In a labor dispute that could have serious repercussions for cross-border trade between Canada and the United States, Canada's two largest railroads, Canadian Pacific Kansas City (CPKC) and Canadian National, have started to shut down their shipping networks. The conflict with the Teamsters union has led to the suspension of certain shipments of hazardous materials and refrigerated products.

Both railroads have issued ultimatums, warning that they will lock out Teamsters Canada workers starting Thursday if agreements cannot be reached. CPKC announced that it would cease all shipments originating in Canada and the U.S. headed for Canada on Tuesday. Canadian National, on the other hand, has barred container imports from its U.S. partner railroads, according to reports from The Canadian Press.

The implications of a prolonged work stoppage could be significant, as the two railroads handle approximately 40,000 carloads of freight daily, valued at around $1 billion. Industries such as fully built automobiles and auto parts, chemicals, forestry products, and agricultural goods would be particularly affected, with the upcoming harvest season compounding the potential disruptions.

Edward Jones & Co. industrials analyst, Jeff Windau, predicts that if the work stoppages continue for an extended period, supply chain disruptions could be substantial. The railroads play a vital role in the economy, as they service a wide range of industries across Canada and the U.S.

Despite the looming disruption, both Canadian railroads maintain extensive networks in the U.S., with CPKC also serving Mexico. These operations will remain functional even in the event of a work stoppage. CPKC has expressed its commitment to avoiding damage to Canada's economy and international reputation but emphasizes the need to take prudent measures to prepare for a potential rail service interruption.

Negotiations between the railroads and the union, representing nearly 10,000 workers, are ongoing. Contracts expired at the end of 2023, and talks have been taking place since November last year. Crew scheduling, rail safety, and worker fatigue are cited as the main sticking points in the negotiations. Rail workers' quality of life, especially regarding demanding schedules and the absence of paid sick time, has been a long-standing concern.

There is some hope that the trucking industry, which currently has excess capacity, may be able to mitigate the impact by handling some of the railroads' shipping volumes. However, it is clear that trucking alone cannot fully replace the efficiency and capacity of the rail network.

As the situation unfolds, the railroads and the union will continue their negotiations in the hopes of reaching a resolution that allows both sides to return to productive operations. The impact of a prolonged work stoppage would have far-reaching consequences for the North American supply chain and the economy as a whole.