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'Serious damage': Businesses warn of looming layoffs, loss of sales as rail disruption drags on

Financial Post logo Financial Post 2020-02-18 Jesse Snyder , Julia Mastroianni
a group of people walking down the street in front of a crowd: Protesters blockade CN Rail tracks in Vancouver, B.C., Saturday, Feb. 15, 2020. © Darryl Dyck/The Canadian Press Protesters blockade CN Rail tracks in Vancouver, B.C., Saturday, Feb. 15, 2020.

Businesses are warning of looming layoffs, lost revenue and a hit to Canada’s reputation, as rail disruptions drag on in the country.

A coalition of 39 industry associations wrote a letter to Prime Minister Justin Trudeau on Tuesday, calling on him to “work urgently” with First Nations and police to bring the blockade to a peaceful end.

“The damage inflicted on the Canadian economy and on the welfare of all our citizens mounts with each hour that these illegal disruptions are allowed to continue,” the coalition said, which represents automotives, mining and numerous other industries.

While the members said they share the government’s commitment to reconciliation with Indigenous groups, the blockades “ inflict serious damage on the economy, leaving countless middle-class jobs at risk, many of them in industries that must get their goods, parts, and ingredients to and from market by rail.”

“In addition to disrupting domestic and global supply chains, the blockades undermine Canada’s reputation as a dependable partner in international trade,” they said in the letter.

The rail blockades sprung up on Feb. 6 as Indigenous groups and activists across the country protested in solidarity with the hereditary Wet’suwet’en chiefs that are opposed the Coastal GasLink project in British Columbia. The hereditary chiefs oppose the pipeline through their traditional territory, though it’s received approval from elected band councils.

Meanwhile, the national chief of the Assembly of First Nations called for calm and constructive dialogue to ease tensions. National Chief Perry Bellegarde said governments and industry need to give the time and space to work with the Wet’suwet’en.

“We say we want to de-escalate and we want dialogue,” he said. “And I say our people are taking action because they want to see action — and when they see positive action by the key players, when they see a commitment to real dialogue to address this difficult situation, people will respond in a positive way.”

The rail stoppages has forced Via Rail and Canadian National to halt its operations for more than a week, bringing a key artery of Canadian transportation infrastructure to a halt. On Tuesday, Via Rail said it’s preparing to resume part of its passenger rail service.

Many businesses executives are already counting the cost of the rail paralysis.

Dennis Darby, CEO of Canadian Manufacturers and Exporters, estimates around $425 million of manufactured goods is sitting idle as shipments are stalled, based on Statistics Canada numbers and rail usage estimates from Canadian National Railway Co. and Canadian Pacific Railway Co.

“We’ve talked to a number of members here in Ontario and many of them said if (the blockades) extend into that two-week range, most companies will have to start temporary layoffs and cutting shifts, because we just don’t have the inventory,” Darby said during a press conference in Toronto on Tuesday.

Mississauga, Ont.- based Maple Leaf Foods Inc. is also facing escalating costs as it tries to get its perishable products shipped out in time, according to its president Curtis Frank.

a blue and white sign:  Maple Leaf Foods is trying to get its perishable products shipped out in time. © Peter J. Thompson/National Post files Maple Leaf Foods is trying to get its perishable products shipped out in time.

“While it is true that we have already begun to move loads by truck wherever we can, the fact of the matter is that road transportation is becoming harder and harder to secure every day,” he said at the press conference.

Just under a third of Maple Leaf’s revenue is dependent on the movement of perishable products through the rail network in some way, Frank said.

Other industry executives underscored the need to get infrastructure projects built in the country.

“It hurts, because it suggests you can’t get anything done in Canada,” Steve Laut, executive vice-chairman of Canadian Natural Resources Ltd., told the National Post in an interview Tuesday. “And it’s hurting investment across the board.”

“It’s about the pipelines, but it’s also not about the pipelines — it’s about a number of other issues that Canadians have not addressed for a long time.”

Agriculture industry groups have also warned that recent blockades would deepen the financial pain felt by farmers after a dismal harvesting season.

“These new blockades are once again hampering the ability for farmers to get their products to port, especially those in Western Canada,” the Canadian Federation of Agriculture said in a written statement Tuesday.

The protests could put additional pressure on the Canadian economy at a time when the Canadian economy remains vulnerable after narrowly avoiding a contraction in the fourth quarter of 2019.

Finance Minister Bill Morneau, who is preparing to release the federal budget in coming weeks, has already warned that the spread of the coronavirus could weaken economic output. Slumping Canadian manufacturing sales in December could add to those woes, while blockades threaten to further depress business investment.

“We see that the blockade does have real economic impacts,” Morneau told reporters on Tuesday.

Nathan Janzen, senior economist at RBC Economics, said that the blockades may result in a two or three tenths of a per cent drop in the first quarter GDP, with an expected reversal in the second quarter.

a dog sitting on top of a sign:  Supporters of the Wet’suwet’en Nation take a break during occupation of railway tracks, as part of a protest against British Columbia’s Coastal GasLink pipeline, in Toronto, on Feb. 15. © Chris Helgren/Reuters Supporters of the Wet’suwet’en Nation take a break during occupation of railway tracks, as part of a protest against British Columbia’s Coastal GasLink pipeline, in Toronto, on Feb. 15.

However, with large disruptions such as strikes, the manufacturing industry usually experiences a “significant” bounce back. “You’re delaying activity but not losing it altogether in a lot of cases,” he said.

“You build up inventory for a while and eventually a lot of that production is going to be backloaded. You lose production in the near term but maybe then you add shifts temporarily to make up for lost production when you regain transportation capacity.”

CME’s Darby hopes that the government can reverse the declines in Canada’s industrial economy. “I hope very strongly that the government will be able to come up with a long-term solution. It’s not about necessarily just solving this issue today about this particular blockade. It’s about how to give manufacturers, or any industry, predictability.”

The right to protest is “part of the Canadian history,” but the government must step in because the protests are “hurting our economy,” he said.

Financial Post

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