Railway Blockades Paralyze Supply Chains and Threaten Canadian Economy

Railway Blockades Paralyze Supply Chains and Threaten Canadian Economy

Executive Summary

  • On February 6, protesters started blocking railways at crucial points across British Columbia (BC), Canada in solidarity with the Wet’suwet’en First Nation indigenous group to oppose the construction of the Coastal GasLink pipeline.
  • The anti-pipeline protest grew into a nationwide movement that paralyzed tightly linked rail and sea traffic and severely impacted manufacturing supply chains, which rely on rail service to bring in components and to transport finished products to customers.
  • Port operations in Vancouver and Prince Rupert, BC, have been heavily impacted, which further disrupted imports at multiple ports in Canada, including in Montreal and Halifax. Operations at the ports of Halifax and Montreal have been gradually improving, with ports working on reducing cargo backlogs and dwell times, but it is likely to take several days for operations to be back to normal.
  • The ongoing blockades have compromised the supply of propane, chlorine, lumber, and wheat for the entire country.
  • Montreal Gateway Terminals (MGT), a rail, trucking, and shipping hub, declared force majeure for all inland rail cargo on February 20. Chemical makers Olin Corp. and Invista have also declared force majeure, impacting the availability of chemical products.
  • As of March 2, negotiations to resolve the conflict have progressed and a tentative agreement has been reached. As the draft agreement is confirmed by First Nations leaders, supply chains in Canada will likely recover gradually.

Overview

On February 6, protesters started blocking railways at crucial points across British Columbia (BC), Canada in solidarity with the Wet’suwet’en First Nation indigenous group to oppose the construction of the Coastal GasLink pipeline. Amidst the ongoing protests, the Wet’suwet’en chiefs and Canadian government reached a tentative deal on March 1 to resolve the pipeline dispute although impact on logistics and transportation activities persists.

Since it began, the anti-pipeline protest grew into a nationwide movement that paralyzed tightly linked rail and sea traffic and severely impacted manufacturing supply chains, which rely on rail service to bring in components and to transport finished products to customers. For every day the rail stoppages persisted, approximately USD 425 million (CAD 564.6 million; EUR 391.2 million) worth of manufactured goods sat idle. In addition to the railway blockades, the demonstrations choked highways, ports, and bridges and compromised the supply of propane, chlorine, lumber, minerals, agricultural products, chemicals, oil, and wheat throughout the country.

On February 13, Canadian National (CN) Railway ceased all services in eastern Canada due to the demonstrations and by February 14, nearly 400 CN Rail trains were canceled nationwide. The company temporarily had to lay off 450 workers amid the blockades. Furthermore, protests caused severe disruptions to rail transportation to and from ports, primarily in British Columbia and soon after, across the whole country, including in Nova Scotia, New Brunswick, and Quebec. Both coasts have seen impacts on cargo shipping through ports that rely on goods being transported by rail.

Port operations in Vancouver and Prince Rupert, BC, have been heavily impacted, which further disrupted imports at multiple ports in Canada, including in Montreal and Halifax. The Belleville line, CN Rail’s only corridor between eastern and western Canada as well as between eastern Canada and the United States’ Midwest, was frequently targeted by protesters. Up until February 26, intermittent railway blockades continued at key points, including at a crucial intersection leading to the Port of Vancouver.

On March 1, the Wet’suwet’en chiefs and the Canadian government reached a tentative deal to resolve the pipeline dispute. However, government officials did not disclose specific details of the agreement, but confirmed that it had to be reviewed first by the Wet’suwet’en community. After the deal was announced, Coastal GasLink President said that construction would resume on March 2. Operations at the eastern ports in Halifax and Montreal have been gradually improving, with ports working on reducing cargo backlogs and dwell times, though it is likely to take several days for operations to be back to normal.

The Background: Coastal Gasoline Pipeline and Anti-Pipeline Protests

The Coastal GasLink pipeline is a 670 kilometer (416 miles) project spanning from the Dawson Creek area to the LNG Canada facility in Kitmat, BC. The natural gas pipeline project, which has been in the works since 2012, crosses the First Nation indigenous group’s territory. Protesters have set up camps along the proposed pipeline route over the past several months, with the aim to prevent access to construction sites. On February 6, the Royal Canadian Mounted Police (RCMP) began enforcing an injunction to remove protesters from impeding the Coast GasLink pipeline construction site on unceded Wet’suwet’en territory in northern BC. A day later, activists organized demonstrations across Canada, including blocking a crucial intersection of Clark and Hastings Street near the Port of Vancouver. Protests started to escalate as more people joined indigenous groups in support of the anti-pipeline movement.

