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Canadian rail blockades could have a lasting effect on U.S.-Canada trade, setting the stage for even greater fallout from coronavirus

April 1, 2020, 2:00 PM UTC

This article is part of a Fortune Special Report: Business in the Coronavirus Economy—a look at the impact of the pandemic on more than 50 industries.

It was only a matter of days after protest blockades died down, rail lines rehired employees they had laid off, and Canada’s federal government reached a tentative agreement with the Wet’suwet’en First Nation that the country went into lockdown in response to the spread of the coronavirus.

The start of February saw rail blockades pop up across Canada in solidarity with the Wet’suwet’en—the indigenous First Nation in British Columbia opposed to the construction of multibillion-dollar natural-gas pipeline Coastal GasLink through its territory. By early March, tensions had calmed, and Ottawa was showing signs of progress in its bid to end the protests—before the threat of COVID-19 stirred the country back into panic and put all talks on hold.

Much to the dismay of the First Nation and local health care officials, workers are still out constructing bits of the pipeline across B.C., despite much of the country going into lockdown. Critics say this flies in the face of any reconciliatory efforts the government began with the Wet’suwet’en prior to the spread of the coronavirus throughout Canada.  

For close to a month, the rail blockades all but shut down the movement of goods within and around Canada. An estimated 1,400 freight and passenger trains were sidelined by national rail line CN Rail alone over the course of a few weeks, while an estimated $435 million worth of Canadian goods were left stranded every day. Communities across Canada faced shortages of propane, fresh food, clean drinking water, and personal hygiene products as a result of the protests.

All the while, Canada’s business community was focused on reducing the long-term consequences of the protests, starting with its largest trading partner: the U.S.

Though economic fallout from the coronavirus currently poses an unprecedented threat to all facets of the global economy, experts fear past disruption to the flow of goods between the U.S. and Canada could have lasting impacts on the countries’ trade relationship, setting the stage for even greater fallout from COVID-19.  

Exact volumes of goods held up between the two countries have proven difficult to quantify—but data from the Association of American Railroads found North American rail travel had fallen 8.3% by the week of Feb. 29. Honourable Perrin Beatty, president and chief executive officer of the Canadian Chamber of Commerce, estimates that the impact of the blockades on the national economy is immense.

“It’s definitely hundreds of millions of dollars, billions of dollars at this point,” Beatty says.

This is due in part to U.S. companies suspending activity in Canada. On Feb. 19, Atlantic Container Line (ACL), a major U.S. shipping line, announced its decision to temporarily reroute its vessels away from the Port of Halifax in favor of alternatives in Baltimore and New York.

The move was a tough blow for the Port of Halifax: ACL was its longest-standing shipping client, having sent boats to the Maritime port twice a week every week for the last 50 years. Though ACL president and CEO Andrew Abbott says Halifax was the company’s “gateway port for North America,” after weeks of blockades, he felt his hands were tied.

“For two weeks now, it’s come to a grinding halt, so a lot of our customers now are just fed up,” Abbott told CTV News on Feb. 19.

“It’s commercial damage to Canadian manufacturers. It’s financial damage to the guys who are bringing in French wine and cheese or Walkers butter cookies, because they’re not going on the shelves,” Abbott said. “Everybody’s paying a piece.”

ACL’s reroute has potential to cause a ripple effect globally. The same day, German-headquartered Hapag-Lloyd told its customers it was considering diverting its ships away from the Canadian port as well.

According to Lane Farguson, manager of communications at the Halifax Port Authority, bottlenecking at the port could cause shortages of goods in central Canada and the U.S. Midwest. About 60% of the goods that move through Halifax are “loaded directly onto rail and then shipped to inland markets,” he says.

“What the rail blockade has done is made it difficult to get goods by rail to those inland markets,” Farguson says. “The import cargo is now starting to sit on the docks. And so that’s having some impact.”

