Source: Jamie L. LaReau, Detroit Free Press

Just when new vehicle inventory was improving in the United States and prices for new and used vehicles were easing, the auto industry faced a potential new crisis as Canada’s two major freight railroads on Thursday locked out nearly 9,000 Teamster members who run the trains, thereby, halting the rails in Canada.

The worst case apparently was averted by the Canadian government stepping in to demand arbitration, but the rail lines still may be down a few days.

It might seem to be Canada’s problem on the surface, but vehicles and auto parts are the top commodity transported by rail between the U.S. and Canada, to the tune of $4 billion worth of goods in the month of June alone, according to U.S. Department of Transportation.

In fact, in June 2023, the Detroit Free Press reported that some 70,000 new vehicles were stuck at carmakers’ factories due to a rail car shortage. So this new railroad shutdown could seriously disrupt automotive production and delivery of vehicles depending on how long it lasts.

Put simply: “If it goes on for more than three to four weeks, it’ll be a major, major problem. Parts will have run out and production lines will be stopped and workers will be laid off,” said Nick Little, director of Railway Education at the Eli Broad College of Business at Michigan State University.

But in a late-breaking report from CBC Thursday evening, Canada’s Minister of Labour Steven MacKinnon said the railroads could resume operations within days because he is sending the two labor disputes to binding arbitration. The report noted that MacKinnon said he directed the Canada Industrial Relations Board “to extend the term of the current collective agreements until new agreements have been signed and for operations on both railways to resume forthwith.”

In a statement late Thursday, Canadian National spokesperson Ashley Michnowski told the Free Press that the company remains at the table and its U.S. operations are not affected, but its cross-border trains remain parked at the border.

“We know too well the deeply integrated nature of the North American automotive supply chain, and how automakers across the industry are uniquely exposed to the impacts associated with this labour stoppage,” Michnowski said in an email. “We have tried to avoid this very situation by proposing serious offers over the last nine months.”

The situation is so serious that the American Automotive Policy Council has reached out to the White House.

“A prolonged railroad strike would severely disrupt the North American automotive supply chain, which is critical to the U.S. auto sector, its domestic manufacturing supply chain, and the hundreds of thousands of people employed in the industry,” former Missouri Gov. Matt Blunt, president of American Automotive Policy Council, said in a statement to the Free Press Thursday morning. “AAPC has been in contact with the Biden administration on behalf of our member companies regarding the potential impact on the U.S. auto industry and its employees.”

The American Automotive Policy Council is a trade group formed in 2009 by then-Chrysler (now Stellantis), Ford Motor and General Motors to represent the three on public policy matters.

Michael Booth, spokesman for the U.S. Surface Transportation Board, told the Detroit Free Press on Thursday morning that the board is monitoring the situation. He did not have an update beyond the statement the board issued last week that said, “If a strike occurs, the U.S. rail network and supply chain could be affected.”

The auto industry on high alert

John Bozzella, CEO of Alliance for Automotive Innovation, the auto industry’s lobbying group, said Thursday that the rail stoppage is “a concern,” given that freight rail moves three-fourths of all new vehicles purchased in the U.S. and carries 1.8 million carloads of vehicles and parts. The group is “closely monitoring” the rail situation in Canada and will have more to say as the situation develops, he said.

In a statement to the Free Press Thursday morning, GM spokesman Kevin Kelly said the automaker has been monitoring the status of the labor talks between the railroads and the Teamsters since earlier this week.

“We have contingency plans in place and do not expect our operations to be significantly affected in the short term,” Kelly said. “We are watching closely to gauge potential impact on our plants and suppliers.”

Reaction to the lockout from Ford Motor was not immediately available.

Stellantis — the automaker that makes Chrysler, Dodge, Jeep, Ram and Fiat vehicles — provided a statement late Thursday: “Stellantis is closely monitoring the situation with the Canadian railroads. There is currently no impact to our operations. As a precaution, the Company is taking the necessary actions to mitigate any potential impact to production or our ability to deliver vehicles to our customers.”

A delicate interconnectivity

The railroad stoppage highlights the important interconnectivity with the Canadian and U.S. automotive industry, said Joe McCabe, CEO of AutoForecast Solutions. He noted that with the just-in-time nature of the supply chain, “even a one-day disruption could have a negative impact on vehicle assembly on both sides.”

The action affects Canada’s two big freight haulers — Canadian National and Canadian Pacific Kansas City Southern.