On the evening of February 15, Marc Miller, Canadian Minister of Indigenous Services, met with indigenous leaders to negotiate a peaceful resolution. During the following week, protesters set up more blockades along a CN railway line, many of which were forcibly removed. Prime Minister Justin Trudeau addressed the leadership of the indigenous group and asked to immediately lift blockades in order to end the conflict.

Over the past two weeks, protesters faced off with police officials in Ottawa, blocked the bridge across the US border in Sault Sainte Marie, Ontario, and impeded access to the Port of Vancouver. On the night of February 24, police forcefully removed one of the blockades, escalating tensions and leading protesters to start a fire on the railway tracks in Ontario.

Under enormous pressure by several industry sectors, Canadian authorities approached the indigenous groups and their supporters again to negotiate a deal and end widespread protests at numerous focal points throughout Canada. As of March 1, both sides have reached an agreement that could end the protests and associated blockades across Canada. Nevertheless, at least one rail line in Quebec, south of Montreal, remains blocked as of March 2.

Shipping Through Canadian Ports Affected

The blockades have affected intermodal transportation across the whole country as many sea and ground transportation routes are linked to railway infrastructure. Combining sea, rail, and ground transportation is typical for Canadian supply chains, with 60 percent of all goods being shipped by Canadian National Rail, a state-owned Canadian company that operates 22,000 km of track from Vancouver to Halifax, effectively functioning as the country’s only transcontinental railway operator.

Since February 13, container dwell times at the port of Prince Rupert in British Columbia started to mount as First Nations demonstrators defied court injunctions and continued to block Canadian National mainlines in Western Canada and Ontario. Protesters from the Tyendinaga Mohawk blocked rail lines near Belleville, Ontario, forcing CN Rail and Via Rail to shut down large sections of their railway networks. The railway operators said the shutdown, which affected the entire network east of Toronto, caused the eventual temporary layoffs of CN workers. In addition, on February 19, rail provider Via Rail announced temporary layoffs of about 1,000 workers. The rail line is scheduled to resume travel between Montreal and Ottawa on March 3. The rail disruptions in Ontario and British Columbia halted shipments for a wide range of products including grain, perishable food, and chemicals, such as chlorine, and threatened to stop production for some companies if the protests continued.

The disruptions halted train and truck traffic to Deltaport, the Port of Vancouver, and Prince Rupert and had a severe impact on the movement of all goods. The blockade in British Columbia affected all traffic in and out of the Ports of Prince Rupert and Kitimat, BC. The idling of CN’s network in eastern Canada prevented containers from being moved out to major hubs like Montreal and Halifax, causing significant congestion at the ports that is likely to persist for several days. Port of Montreal officials stated that distribution to destinations in Quebec had been largely unaffected, as those largely rely on trucks for delivery. However, the distribution to Ontario has been heavily impacted and 4,000 containers remain stuck.

The disruptions reportedly caused some shipping lines to divert to U.S. ports to unload cargo. Trucking fleet, meanwhile, has tried to adapt and intake additional cargo, but do not have the capacity to replace the hundreds of millions of tonnes CN rail moves each year. On February 20, shipping company Atlantic Container Line suspended calls at Halifax, causing several cargo ships to stay anchored near the Port of Vancouver.

Supply Shortages of Propane, Chlorine, Lumber and Wheat

The ongoing blockades have compromised the supply of propane, chlorine, lumber, and wheat for the entire country. Officials warned that the supply of propane in the Maritimes, a region of Eastern Canada consisting of New Brunswick, Nova Scotia, and Prince Edward Island provinces, was at high risk of running out. The majority of the region’s propane, mostly used to heat homes and businesses, is delivered by rail. The supply of propane in the region was increasingly compromised every day that rail lines were blocked as natural gas networks in this area are more limited than in Ontario and Quebec.

On February 21, Quebec ordered the rationing of propane as supplies in Atlantic Canada were at record lows. Propane trucks were dispatched to Sarnia, Ontario, the location of the largest propane terminal in Eastern Canada. But an existing backlog forced truck drivers to wait up to eight hours to get a load. Trucks were also being sent to two refineries in Montreal, where the backlog was not as extensive. Although there are refineries that produce propane in Saint John, New Brunswick, and Come By Chance, Newfoundland and Labrador, those facilities cannot meet the demand of the region.

In addition, chlorine is typically transported by rail; with the Wet’suwet’en solidarity rail blockades in place over the past few weeks, chlorine producers warned of widespread shortages of chlorine and chemical products used to treat drinking water. Alternatively, chlorine can be transported by road as the City of Toronto, for example, uses truck deliveries. However, with supplies running low, cities could run out of the chemical in the near term.

