May 23 (Bloomberg) -- A Teamsters strike on Canadian Pacific Railway Ltd.’s freight network is snarling cargo shipments and frustrating customers who rely on the country’s second-largest rail carrier to deliver supplies and carry products to buyers.
Talks between Canadian Pacific and its biggest union resumed today after negotiations overseen by Labor Minister Lisa Raitt yesterday failed to prevent the work stoppage. The strike halted the company’s fuel shipments to mines nationwide as well as deliveries of grain and oilseed from growers.
“I am disappointed that the parties have not been able to reach agreements despite federal assistance,” said Raitt, whose office will introduce a bill to end the strike when Parliament returns May 28, if needed. “We are prepared to act in the interest of the national economy.”
Raitt said her office is concerned about the economic impact of the strike, which she estimated at C$540 million ($526 million) a week in a prolonged stoppage.
Canadian Pacific will cooperate with any decision made by Parliament, Ed Greenberg, a railway spokesman, said in an e-mail.
“We have indicated to all parties that we are willing to continue negotiations or enter binding arbitration,” he said. “If the Teamsters don’t agree, we strongly urge the federal government to take definitive action.”
In addition to hampering supplies to mines, the strike will prevent them from delivering their products, destabilizing the natural resources industry as the economy tries to recover from a recession, the Mining Association of Canada said. The mining industry makes up more than 50 percent of annual freight revenue for Canada’s railroads, the Ottawa-based group said.
The Grain Growers of Canada, which represents grain and oilseed producers, said the blocked deliveries deprive its members of cash payments needed to cover bills. The strike also causes overseas customers to hesitate on buying Canadian crops.
Customers say “‘We’d like to buy from Canada, but if we can’t be sure we’re going to get it here on time, then we’ll go elsewhere,’” said Richard Phillips, the group’s executive director.
The association’s members ship an average of 1 million tons of canola and more than 1 million tons of wheat a month, Phillips said in a telephone interview.
“We are as concerned for CP’s corporate customers as we were for the commuters,” Doug Finnson, vice president of the Teamsters Canada Rail Conference, said in a statement.
“CP’s management needs to understand that hiding behind the federal government is not going to resolve things,” he said in a later statement, promising that the Teamsters wouldn’t abandon negotiations.
The labor action complicates Canadian Pacific’s operations as the railroad searches for a new chief executive officer following a months-long proxy fight. The Teamsters contract talks began in October and the union first threatened to strike in April.
Canadian Pacific was little changed at C$74.99 at 4 p.m. in Toronto trading. The shares have climbed 8.7 percent this year.
More than 2,000 other employees at Canadian Pacific are being laid off, and the railway expects to add 1,400 to that number as their work is unnecessary when the railroad isn’t operating, Canadian Pacific said in an e-mailed statement.
While Canadian Pacific continues to operate commuter trains in Vancouver, Toronto and Montreal, the shutdown of its freight operations is affecting customers and supply chains, Greenberg said in an earlier statement.
It “will also impact many of the connecting railways with whom we do business,” he said.
CSX Corp., the biggest eastern U.S. carrier, said that while it’s accepting traffic destined for places on Canadian Pacific’s network in Canada, it won’t interchange freight with Canadian Pacific until the strike ends.
Negotiations between the Teamsters, which represents 4,800 engineers, conductors and rail-traffic controllers, and the Calgary-based railroad have focused on contractual items including the company’s pension plan, work rules and fatigue management.
The Teamsters resisted what they described as a 40 percent cut in post-retirement benefits, while Canadian Pacific said the pensions helped push its expense margins higher than those of its peers.
Those margins were criticized by activist investor William Ackman during his campaign to install new directors and management. That drive culminated last week in the departure of CEO Fred Green and five other board members hours before a shareholder vote.
While the walkout may damp second-quarter volumes at Canadian Pacific, “we believe it’s important for CP to maintain its position and leverage with its unions by taking a strike,” Chris Wetherbee, a Citigroup Inc. analyst, wrote in a note to clients.
“The longer-term payoff of lower pension contributions can be a driver of margin” improvement, said Wetherbee, who has a buy rating on the shares.
Canadian Pacific said it’s seeking pension provisions that are comparable to those of employees represented by the Teamsters at other Canadian railways.
“The union has agreed to these provisions at the other railways,” Greenberg said. “We are simply seeking same to bring CP’s legacy pension costs into line to remain competitive into the future.”
Canadian Pacific has contributed C$1.9 billion to its pension plans in the past three years to correct funding shortfalls, according to a statement.
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