Canadian Pacific Railway on strike; disruption in freight traffic looms

3000 CP Rail conductors and engineers walked off the job late Tuesday night, however, a second group of 360 signal workers reached a tentative agreement
Canadian Pacific Railway on strike; disruption in freight traffic looms
The labour disagreement at CP Rail has the potential to make freight congestion worse

Canadian Pacific Railway's (TSE:CP) 3000 conductors and engineers walked off the job late on Tuesday night, prompting fears that a strike could cripple rail networks across Canada.

The union representing the striking workers, The Teamsters Canada Rail Conference, said workers walked out at 10 p.m. EST, however, negotiations continued into the night with the company. Federal mediators have been brought in to help hammer out a new labour agreement for the workers.

In more positive news, a second set of about 360 Canadian Pacific Railway (CP Rail) signal workers reached a tentative contract deal with the company. Additionally, it was announced that commuters in Toronto, Montreal and Vancouver would not be affected, despite using CP rail lines.

Freight congestion already an issue

The labour disagreement has the potential to make freight congestion worse — particularly as many companies are already facing slowdowns at CP Rail's larger rival, Canadian National Railway. The lack of rail capacity has had a significant effect, as piles of commodities were stuck in the Canadian prairies this winter, including lumber, grain and oil.

This quarter, intermodal cargo (containerized products and raw materials) was Canadian Pacific’s most significant business line, accounting for C$367mln in revenue — 22% of overall sales. Grain followed just behind, contributing C$367mln.

According to a statement released by CP Rail, it has a contingency plan for a work stoppage and will work with customers to ensure a “smooth, efficient and safe wind down of operations.”

"We can’t imagine that shippers will take these assurances in stride following the subpar rail service this past winter — particularly those in the grain, oil and lumber industries,” said Allison Landry, a Credit Suisse Group AG analyst, in a client note. “We wouldn’t be surprised to see swift government action.”

CP Rail was up 1.67% to $241.01 on Tuesday.

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