The just-in-time process means a supplier delivers exactly the amount of parts needed at the time the auto manufacturers need them. It eliminates stocking big inventories and promotes an efficient manufacturing process.

Canadian Pacific connects key automotive manufacturing cities such as Toronto, Detroit, Chicago, San Luis Potosi, Mexico, and Toluca, Mexico, by shipping parts and vehicles, added Sam Fiorani, vice president of Global Vehicle Forecasting at AutoForecast Solutions. Some of those lines will likely be replaced by alternate methods of moving product, he said, but a prolonged shutdown will hurt many carmakers’ sales.

“Aside from the significant impact of shipping components to these plants, moving across North America, especially those shipped from Mexico, will cause headaches for dealers as they await new model replenishment for the fall,” Fiorani said.

More cost for carmakers

MSU’s Little said the automakers have known about the possibility of this work stoppage for several weeks as labor negotiations between the railroads and the Teamsters appeared to be approaching a stalemate. The car companies should have been making contingency plans and stocking up on inventory, Little said.

“There’s not a lot of spare inventory because of the just-in-time principles, so they will have moved away from that to a point,” Little said of plans to prepare for a rail stoppage. “The problem is the further you go into the supply chain, the less inventory that will be available.”

It means final assembly may not be possible if some key components from Canada are not available. Automakers might have to partly assemble a vehicle and park it for completion later, when they get the missing parts. That creates more cost for car companies because they have to pay people to assemble those parts later and if they run out of parking, pay to use vacant lots, Little said.

About 82% of all finished automobiles travel by train to their destination, Little said. A limited number of trucks is available to haul those vehicles to dealerships, meaning the price to ship by truck will soar if demand rises. Also, many trucks are driven by Teamsters.

“There’s the question of the fact that Teamster drivers may not cross the picket line or violate any principles the union has in this situation,” Little said.

The grain farmers may hold the key

Canadian Pacific Kansas City confirmed Thursday that it has locked out members of the Teamsters Canada Rail Conference Train and Engine division effective just after midnight Thursday. Canadian National also confirmed a similar lockout. A lockout is different from a strike, in which the workforce refuses to work. In this case, management is telling the union members they cannot work.

Canadian Pacific spokesman Patrick Waldron told the Free Press that the union represents CPKC’s roughly 3,200 locomotive engineers, conductors and train and yard workers and 80 rail traffic controllers, all in Canada. Canadian National did not provided a number of how many workers are impacted, but CNN reported it to be nearly 9,000 between the two railroads. According to CNN, this is the first time that both major Canadian railroads have simultaneously shut down because of a labor dispute. The most recent work stoppage was a 60-hour strike at Canadian Pacific two years ago and a nine-day strike at Canadian National in 2019.

In a media statement, Canadian Pacific wrote: “Throughout nearly a year of negotiations, CPKC has remained committed to doing its part to avoid this work stoppage. CPKC has bargained in good faith, but despite our best efforts, it is clear that a negotiated outcome with the TCRC is not within reach. The TCRC leadership continues to make unrealistic demands that would fundamentally impair the railway’s ability to serve our customers with a reliable and cost-competitive transportation service.”

Similarly CN provided a media statement that said it made an offer for improved wages and more days of rest. It said it proposed $75 Canadian ($55.10 in U.S. currency) an hour for locomotive engineers and $65 Canadian ($47.75) an hour for conductors. It also proposed a pilot project to provide more predictable pay and scheduling.

“The Teamsters have not shown any urgency or desire to reach a deal that is good for employees, the company and the economy,” CN’s statement read. “We urge the Teamsters to engage in these negotiations with the urgency and importance that this situation requires.”

CN’s statement read that without an agreement or binding arbitration, it had no choice but to proceed with a lockout.

The Teamster Canada Rail Conference posted a blog Thursday that said it made multiple offers, which neither company seriously considered. The roadblock to a contract has been the companies’ demands, it said.

“Throughout this process, CN and CPKC have shown themselves willing to compromise rail safety and tear families apart to earn an extra buck. 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,” Paul Boucher, president of Teamsters Canada Rail Conference, said in a statement.

There is one bright spot: The work stoppage is likely to not last long, Little said.

“In Canada, the government will step in very strongly because one of the most important things shipped in Canada is grain and the Canadian Farmers lobby is very powerful,” Little said. “They will force the government to do something and the government will probably try to broker a deal.”