Assessing The Potential Impacts of the CN Rail Strike

Brian DePratto, Director & Senior Economist | 416-944-5069

Date Published: November 22, 2019

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CN Rail Labour Disruption Likely To Weigh on Fourth Quarter Growth

  • On Tuesday November 19th, roughly 3200 unionized employees at CN Rail's Canadian operations initiated strike action. At the time of writing, talks between the company and workers were ongoing. 
  • CN, together with CP Rail, accounts for a significant portion of Canadian rail transportation capacity. The disruption has left a number of industries scrambling to adjust, particularly agriculture, chemicals, and energy producers
  • Rail transportation may only account for about 0.5% of GDP, but past experience shows that these types of disruptions can be significant enough to impact the national GDP figures. A nine day labour disruption at CP Rail in 2012, for instance, drove a 6.8% drop in the sector that month – large enough to bear mentioning by Statistics Canada at that time. 
  • Notably, that disruption came to an end via federal 'back to work' legislation. As it stands, the new Parliament is not expected to be opened until December 5th, meaning any legislation will likely have to wait until then at the earliest.
  • To assess the growth impact of the CN strike, we must make assumptions on its length. We consider two scenarios: resolution by the end of the month, and a disruption that lasts through December 5th (Table 1). In the event of a longer-lived disruption, fourth quarter growth could be impacted by as much as 0.2 percentage points. Importantly, given the realities of the sector (there are only so many railcars in existence, scheduling challenges, etc), we would expect activity to ramp back up to normal quickly, but we do not anticipate very much of an overshoot or 'catching up' of lost output.
  • This analysis also considers only the direct sectoral impact and due to data limitations doesn't factor in potential price effects, such as a widening in Canadian heavy oil price discounts, or broader indirect economic impacts. This is probably reasonable for a short-lived disruption as producers that rely on rail to get their goods to market can potentially stockpile output or turn to other transportation methods, but there are of course practical limits to these responses. The longer the disruption lasts, the more likely spill-over disruptions become, and the larger the resulting impact on economic activity. For this reason, the December 5th scenario in particular is likely a fairly conservative estimate of the overall GDP impact.
  • This disruption comes at a challenging time for the Canadian economy. A 0.2 p.p. impact may not seem like a lot in isolation, but must be considered in context. A pre-disruption growth expectation for Q4 of only 1.3%, like the Bank of Canada's, or our similar tentative 1.4% annualized growth tracking, doesn't leave a lot of wiggle room for negative shocks. And, given recent challenges, more pain is hardly what the manufacturing or agriculture sectors need right now. Here's hoping for a speedy and amicable resolution.   
Table 1: CN Strike Could Take a Bite Out of Q4 Growth
GDP Impacts, Constant Annualized Dollars Real Dollar Impact Impact on Q4 Growth (SAAR)
Strike lasting until November 30 $1.6bn to $2.2bn  -11 to -15 bp
Strike lasting until December 5 $2.3bn to $3.1bn -17 to -23bp
Source: TD Economics