05/24/2012 04:58 EDT | Updated 07/23/2012 05:12 EDT

How a CP strike affects Canada's supply chain

When engineers and other workers at Canadian Pacific Railway walked off the job early Wednesday, they set off a strike that could affect coal mines, farms, auto manufacturing plants and maybe even the local Canadian Tire.

Just how those ripples might spread will depend in large part on how long the strike lasts, and the flexibility producers have in getting their goods to where they want them to go.

"Anything more than a few days starts to really hit," says Bob Ballantyne, president of the Canadian Industrial Transportation Association, a national lobby group for Canada's large shippers.

CP accounts for about 40 per cent of Canada's rail activity, and Ballantyne says a strike "will have a very big impact if it lasts for any length of time."

What's more, it won't just be shippers who feel the pinch.

Fadi Chamoun, a research analyst at BMO Capital Markets in Toronto, estimates that for CP alone, a company that had revenue of $5.2 billion last year, a strike could cost $13 million a day in lost or delayed revenue.

The effect on everyone else, Chamoun predicts, will first be felt by companies that have no other transportation options, particularly those resource firms that ship products such as coal or potash.

No shipping options for some

CP's largest customer, Teck Resources Ltd., has no other way to get coal from its five mines in southeastern British Columbia to port in Vancouver.

Miners were still at work Wednesday, and the company does keep stockpiles of raw material. But Teck, which typically sends 650 railcars a day from the mines, will have a huge problem if the CP strike drags on.

"They are our primary supplier to get our product to market, so obviously we need the rail lines to be running," said Marcia Smith, Teck's senior vice-president for sustainability and external affairs.

Smith wouldn't predict what the long-term effect of the strike might be for Teck, but welcomed Labour Minister Lisa Raitt's intention to table back-to-work legislation for CP.

"In terms of impacts, as for short term, we will just be assessing those on a day-by-day basis," Smith said. "Over the long term, obviously it's a very fluid situation. We're hopeful that the parties can get a resolution quickly."

Trying to fill the void

While Canadian National Railway and the trucking industry would undoubtedly try to help fill the transportation void, those options aren't seen as long-term solutions by all the big shippers.

"CN doesn't have the crews or the equipment for a surge in demand of this nature," says Chamoun. "I think they can accommodate some. I doubt they can accommodate a lot."

Putting goods in the back of 18-wheelers won't necessarily save the day, either.

"On long haul like this, the cost on a truck would be significantly higher than it is on rail and obviously would take time," says Chamoun.

"I think there will be some prioritization by everybody involved in what they ship."

Calling in the trucks

One major Canadian retailer, however, is looking at least in part to trucking to replace rail.

"Canadian Tire has measures in place to mitigate possible disruptions to its supply chain," says Amy Cole, the company's associate vice-president for corporate communications.

As long as the strike goes on, Canadian Tire will use additional trucks and other service providers, she said.

Some companies have inventory on hand to help shield them from strikes such as this, but inventories on their own aren't seen as offering any long-term cushion.

"In this era of so-called just-in-time deliveries, people don't keep large supplies of inventory on hand," says Ballantyne of the CITA. "They are depending on a continuous supply in their supply chain."

In Windsor, Ont., the CP strike is forcing Chrysler to look for other ways to move auto parts and vehicles.

"We are actively working to mitigate any impact to our operations through alternative shipment methods," Chrysler Canada spokeswoman Lou Ann Gosselin wrote in an email.

'Not good news'

The strike is also affecting Canadian farmers, and the companies that supply nutrients and other supplies to them.

"Anything that interrupts nutrient movement to the grower in the middle of the season in Western Canada is not good news for the farmer," said Richard Downey, a spokesman for fertilizer producer Agrium Inc.

Just how big an impact a CP strike will have on the overall economy is difficult to assess.

Raitt said Wednesday that the government estimates a strike could cost more than $500 million a week.

But Chamoun at BMO Capital Markets says he doesn't "know what to make of [that figure], to be honest."

He gives a "rough estimate" of $100 billion for the value of all the goods that move annually on CP in some form.

"It's not insignificant."

Ballantyne doesn't see an easy way to calculate the overall effect of the strike, but says you would have to consider the value of lost production, lost sales and lost wages if people are laid off as a result of it.

Another potential cost, he said, would be if foreign buyers decide to look elsewhere for their coal or lumber.

"Whenever this kind of thing happens, it damages the Canadian reputation in international markets in terms of the reliability of supplies from Canada."