CP rail shutdown ‘could not come at a worse time for miners’: MAC

The shutdown of the Canadian Pacific Railway’s (TSX: CP; NYSE: CP) operations due to a wage and pension-related dispute with its union will negatively impact the country’s mining industry, one of the largest railway customers, miners and analysts say.

The Mining Association of Canada (MAC), which includes about 50 of the nation’s leading mining companies has expressed “serious concern regarding the damaging effects” of the dispute on Mar. 20, a day after railway operations were shut down. 

“As the single largest industrial customer group of Canada’s railways, the mining industry has seen firsthand how detrimental unpredictable work stoppages are to Canada’s reputation as a reliable trading partner,” Pierre Gratton, MAC’s CEO, said in a press release.

“With global supply chain fluidity having been heavily strained in recent months due to sharp swings in consumer demand during the pandemic and disruptions to global shipping this strike could not come at a worse time.”

BMO analyst Jackie Przybylowski believes that the shutdown could lower Teck Resources’ (TSX: TECK.A/TECK.B; NYSE: TECK) sales, which ships much of its coal to the Westshore and Neptune port terminals by Canadian Pacific railway.

Teck’s public relations manager Chris Stannell told The Northern Miner that the company’s steelmaking coal mines serviced by Canadian Pacific would “inventory production at site.”

“We are monitoring the situation closely and will take further steps as necessary. Any stoppage of rail service is negative for the economy as a whole, including our business. As such, we look forward to a prompt resolution,” said Stannell.

The Canadian Pacific Railway and the Teamsters Canada Rail Conference (TCRC) union, which represents about 16,000 workers in the rail industry, have blamed each other for the shutdown which began on March 19.

Dave Fulton, a spokesperson for the TCRC, said that the Canadian Pacific “must be taken to task for this situation. They set the deadline for a lockout…when we were willing to pursue negotiations. Even more so, they then moved the goalpost when it came time to discuss the terms of final and binding arbitration,” said Fulton in a press release.

A lockout, unlike a strike, is a work stoppage initiated by company management during a labour dispute.

Canadian Pacific CEO, Keith Creel, however, said that the company was “engaged in ongoing negotiations” when the TCRC decided to “withdraw its services” and lead to a shutdown. “The TCRC is well aware of the damage this reckless action will cause to the Canadian supply chain,” he said in a press release.

In 2019, shipments of coal, iron ore, potash and other minerals and metals represented more than half of Canadian rail’s freight volume, according to MAC. Majority of the production volume is shipped abroad, making up 21% or $102 billion of the total value of Canada’s domestic exports in 2020.

Canada’s supply chain has witnessed a number of disruptions in the last few years caused due to blockades, strikes and environmental disasters, aside from impacts stemming from COVID-19.

Rail delays due to heavy rains and flooding in B.C. in December, for instance, compelled Teck to reduce its fourth quarter sale estimates of steelmaking coal from 6.4-6.8 million tonnes to 5.2-5.7 million.

The company had also predicted a hike in its overall transportation cost in 2021 — from $42 per tonne to $44-$46 per tonne due to the disruptions caused by floods and the severe wildfire season in British Columbia.

“The operation previously has experienced rail delays, most recently…in December 2021. We had previously expected lost sales from that period would be made up in H1/21; we are now assuming they are made up by end of Q3/22,” wrote Przybylowski in a research note to clients.  “We have reduced our sales estimates in Q1 to 6.2 million tonnes (from 6.85 million tonnes).”