Maersk, Hapag-Lloyd Halt Canada-bound Cargo as Rail Shutdown Nears
A potential nationwide railroad shutdown across Canada’s two major railroads on Thursday is spooking shippers and forcing logistics companies into a last-second scramble to move product into and throughout the country.
On Monday, Maersk said that it would no longer accept Canada-bound cargo that needs to be moved by rail as the labor risks continue. The container shipping giant also said it would put a stop to certain imports into Canada that would be too heavy for certain trucks.
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When 9,300 Teamsters-represented workers at Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC) authorized a strike back in May, Maersk said the Port of Tacoma would take on sailings that typically only service the British Columbia Ports of Vancouver and Prince Rupert.
Hapag-Lloyd notified customers it would embargo all commodities originating in Canada, all commodities originating in the U.S. destined for Canada and all carload traffic destined for an interchange at a Canadian station.
The ocean carrier recommended shippers to explore available trucking alternatives if their cargo was arriving at a Canadian port and slated for inland delivery within the country. For containers destined for a Canadian port that would instead need to be delivered into the U.S., shippers would have to pay a $350 diversion fee.
In a research note written on Aug. 16, TD Cowen analyst Jason Seidl said shippers had been engaging in contingency plans ahead of an expected shutdown.
“We view diversions from the Port of Prince Rupert to the West Coast U.S. ports as one of the more logical switches shippers are expected to make,” said Seidl in the note.
The Vancouver Fraser Port Authority said in a statement that it was “concerned” about the prospect of further labor disruptions. Roughly two-thirds of all cargo volumes at the Port of Vancouver are moved by rail, including 90 percent of international exports, the port authority said.
“We have taken proactive measures to manage vessel arrivals and anchorage assignments to maintain port fluidity, ensure the safe movement of vessels and manage anchorage capacity for terminals not affected by strike activity. For example, ships currently en route to Vancouver are being told to adjust their arrival times in port by slowing down to prevent further congestion,” the port said. “We expect disruptions to the movement of containers, grain, potash, coal and other cargo transported to and from port terminals by rail.”
The port authority also said it has temporarily changed how it assigns anchorages to prioritize vessels calling on non-impacted or partially impacted terminals.
As product shifts toward the U.S., congestion appears inevitable on some level at ports, and in rail yards. In a customer advisory, freight forwarder OEC Group said cargo dwell at ports was likely to see a “sharp increase” if a labor agreement was not reached.
“[The cargo dwell] could cause significant delays throughout the supply chain as the options to get cargo out of the port and delivered to its final destination will either be limited or severely compromised, as many industry leaders believe that any interruption caused by this rail lockout will be severe,” said the freight forwarder.
OEC Group also warned that importers with empty containers from any CN or CPKC facilities should return them prior to the proposed lockout date if possible.
A railroad shutdown is in play as both major railroads sent lockout notices to the Teamsters this month in anticipation of the strike. The Teamsters fired back with their own official strike notice against CPKC.
When CN issued its lockout notice Sunday, the railroad said, “despite negotiations over the weekend, no meaningful progress has occurred, and the parties remain very far apart.” The negotiations remain ongoing, with all parties saying they are bargaining “in good faith.”
Since Aug. 12, the railroads have implemented a phased shutdown of their networks, starting by suspending transport of hazardous goods.
A work stoppage at the railroads are likely to impact the movement of goods into the U.S. as well.
On Monday, the National Association of Manufacturers pointed out trade flows between Canada and the U.S. via rail in June 2024 totaled $9.1 billion, representing roughly 14 percent of total trade flows between the two countries via all modes of transportation. Imports into the U.S. totaled $5.3 billion, while exports into Canada amounted to $3.8 billion of goods.
“North American manufacturing supply chains depend on functioning rail links. If rail traffic grinds to a halt, businesses and families across the country will feel the impact,” said Jay Timmons, president and CEO of the National Association of Manufacturers. “The flow of materials and products across the U.S.-Canada border is already slowing as preparations are made for a potential work stoppage.”
Labour Minister Steve MacKinnon is visiting Montreal on Tuesday and Calgary on Wednesday to meet with the parties and federal mediators in an effort to get a new deal ironed out before midnight on Thursday.
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