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Canadian Pacific Railway Ltd said on Tuesday that it should start shipping crude oil this summer from a soon-to-be-completed oil terminal in North Dakota's prolific Bakken shale prospect. (CP Rail/CP Rail)
Canadian Pacific Railway Ltd said on Tuesday that it should start shipping crude oil this summer from a soon-to-be-completed oil terminal in North Dakota's prolific Bakken shale prospect. (CP Rail/CP Rail)

Ottawa prepares to intervene in CP strike Add to ...

Ottawa is poised to intervene in a strike at Canadian Pacific Railway Ltd. that has halted freight deliveries across the country and threatens to inflict heavy damage on the economy.

The work stoppage Wednesday by 4,800 CP employees immediately left everything from cars to coal stuck on the tracks. Citing risks to the fragile economic recovery, federal Labour Minister Lisa Raitt announced plans to table a back-to-work bill on Monday, when the House of Commons resumes sitting after a one-week break.

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The labour standoff comes days after activist investor Bill Ackman scored a resounding victory last Thursday in a proxy fight against the railway, resulting in the resignation of Fred Green as CP’s chief executive officer and the appointment of rail industry veteran Stephen Tobias as interim CEO.

Mr. Ackman has touted Hunter Harrison, the former Canadian National Railway Co. CEO, as the leading candidate to replace Mr. Green.

For Mr. Ackman and other new directors on the railway’s revamped board, the strike marks the first major challenge in a broader ambition to boost profits and increase revenue, underscoring the difficulty of overhauling the railway’s cost structure and improving on its position as the laggard among North America’s six largest freight carriers.

The proxy battle occupied much of CP’s time and energy since last fall, just as tensions were simmering over the strike’s key issue: pensions. Management’s attempts at watering down existing defined benefit pensions and placing new union hires on less-costly defined contribution plans emerged as major sticking points.

The Teamsters Canada Rail Conference said Calgary-based CP is unfairly seeking to slash employees’ retirement benefits. Non-unionized Canadian employees at CP hired after July 1, 2010, have already been placed into defined-contribution pensions.

Ottawa’s promise to take action to put CP workers back on the job follows similar moves taken to end work stoppages at Air Canada, highlighting the government’s resolve to prevent labour disputes from dragging on the economy as it struggles to gain traction.

“We have the intention that, if we want to, we have the ability to introduce legislation at the first opportunity on Monday,” Ms. Raitt said during a news conference in Ottawa. She said the impact of the CP strike on the economy could be $540-million a week, though the railway warned Wednesday that the ripple effects will far exceed the federal government’s estimate.

The Teamsters union represents more than 4,800 conductors, engineers, yard workers and rail traffic controllers. The previous five-year collective agreement expired Dec. 31, 2011.

CP laid off another 2,000 workers on Wednesday since they won’t be needed during the strike, and the railway cautioned that further staff cuts affecting 1,400 employees might be required. All told, the number of striking and laid-off workers could soon add up to 8,200 people, or more than half of CP’s total work force.

Raymond James Ltd. analyst Steve Hansen said the transportation of commodities such as coal, grain, metals and potash will be hit hard, adding that a wide array of shipments will be disrupted on domestic, cross-border and overseas export markets. “We suspect back-to-work legislation to be passed in short order, with a binding arbitration process also likely,” he said in a research note.

The strike by the Teamsters began at 12:01 a.m. on Wednesday, after the two sides in the labour impasse tried but failed to reach a pact late Tuesday night.

The walkout immediately disrupted deliveries of the thousands of vehicles a day assembled in Southern Ontario, as auto makers scrambled to find alternative shipping methods.

Honda Canada Inc. ships vehicles, motorcycles, power equipment and all-terrain vehicles to dealers by train, spokeswoman Maki Inoue said. “We use CP to ship to all dealer networks and are feeling the impact immediately,” Ms. Inoue said. As of late Wednesday, Honda vehicles were in limbo along CP lines in Canada.

About 80 per cent of the cars and crossovers produced at Honda of Canada Mfg. in Alliston, Ont., are shipped to the U.S. and CP carries them all. Other large automotive customers include Chrysler, GM and Toyota.

The companies said they were working on contingency plans, which included using more trucks to transport vehicles and parts, and shifting to CN, where possible.

Vancouver-based Teck Resources Ltd., CP’s largest customer, is essentially captive to CP in British Columbia. The diversified miner has five coal mines and a metallurgical facility that are dependent on CP in southeastern British Columbia. The company has no current plans to declare force majeure, Teck spokeswoman Marcia Smith said of the legal recourse that allows a company to default on contracts through no fault of its own and without being held liable.

With files from reporter Pav Jordan

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THE WARNINGS

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Mining

The Mining Association of Canada is urging Ottawa to step in and impose binding arbitration. “It really is for our sector a pan-Canadian problem, and the longer this drags on, the more it puts these operations at risk and can have a pretty damaging affect on the overall Canadian economy,” said association CEO Pierre Gratton.

Agriculture

The agriculture and food industry could face a crisis within days. Operations such as canola crushing plants and flour mills do not stockpile supply and finished products, instead relying on railways to deliver raw grains and oil seeds and take away processed products just-in-time, said Wade Sobkowich, executive director of the Western Grain Elevator Association.

Autos

The presidents of the Canadian Vehicle Manufacturers Association and the Association of International Automobile Manufacturers of Canada are warning that a CP work stoppage will harm the auto sector’s fragile recovery.

Pav Jordan, Carrie Tait and Greg Keenan

Follow us on Twitter: @brentcjang, @gregkeenanglobe

 
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