Rail blockades first sprung up on February 6, 2020, shutting down a major rail line in British Columbia. Indigenous protesters and supporters shut down the rail line because they oppose the construction of the $6.6 billion, 670 km Coastal GasLink project in British Columbia. In solidarity, another group blocked a key rail line near Belleville, Ontario. While the hereditary chiefs oppose the pipeline through their traditional territory, elected band councils are behind the initiative.
As far as protests go, this one is certainly making an impact.
How Will the Rail Blockade Impact the Canadian Economy?
Canada is a massive country that is sparsely populated and is heavily reliant on the railroad to transport goods. In fact, railways transport around half the total tonnage of freight that gets moved across Canada. Railways are also critical to exporting most Canadian commodities (grain, beef, precious metals, oil, natural gas, lumber, coal, etc.)
The railway blockades are already having a serious impact on the Canadian economy that is expected to reach into the billions of dollars.
The rail blockades have forced Canadian National Railway (TSE:CNR) and VIA Rail to bring its operations to a halt since February 6. CNR has cancelled as many as 500 trains. This comes at a time when operations, due to the harsh Canadian winters, are already slowing.
Industry insiders say the rail blockades mean approximately $425 million of manufactures goods are sitting idle. The rail blockades have already led to a shortage of propane, which is essential for rural communities.
Farmers have cautioned that they cannot get their products to ports. It may be the middle of winter, but this is when the fall grain harvest is typically moves to market. It’s not just farmers, the rail blockade is inflicting serious damage on the entire Canadian economy, since goods and parts cannot get to and from market.
Many Canadian industries in Ontario are saying they can survive an unexpected disruption for around two weeks. But we’re now beyond that point, which means, many companies can no longer absorb the supply chain disruption.
As a result, they are starting to announce temporary layoffs and cut shifts. Why? They don’t have the inventory that usually comes in by rail.
Maple Leaf Foods, Inc. (TSE:MFI) is seeing its cost rise as it tries to get perishable products shipped out in time. CN Rail has already laid off around 450 employees and Via Rail is set to temporarily lay off nearly 1,000 people.
What about truck transportation? There is only so much slack the trucking industry can pick up.
Even when the rail blockades are finally removed, it will take a long time, possibly months for the Canadian economy to become fully operational again. Railways can’t simply absorb the lost shipments over the last number of weeks.
The startup, synchronization, and return to operations of the entire Canadian rail system is complicated. Especially in the winter. Because of the cold weather, air brakes do not work as well, which means trains must reduce their speeds and carry fewer rail cars.
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It’s possible that in a best-case scenario, Canada’s rail system is not fully operational until the spring. Again, this will have a direct impact on the Canadian economy, first quarter gross domestic product (GDP) numbers, and corporate earnings. Fortunately, the trading professionals at Learn-To-Trade.com can teach investors how to navigate unexpected events like the rail blockade.
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