Canada's two major freight railroads, Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC) halted operations on August 22 after unsuccessful labour negotiations with members of the Teamsters Union, who operate the trains.

CN and CPKC locked out around 9,300 union workers after midnight on Thursday after failing to reach a last-minute deal with the Teamsters union. The rail disruptions are expected to put further pressure on supply chains, threatening a potential blow to trade in Canada and the US.

The management of Canada's two largest railways and the Teamsters union blamed each other for the work stoppage after multiple rounds of talks failed to yield an agreement.

"Despite months of good faith negotiations on the part of the Teamsters Canada Rail Conference, parties remain far apart, and both CN and CPKC have begun their lockout of 00:01 today," Teamsters said. "Over the past several days, the Teamsters have put forward multiple offers, none of which were seriously considered by either company."

Teamsters said it represents close to 10,000 workers at both CN and CPKC.

"Throughout this process, CN and CPKC have shown themselves willing to compromise rail safety and tear families apart to earn an extra buck. The railroads don't care about farmers, small businesses, supply chains, or their own employees. Their sole focus is boosting their bottom line, even if it means jeopardizing the entire economy," said Paul Boucher, president, Teamsters Canada Rail Conference.

Teamsters said the main obstacles to reaching an agreement "remain the companies' demands, not union proposals."

"Neither CN nor CPKC has relented on their push to weaken protections around rest periods and scheduling, increasing the risk of fatigue-related safety issues. CN also continues to demand a forced relocation scheme, which could see workers ordered to move across the country, tearing families apart in the process," the union added.

Despite the lockout, Teamsters said it will remain at the bargaining table with both companies.

CN, CPKC move forward with lockout

Separately, CN said it has formally locked out employees represented by the Teamsters Canada Rail Conference (TCRC) as of August 22 at 00:01 ET, after the union did not respond to another offer by CN in a final attempt to avoid a labour disruption.

"This offer improved wages and would have seen employees work less days in a month by aligning hours of service in the collective agreement with federally mandated rest provisions. The offer also proposed a pilot project for hourly rates and scheduled shifts on a portion of the network as CN continues to believe this is a better and more predictable framework for our employees," CN said in a statement.

"Without an agreement or binding arbitration, CN had no choice but to finalize a safe and orderly shutdown and proceed with a lockout," it added.

CN noted that over the last nine months, it has also negotiated in good faith. "The Company consistently proposed serious offers, with better pay, improved rest, and more predictable schedules. The Teamsters have not shown any urgency or desire to reach a deal that is good for employees, the company and the economy," it said.

"We urge the Teamsters to engage in these negotiations with the urgency and importance that this situation requires," CN added, noting that in the absence of a path forward, CN offered to voluntarily submit to binding arbitration in June to determine the terms of a settlement.

"It is an impartial approach that would achieve a resolution while avoiding a costly disruption to supply chains ... The TCRC refused this offer," CN further said.

CPKC said it also locked out its employees who are members of the TCRC—Train and Engine (T&E) division effective 00:01 Eastern Time on August 22. The lockout of employees who are members of the TCRC—Rail Traffic Controller (RCTC) division will follow at 00:01 Mountain Time on August 22.

"Throughout nearly a year of negotiations, CPKC has remained committed to doing its part to avoid this work stoppage. CPKC has bargained in good faith, but despite our best efforts, it is clear that a negotiated outcome with the TCRC is not within reach," it said in a separate announcement. "The TCRC leadership continues to make unrealistic demands that would fundamentally impair the railway's ability to serve our customers with a reliable and cost-competitive transportation service."

CPKC noted that at this time, the responsible path forward for the union, the company, our customers, the Canadian economy and North American supply chains and the public interest is for TCRC and CPKC to engage in binding arbitration to resolve all outstanding disputes.

"Binding arbitration is an effective, reasonable and fair process that ultimately has been used many times in the past to resolve disputes with this union," CPKC said as it reiterated its standing offer to resolve this matter through binding arbitration.

"Acceptance of that offer by the TCRC would immediately end this work stoppage and mitigate further harm and disruption to supply chains and our economy," it added, warning of "further uncertainty and the more widespread disruption" should this dispute drag out further resulting in a potential work stoppage occurring during the fall peak shipping period.

"Delaying resolution to this labour dispute will only make things worse," CPKC further said.

Nonetheless, CPKC noted that it is working closely with customers to execute a safe and structured shutdown of its train operations across Canada to enable CPKC to safely and efficiently resume full rail operations across the entire network once the work stoppage ends.

Flexport said the consequences of the rail stoppage are "huge." The shutdown is the result of months of tense negotiations between the railways and the 9,300 engineers, conductors and yard workers.

"The consequences are huge. Canada's railways move US$1 billion worth of goods daily, and this stoppage could severely disrupt supply chains across North America," the American supply chain management company added.

"The ripple effects could hit industries ranging from agriculture to manufacturing, impacting both the US and Canadian economies."

Canadian government vows action

Meanwhile, on Thursday, the Canadian government said it will soon announce its plans to address the nationwide freight rail stoppage.

Canadian Prime Minister Justin Trudeau stressed the need for a quick solution and noted that the rail stoppage would impact the country, which relies heavily on rail transport.

Canada exports about 75% of its goods to the US, mostly by rail. The Railway Association of Canada estimates that about C$380 billion (US$278 billion) worth of goods are transported through the rails per year.

This is the first time that both major Canadian railroads have simultaneously shut down due to a labour dispute. But unlike a strike, in which union members refuse to report to work, in a lockout, management is the one telling Teamsters members that they can't work.