(Bloomberg News circulated the following article by Rob Delaney on February 11.)
TORONTO — A strike at Canada’s largest railway threatens to disrupt the country’s C$50 billion ($43 billion) trade with the U.S. in cars and auto parts made by companies including General Motors Corp., transportation analysts said.
A slowdown in rail traffic may also hurt the outlook for Canadian exports, dominated by metals and lumber, which are already forecast to drop this year, they said.
Conductors at Canadian National Railway Co., North America’s fifth-largest railroad by revenue, went on strike on Feb. 10 after a deadline on contract talks passed without agreement on a new pact. Managers replacing 2,800 railroad employees may not be able to perform double duties for more than a few weeks, said Daniel Ortwerth, an Edward Jones & Co. analyst in St. Louis.
The possibility of reduced shipments comes as automakers in North America struggle to offset slumping sales and costs related to auto parts makers’ financial woes.
GM said last year that it paid more for parts and faced other expenses related to five bankruptcies of major auto-parts makers since February 2005. The automaker may have to spend as much as $7.5 billion on costs related to the bankruptcy of Delphi Corp., a former GM unit, the company’s North America chief Troy Clarke said in December.
“Trade in autos and parts across the border is more vulnerable because it operates on a just-in-time basis and requires closer management,” said Barry Prentice, professor of supply-chain management at University of Manitoba’s I.H. Asper School of Business.
Canada exported by rail C$35 billion worth of autos and parts to the U.S. and imported C$13 billion of the products by rail in 2005, the last full year for which the numbers are available, according to data compiled by Transport Canada.
Exports May Fall
“The managers are hired to manage. Conducting trains would have to impact their ability to get their jobs done,” said Ortwerth. The strike would begin to hamper railroad operations within “a few weeks to a month.”
That may further dampen the forecast for exports. The value of exports of goods and services from the world’s eighth-largest economy will shrink by 1 percent this year, from growth of 2 percent in 2006, because of a slowing global economy and declining commodity prices, Export Development Canada, the country’s export-finance arm, said Jan. 17.
Canadian railroads carry about 40 percent of the country’s freight in terms of volume and a fifth in terms of value, Prentice said.
In 2005, Canada’s rails carried 17 percent of the country’s C$453 billion worth of exports, according to government data. They shipped C$18 billion worth of lumber and forestry products, the second-largest category after cars and auto parts.
Possible Settlement
Still, recent contract settlements with other workers and a lack of income may prompt the company’s conductors and yard workers to accept a settlement before the company is forced to start cutting service.
“They know that they have good, lucrative contracts with incentives tied to the profitability of the company, so it may not be long before the workers start telling the union leaders to just get a settlement,” Ortwerth said.