While Farguson says it’s hard to specify what categories of goods are most at risk of shortage in either midland Canada or the American Midwest, he says the blockades pose a threat to the port’s long-term reputation as a stable trading hub.

The port of Halifax markets itself as a data-driven port with short dwell times, strong customer service, and an economic output of $1.97 billion. For staff at the port authority, repairing any damage to this reputation is of top concern.

“The longer this carries on, the more that reputation is being eroded,” Farguson says. “That is certainly something that we’re going to work to rebuild just as soon as the rail starts to move again.”

The port also generates an estimated 15,000 Canadian jobs and attracts over 1.3 million tourists every year. As a major contributor to Atlantic Canada’s economy, delays to Halifax’s port will have lasting effects on the region’s financial wellbeing, according to Atif Kubursi, professor emeritus of economics at McMaster University.  

“One of the major contributors to the vitality of Nova Scotia is the port—the port has been a major economic node,” Kubursi adds. “Any hiccup, difficulty, any contraction is going to affect all this progress.”

Kubursi notes that ACL’s relocation to ports in the U.S. causes a “major disruption” to supply chains, predicting that trade of auto parts, agriculture, and oil will likely see the greatest long-term hits from the blockades. Of the three with the most immediate consumer impact, he says holdups of seasonal produce shipped from Mexico and California will directly and immediately affect shoppers.

“A province like Ontario, it literally imports 50% of its agricultural products, and…there is no counterpart production in Canada vegetables in the winter,” he says. “The impact is immediately felt. It takes a bite from consumer budgets…prices start shooting up, people are not going to be able to afford it. They might really start thinking of alternatives.”

Bernardo Blum, associate professor of economic analysis and policy at the University of Toronto’s Rotman School of Management, also predicts an impact on the trade of auto parts between countries. But he sees this effect being felt most directly by businesses, rather than consumers.

“I don’t worry too much about cars being shipped to factories and dealers, because if you don’t get your car this week, you’ll get it next week,” Blum says. “That’s not the big thing. The big thing is factories that need parts and need input, otherwise their production processes will have to stop.”

And blockades of commuter routes have also posed a threat to business travel and tourism. Protests near the U.S.-Canadian border in the Niagara region of Ontario and along a regional commuter rail line between Hamilton, Ontario, and Chicago kept international travelers from moving between countries for a short period last month.

While the Tourism Industry Association of Ontario says none of its member organizations reported feeling immediate impact from the blockades, damage to travel and tourism remains on the radar for the Canadian Chamber of Commerce. The Chicago Business Travel Association did not immediately reply to Fortune’s request for comment.

“I think the tourism sector would certainly have seen some impact [from the protests],” Beatty says, noting that this impact is currently difficult to quantify but could be felt in the future. “Obviously, it causes people to reexamine whether or not they should have reservations and attempt to go on a vacation or take other trips [in Canada].”

But as tensions calm across the country, experts are looking ahead, fearing long-term damage to Canada’s economy should U.S. companies and investors opt to stay away for good.

“We know that uncertainty creates a major cost,” Blum says. “I think the worry here is not the blockades per se, but if this is perceived by U.S. companies as kind of a Canadian risk…People look ahead and they think that this kind of event may [happen again]. If companies think that [the protests] would become more of a regular thing, I can see them leaving.” 

And while he predicts that overall impact of the blockades won’t be much of a hit to the U.S. economy, Blum says Canada’s loss could be the United States’ gain.

“[Any risk Canada poses globally] makes the U.S. more attractive a place to make new investments, put a factory—so I think if there is an impact, it’s likely to be positive,” he says.

But the Canadian Chamber of Commerce says its current priority is ensuring that this doesn’t happen. 

“All of this obviously affects business confidence and people’s longer-term planning and in terms of whether they can supply from Canada or what investment decisions they make in this country,” Beatty says.

“The first thing [to do] is give people the assurance that the system is functioning, and that it’s reliable, and that this is a good place to do business with.” 

The U.S. Chamber of Commerce declined Fortune’s request for comment.

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