This is how Canada’s railroad dispute threatens North American supply chains

Experts are weighing the wider implications of the halt in Canadian rail freight. “We could face increased volatility in freight rates, with potential spikes driven by supply-chain bottlenecks and congestion,” Christian Roeloffs, chief executive of online container-trading and -leasing platform Container xChange, said in a statement Wednesday. “Shippers and cargo owners should prepare for higher costs and possible delays as the industry adjusts to these challenges.”

Container xChange notes that railways are a critical part of the logistics chain for moving containers from inland locations to ports and vice versa. In Canada, railways handle a substantial portion of container traffic, especially for long-distance transportation across the country, the company said.

Related:Canadian freight railroads halted in potential disruption to U.S. commerce

Everstream Analytics, a supply-chain analytics company, said that despite the lockout of rail workers in Canada, ocean carriers are likely to continue calling at Canadian ports and will hesitate to divert ships too quickly. “This is due to longer distances, spill-over congestion, and different tariffs in the U.S.,” the company said in a statement.

Earlier this week, Danish ocean carrier A.P. Moller-Maersk said it was limiting Canada-bound cargo ahead of a possible railroad strike. “As we navigate the current situation affecting Canadian rail services, we are actively monitoring the evolving circumstances,” the company said in an update Thursday. “Our team is communicating with our rail partners and evaluating contingency strategies as the situation develops.”

The company added: “Please be advised that this remains a dynamic situation, subject to daily fluctuations.” A.P. Moller-Maersk said it is still accepting bookings from and to origins and destinations serviced by rail via Canadian ports.

In an update Thursday, shipping giant Hapag-Lloyd AG said that one of its vessels had completed operations in Vancouver and is now en route to Tacoma, Wash.; one vessel is currently working in Vancouver; one is scheduled to arrive Vancouver on Friday; and another is scheduled to arrive on Aug. 28. Three other vessels that were planned to arrive in Canada are currently under review due to the Canadian rail situation, the company said.

Related:Possible work stoppage at Canada’s two largest railroads could disrupt U.S. supply chain next week

If the rail lockout is not resolved quickly, many more container ships might be under review, and diversions to U.S. ports such as Seattle-Tacoma, Oakland and Los Angeles-Long Beach will start to pick up, according to Everstream Analytics. “During the 13-day port strike on Canada’s west coast in 2023, more than 17 container ships were eventually diverted to other ports, with many more having been forced to wait at anchor, causing substantial delays,” the analytics company said. “It took several months before the backlog could be cleared.”

Everstream Analytics also cited the possibility of dockworkers in the U.S. acting in solidarity with their Canadian counterparts. “Another risk for ship diversions is that dockworker unions on the U.S. west coast could decide to not unload Canada-bound cargo out of solidarity with a union of longshoremen in British Columbia that is also threatening to strike, pending a vote by a local of the International Longshore & Warehouse Union,” the company said. “This situation happened during the port strike in 2023, causing heavy delays for Canada-bound cargo that was left in limbo for two weeks.”

But analyst firm T.D. Cowen does not anticipate an impact on FedEx Corp. “We do not expect a potential strike at the Canadian rails to drive significant freight overflow or network disruption,” analyst Jason Seidl wrote in a note Thursday. T.D. Cowen maintained its buy rating for FedEx.