COVID was a powerful reminder of how interconnected our world is. If you can’t get computer chips from Taiwan, you can’t build cars. If you can’t get bike components when there’s a biking boom, shortages ensue.

In the post-pandemic world, we have new reminders. Russia's invasion of Ukraine pushed up food and energy prices; conflict in the Middle East curtailed shipments via the Red Sea; the strike at the Port of Vancouver sharply reduced Canada’s trade with Asia last summer.

Now a simultaneous labour stoppage, beginning at 12:01 EST today, has ground to a halt the two main rail lines in Canada (CN and CPKC).

About $380 billion of goods and services are transported by rail annually in Canada according to the Railway Association of Canada, or about $1 billion daily. This includes large shipments of food, fuel, wood, chemicals such as fertilizer and propane, and intermodal containers full of a wide variety of goods.

In Alberta, international merchandise exports alone (i.e. excluding interprovincial shipments) totaled $20.2 billion by rail in 2023 or about 12% of the province’s total international exports. That represents $55 million per day and more than any other mode except pipelines. But consider that most of Alberta’s exports flow via pipeline. Removing the ‘other’ category (mainly pipelines), the share was more than one-third. Further, much of Alberta’s exports are moved by rail to the Canadian ports and transported by water. Last year, $17.9 billion in Alberta’s international exports were transported via ship—but that doesn’t happen unless these goods find their way to the ports.

As shown below, the value of rail exports exceeds what is shipped by road, and there are both physical and labour constraints to switching modes.

The rail lines also bring goods such as manufacturing inputs and consumer products into Alberta, but reliable statistics on this side of the equation are not readily available.

While a rail stoppage will snake through multiple parts of the economy, it will hit sectors such as agriculture and industrial production particularly hard. For example, according to Alberta’s Industrial Heartland Association, 80% of products from that region move by rail.

Agriculture is a primary rail user: 94% of Canadian grain moves by rail, according to the Grain Growers of Canada. The timing of the stoppage is particularly problematic due to it being harvest season.

Other major Alberta exports moved by rail include petrochemicals, forest products and propane. Although most of Alberta’s crude oil moves by pipeline, rail plays a critical role and is needed to prevent backlogs. The added pipeline capacity provided by the recent completion of the Trans Mountain Expansion project is, however, expected to mitigate the impacts of the rail stoppage. Separate data on tonnage transported by rail shows the wide range of products shipped—from wheat to cement (see the chart below).

In addition to the supply chain issues, there is also reputation risk of Canada’s ability to be a long-term reliable supplier.

One thing is clear: the longer the stoppage, the bigger the impact and the longer it will take the economy to rebound. The Canadian economy narrowly avoided a technical recession in the second half of last year, output per person has been declining and the labour market has softened considerably.

This has quickly emerged as the top downside risk to the economic outlook. We will continue to monitor and hope for a timely solution.

Answer to the previous trivia question: Six of Canada’s 41 Census Metropolitan Areas have a population over one million (Toronto, Montreal, Vancouver, Calgary, Ottawa-Gatineau, and Edmonton).

Today’s trivia question: When did CP Rail merge with Kansas City Southern?