British Columbia, others show no signs of dissipating in the important corridors of eastern Canada. Companies are either forced to deal with goods they can't ship to customers, or struggling to secure the parts and components required to produce their wares.

Businesses fortunate enough to secure a truck to ship are paying premium rates. Some, like CKF Inc., a maker of packaging for food products, have decided to eat the increased costs for now to keep customers satisfied. A logistics broker said freight rates for trucks have climbed as much as 20% since protests began.

The blockades "have caused some supply-chain chaos in our company," said Ian Anderson, president of family-owned CKF, which employs 800 people and makes everything from disposable plates to packages for eggs. "We will have to see how big this gets and how long this lasts, and what the consequences are."

Canadian National said it was forced to shut down its eastern Canadian network to ensure the safety of its employees and of the protesters. The main blockage -- near the town of Belleville in the eastern province of Ontario -- has cut off goods coming by freight rail from the eastern Canadian ports in Montreal and Halifax, Nova Scotia, to central Canada, and vice versa.

"This situation is regrettable for its impact on the economy and on our railroaders as these protests are unrelated to CN's activities, and beyond our control," the company said. Canadian National handles more than 250 billion Canadian dollars ($189 billion) of goods annually.

Via Rail Canada, the government-owned passenger-rail service, said that in addition to its temporary layoff notices, it has suspended nearly 600 trains since the blockades began, affecting an estimated 111,000 passengers. Some service hit by the blockades is expected to resume Thursday.

"We have done everything to mitigate the impact on our employees and our passengers," said Cynthia Garneau, Via Rail's chief executive.

Canadian Prime Minister Justin Trudeau said Wednesday the layoffs were "unacceptable," and his Liberal government was "doing everything we can to resolve this peacefully and quickly."

Canadian National has obtained court orders to have the protesters removed. Mr. Trudeau, however, said "elevating the temperature and going in forcefully is not going to solve this" because it could trigger a new round of protests.

Dennis Darby, president of the Canadian Manufacturers and Exporters, said his group's estimate is that up to C$450 million of goods a day are being left stranded because of the freight-rail interruption. Three-quarters of Canada's manufacturing capacity is in eastern Canada.

"This has gone from serious to critical," Mr. Darby said. "Manufacturers are suffering losses in terms of product that's perishable. And companies have told us they are going to start cutting shifts at plants. The ripple effect will be in the factories."

Todd Karran, chief executive of Nova Chemicals Corp., said the petrochemicals maker has yet to scale back production levels, and has found a temporary workaround by changing routes and using trucks.

"This is definitely more costly," said Mr. Karran, whose company has annual sales of $4 billion.

He said the risk of lost sales to customers in eastern Canada is mounting unless a resolution is in sight. "If we can't get our products on rail, we are going to lose to competitors in the U.S."

Canada's economy was expected to rebound in early 2020 after a weak fourth quarter -- weighed down in part by an eight-day labor strike at Canadian National, along with softness in exports and business investment. Data next week is expected to show Canadian output more or less stalled to end 2019, with the Bank of Canada forecasting a meager annualized advance of 0.3% in the final three months.

Derek Holt, economist at Bank of Nova Scotia, said the blockades represent a "shock to the system" because companies weren't prepared for the disruption.

"The economy has been a subpar performer compared to its peers like the U.S. for multiple quarters," Mr. Holt said. "These economic microbursts only compound the growth risks."

Write to Paul Vieira at paul.vieira@wsj.com

 

(END) Dow Jones Newswires

February 20, 2020 09:13 ET (14:13 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.

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