More importers are already in a time crunch to get product into the U.S. amid a possible strike at the East Coast and Gulf Coast ports on Oct. 1. But a potentially more imminent work stoppage north of the U.S. border has shippers rethinking their flow of goods in Canada.
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According to Canadian National (CN) Railway and Canadian Pacific Kansas City (CPKC) , customers have already been diverting freight away from the two Canadian railroads in anticipation of a strike, opting to reroute goods initially intended for British Columbia gateways like Vancouver and Prince Rupert to U.S. ports instead.
During a July earnings call, CN CEO and president Tracy Robinson said the rail company is feeling the pressure from its customers.
“It’s impacting our business, particularly in the international intermodal where customers have taken actions to reroute vessels away from Canadian ports until the labor questions have been resolved,” Robinson said. Intermodal volume dropped 17 percent from May 12 to July 14, according to CN.
Robinson also noted that the railroad had lighter volumes in the Port of Prince Rupert than expected.
CPKC CEO Keith Creel said a strike is the “most probable” outcome of the rail companies’ negotiations with the Teamsters Canada Rail Conference (TCRC) and its 9,300 members. Creel said both parties are “far apart” in the negotiations. The CEO noted that revenues from container traffic fell four percent year-over-year as customers rerouted some shipments.
Canada’s industrial relations board has now said they will release the decision on whether railroad service is essential to the public or roughly Aug. 9.
There cannot be a work stoppage until the board renders a decision. And the union must file a strike notice 72 hours in advance of a potential walkout, indicating that a strike wouldn’t come until Aug. 12 at the earliest.
For the time being, CN is not expecting a strike, Robinson said. But that didn’t stop the rail company from cutting its guidance from around 10 percent earnings per share growth to “mid to high single-digit” growth.
“We’re assuming that we get certainty on labor by the end of August and that those diversions continue at the level that they are,” Robinson said. “They don’t come back immediately, but they don’t get any worse. We are expecting that it will take a period of time to get that international business back routed up to the Canadian ports, Hopefully, not as long as it did after the strike on the ports last year.”
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On the other hand, CPKC is maintaining its guidance of double-digit earnings-per-share growth, and only expects it to be impacted if a stoppage lasted less than two weeks.
Concerns across Canada aside, shippers are bringing product into the U.S. in droves, with ports covered by the Global Port Tracker handling the most inbound cargo since August 2022 in May.
But the import numbers suggest summer has been even more chaotic. Projections for June and July called for a 14.5 percent and 15.5 percent year-over-year increases in 20-foot equivalent units (TEUs), while the Global Port Tracker expects a 13.5 percent jump in containers in August.
June saw a major uptick for the two closest major U.S. West Coast ports to the U.S.-Canada border. The Seattle and Tacoma ports in Washington State saw June container volumes grow 26.3 percent to 321,432 TEUs, with international imports growing a whopping 38.8 percent to 136,050 TEUs.
More shippers have been pulling forward their orders this season as traveling times continue to get longer, particularly on the trade lanes most impacted by the Red Sea crisis.
According to data from the E2Open Ocean Shipping Index, Asia-to-Europe container transport averaged 75 days, an increase of two days over last quarter and a 14-day increase from the same period a year ago. Europe-to-Asia averaged 84 days, the same duration as last quarter but up 11 days from last year’s second quarter.
For both routes, the most significant contributor to the year-over-year duration increase in the actual transit time. Asia to Europe voyages include 12 more days of transit time, while the reverse route tacks on nine more days.
Across all trade lanes, global ocean shipments averaged 66 days from initial booking to clearing the gate at the final port in the second quarter. This marks a two-day bump from the first quarter of 2024 and up eight days from the 58-day journey average made last year.
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