The shutdown of Canadian railroads is stranding billions in U.S. trade, with the economic impact continuing to grow daily.

• During peak shipping season, over 9,000 rail union workers in Canada were locked out by Canadian National Railway and Canadian Pacific Kansas City, leaving billions of dollars worth of U.S.-bound trade in limbo.
• Approximately 20% of U.S. trade first arrives in Canadian ports, with Vancouver and Prince Rupert being the primary destinations. Two-thirds (66%) of cargo arriving at Vancouver is transported by rail to final destinations in Canada or the U.S. Midwest.
• The cargo comprises fertilizer, iron ore, grain, cement, salt, coal, cars, timber, and containers filled with consumer goods or intermediate parts. The longer the labor unrest persists, the more significant the economic impact will be on both the U.S. and Canadian economies.

The trade relationship between Canada and the U.S. has been disrupted due to the lockout of over 9,000 freight rail workers by the Teamsters Canada union, leaving billions worth of cargo in limbo.

The halt of cross-border trade with the U.S. has resulted in a 14% decrease in total bilateral trade between the countries, which amounts to $382.4 billion in the first half of the year. Additionally, $572 million in container trade arrives daily in the U.S. from Canada, as per U.S. Census data.

Rails play a crucial role in logistics for various companies, including Dow Chemical, Ford, and General Motors, which use them to transport auto parts. Retailers such as Walmart, Target, Nike, Procter & Gamble, and Canada Goose also import goods into Canadian ports and transport them by rail and truck. According to Everstream Analytics, 66% of cargo arriving at the Port of Vancouver is moved by rail to final destinations in Canada or the U.S. Midwest, including fertilizer, iron ore, grain, cement, salt, potash, coal, cars, wood/timber, containers loaded with consumer goods or intermediate parts.

The American Apparel & Footwear Association President and CEO Steve Lamar urged the union and management representatives to return to the negotiating table until a long-term deal is reached.

"Lamar stated that rail is a vital component of the ecosystem that helps you get dressed daily. The work stoppage/lockout at Canadian National and the strike at Canadian Pacific Kansas City occur at a crucial time for back-to-school and the start of the holiday inventory rush. Approximately 30% of clothes, shoes, and accessories are transported by rail. Ensuring the smooth flow of goods supports not only the jobs at stake but also the jobs of millions of workers in the supply chain."

In a letter to Canadian Labor Minister Steve MacKinnon, Union Pacific CEO Jim Vena stated that up to 2,500 of his railroad's cars could be stuck in Canada. He explained that for every day of disruption, it could take at least 3-5 days to recover, with the possibility of even more time due to the impact of two Canadian railways.

In anticipation of lockouts, ocean carriers and U.S. rail companies have announced contingency plans and fees. Hapag-Lloyd added a $350 diversion fee for imports to North America that were slated for Canadian ports with inland U.S. delivery. Maersk and Norfolk Southern adjusted their business plans ahead of a potential strike. CMA CGM issued a notice outlining the potential rerouting of vessels to U.S. ports and restrictions on rail shipments. Companies also started embargoes on specific intermodal shipments, including hazardous materials and temperature-controlled containers.

In 2023, the U.S. exported $28.5 billion of chemicals to Canada, which accounted for 17.4% of total U.S. chemical exports, according to Rob McRae, vice president of transportation for Univar Solutions.

"McRae stated that the disruptions caused by these types of strikes have significant consequences on our supply chain. As Canada ranks first in U.S. exports and imports $24.3 billion of chemicals from the U.S. annually, both sides must come to an agreement quickly to prevent the strike from negatively affecting not only our industry but also our country."

The rail battle involves various chemicals, including sulfuric acid, phosphates, acetone, sodium fluoride, and sodium bicarbonate, which are used in various industries such as drain cleaning, laundry detergent, nail care, toothpaste, and baking soda. These chemicals are transported from West Coast ports in Canada to the U.S. via rail, along with additional products like paint, food, power drinks, water purification, and personal care products.

ITS Logistics' vice president of global supply chain, Paul Brashier, cautioned about increased trucking rates as customers shift their rail-bound freight to roads.

""Rates will skyrocket due to the high demand for containerized freight, causing operations to halt and requiring all freight to be moved to the road for both domestic and international shipments," Brashier stated."

Experts believe a prompt resolution can be achieved through either a negotiated agreement or Canadian government intervention, according to logistics experts who spoke to CNBC.

"Francois Laporte, president of the Teamsters Canada, stated on CNBC that the decision to stop the operation, take hostage the economy, and involve exporters and farmers is not theirs. Instead, it is the responsibility of the railway company to bear the consequences of their decision."

"The union is waiting for the call from the railroads to restart talks. The discussions can start anytime, and it's a matter of the employers and both parties to go back to the bargaining table," Laporte said.

CN has made numerous attempts to reach a mutually beneficial agreement with the Teamsters, but the union has not shown any willingness to cooperate. As a result, CN has been forced to take drastic measures and proceed with a lockout.

A spokesperson for Canadian Pacific in Kansas City informed CNBC that the company has restated its offer to resolve the issue through binding arbitration.

CNBC reported that Laporte stated that arbitration is not the solution. "The truth is that companies must take responsibility, like we do, and negotiate in good faith. We don't believe that a third-party must determine the working conditions of 9,000 people, so let's go back to the bargaining table. ... They are probably graduates from the Trump University because they lie like they breathe."

The length of rail worker shifts and the rest periods granted to workers between shifts are the main issues in negotiations.

Laporte stated that he wants to maintain the language in our collective agreement that safeguards our members' working hours and rest periods. However, just 24 hours after our meeting with the labor minister two weeks ago, they announced a lockout, which will take place on August 22. How can you claim to negotiate in good faith when you have taken such drastic action?

According to Paul Bingham, director of transportation consulting at S&P Global Market Intelligence, a disruption of a day or two will have a minimal lasting impact on the economy. However, if the disruption extends beyond that, it will tend to increase in impact every day due to the increasing amount of time after the disruption is over for the transportation system and supply chains to recover. As backlogs grow at production and rail network interchange locations, it will take longer and longer to work through the backlogs, which takes time and increases the costs, Bingham said.

Data reflected a limited number of front loading of energy and chemicals.

Last summer, the ILWU Canada labor union's 13-day strike affected Canadian rail service, causing a supply chain pinch for companies. The Canadian Manufacturers & Exporters Association estimated that the port strike disrupted $380 million a day in trade. Logistics experts are warning that the dual rail strike could have a more devastating impact on the Canadian economy.

Annually, approximately $277 billion worth of goods are transported on Canada's railways, with 75% of all exports being shipped to the U.S through CN and CPKC. The Canadian railway network connects crucial U.S. transportation hubs, including Chicago, New Orleans, Minneapolis, and Memphis.

The Canadian West Coast port strikes last year caused a significant delay in rail freight, with it taking several months to clear the backlog.