How will the Canadian railways lockout impact our Funds?
Our Portfolio Managers provide their thoughts and insights on the consequences of the lockout.
As of 12:01am EST on August 22nd, Canadian National Railway Co. (CN) and Canadian Pacific Kansas City Ltd (CPKC) locked out more than 9,000 of its conductors, rail yard workers and train engineers amid a dispute over wages and working conditions.
The action impacts virtually all freight that moves by rail across the country, as the two companies combined own 77.9% of the rail network in Canada1. The railways transported more than $380 billion of goods annually in 2022, according to a 2023 Railway Association of Canada report.
The lockout comes as the Teamsters served a strike notice to CN and CPKC earlier in the week, as discussions between the union and the companies were at an impasse. Both sides blame each other for unreasonable demands and a refusal to compromise. CN unsuccessfully requested the government to force binding arbitration. Instead, Labour Minister Steve MacKinnon urged the parties to “negotiate in good faith.”
Economic impact
Depending on how long the stoppage lasts, it could significantly impact the Canadian economy. With railways transporting more than $1 billion worth of goods daily, the knock-on effects to GDP could be substantial, especially if supply for inventories dry up and consumers are left scrambling for alternatives, driving up prices. Agriculture, particularly fertilizers, is likely to be impacted the most. Fertilizer Canada states that 75% of all fertilizers produced and used in Canada are moved by rail, and every day will cost the industry up to $63 million2.
The US is also monitoring the strike, with Transportation Secretary Pete Buttigieg mentioning that his department has been tracking the flow of goods between the two countries. Given the size of our trading relationship, this could become more important if the strike drags on. But if the strike resolves quickly, there should be little disruption.
How will this affect our funds?
Impacts to our Portfolios will depend on the duration of the lockout and how long it takes for the supply chain to normalize. The most significant price action will be seen in the rail stocks, which our Canadian sub-advisors hold at roughly market weight. Impacts to commodity companies that rely on rail transport—such as Nutrien, which is held in the Portfolio— will be mixed. If the work stoppage temporarily drives commodity prices higher, this may help offset any lost revenue from shipment delays.
At the end of the day, the impact of the lockout will not be known until the event is well out of the news cycle. While this type of event can significantly impact our day-to-day lives, it is intra-period noise in the lens of a long-term investor.
1 According to a 2021 Transport Canada report https://tc.canada.ca/en/corporate-services/transparency/corporate-management-reporting/transportation-canada-annual-reports/2021/rail-network
2 https://fertilizercanada.ca/news-events/news/fertilizer-canada-calling-on-the-federal-government-to-take-immediate-action-to-prevent-rail-work-stoppage/
This report has been prepared by ATB Investment Management Inc. (ATBIM). ATBIM is registered as a Portfolio Manager across various Canadian securities commissions with the Alberta Securities Commission (ASC) being its principal regulator. ATBIM is also registered as an Investment Fund Manager who manages the Compass Portfolios and the ATBIS Pools. ATBIM is a wholly owned subsidiary of ATB Financial and is a licensed user of the registered trademark ATB Wealth.
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