Furthermore, lumber and wheat supplies to the market have been affected. Lumber mills have reported that they are struggling to get the fuels and chemicals they need to operate. Wood, pulp, and paper industries are also facing difficulties in getting products to market. Producers have been struggling to get trucks or find storage as their products pile up and cannot be transported. In addition to the supply of lumber being interrupted, the supply of wheat has also been significantly affected. Dozens of empty ships are waiting for wheat deliveries at ports in British Columbia as the product is unable to reach its destination due to a rail blockade in the north of the province.

The Canadian grain industry is concerned that international customers may start seeing local producers as unreliable. Prior to the rail blockades, which has inhibited grain producers’ ability to move their products to ports to be shipped abroad, the industry in Western Canada experienced additional disruptions. A carbon tax increased the price of propane essential for drying crops and the rail strike in November 2019 further impacted the grain industry.

Force Majeure Declarations by Montreal Gateway Terminals and Olin Corp

The blockades of key CN Rail tracks have caused Montreal Gateway Terminals (MGT), a rail, trucking, and shipping hub, to declare force majeure for all inland rail cargo on February 20. MGT announced that affected import rail containers dwelling more than 5 calendar days will be charged terminal storage fees starting February 25 and imposed a deadline of February 24 to evacuate all rail cargo immediately from the port. MGT offered storage compensation for grounded containers that were being diverted to trucking until February 24.

As a result of the force majeure declaration and the rail blockade in Tyendinaga, Ontario, CMA CGM, a major container transportation and shipping company, invoked Clause 10 of the Bill of Lading on February 20. The clause states that “In no circumstance whatsoever, the Carrier shall be liable for any loss, damage or delay howsoever arising from any action taken under this Clause.” Although Montreal Gateway Terminals rescinded the force majeure on February 26, operations at the port are slow to recover.

In addition to MGT, U.S. chemicals maker Olin Corp., which operates a major chlorine plant in Bécancour, declared force majeure for products made in, and shipped into, Canada due to rail transportation issues and took steps to shut down its facility on February 21. The plant has restarted operations on February 27 and is now working on minimizing the impact on its customers.

Similarly, on February 26, Kingston-based chemical producer Invista declared force majeure on nylon 6,6 polymer and polyamide fiber due to raw material shortages. The company manufactures nylon, resins, plastics, and polyester used in apparel, household, automotive, industrial, and travel applications worldwide.

Outlook

As of March 2, negotiations to resolve the conflict have progressed and a tentative agreement has been reached. However, new blockades continue to spring up spontaneously. Police were called to assist CN Rail in response to a new blockade at a rail bridge in Montreal’s Pointe-St-Charles neighbourhood on March 2.

As the draft agreement is confirmed by First Nation leaders, supply chains in Canada will likely recover gradually. Numerous businesses remained impacted by impeded cargo movements via rail and sea due to disrupted railway operations. As of February 27, shipping operations in Tyendinaga, east of Belleville, Ontario remained disrupted and limited. Furthermore, the Canadian Pacific rail networks in Eastern Canada were blocked by the protesters at the Kahnawake Mohawk territory, south of Montreal. This blockade severed rail connections between Atlantic Canada and the U.S. and prevented carload customers from being served. The blockade in Canadian Pacific mainline near Chase, British Columbia has ended and is resuming operations on its Shuswap subdivision. Near-term delays of 24 up to 36 hours are to be expected.

Force majeure declarations at the MGT facility and the Invista plant remain in effect with no timeline of when they may be lifted known so far. However, chemicals maker Olin Corp. has restarted its operations at Becancour plant east of Montreal on February 27, but no official statement confirming this has been issued.

The rail blockades could reduce Canadian GDP growth by 0.2 percentage points in the first quarter, and potentially more if they persist. Following the week-long Canadian National Railway Co. worker strike in November last year, economic activity quickly rebounded. Metal manufacturing, for example, returned to normal in December 2019. Although the 2019 rail strike impacted GDP by less than a tenth of a percent, Canadian industries fear that the rail disruptions could taint the country’s reputation as an unreliable place to do business.

Customers are advised to consider short and long-term contingency plans to limit losses, should such disturbances occur in the future, in order to avoid higher logistics costs due to the ad hoc rerouting of cargo, delivery bottlenecks, and associated production downtime. Trucking is also an alternative to rail transport to help ship goods from critical points to their final destinations. However, as a long-term solution, those shipping through Canada are recommended to create visibilities in their supply chains to be able to react quickly and shorten the crisis response time.

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