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Quebec business leaders sound alarm over impact of rail blockades

“Some of our members have told us they’re contemplating shutting down production lines.”

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Business leaders in Quebec and elsewhere are sounding the alarm about the economic effects of a prolonged halt in rail service amid persistent protests against a pipeline project in British Columbia.

U.S. chemicals maker Olin Corp., which operates a major chlorine plant in Bécancour, said Friday it had declared force majeure for products made in, and shipped into, Canada due to the country’s “ongoing rail transportation issues.” Olin added it’s “taking steps now to be in a position to safely shut down the facility, should that become necessary.”

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Olin’s announcement adds to the pressure being piled on the government of Prime Minister Justin Trudeau by the business community. Resolute Forest Products chief executive officer Yves Laflamme wrote to federal officials this week to express his concern over the situation and urge the government to “prioritize” a deal and avoid further disruptions in rail shipments.

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Canadian National Railway Co., the country’s biggest railroad, said late Thursday it’s begun a “disciplined and progressive” shutdown of its Eastern Canadian operations for safety reasons after cancelling more than 400 trains over the last week. The shutdown — which CN said may “imminently” trigger layoffs — compounds challenges for businesses already dealing with a shortage of truck drivers, executives say.

Blockade organizers across Canada have said they’re acting in solidarity with people opposed to the Coastal GasLink pipeline project that crosses the traditional territory of the Wet’suwet’en First Nation near Houston, B.C.

“This situation is very problematic,” Resolute’s vice-president of government affairs, Seth Kursman, told the Montreal Gazette on Friday. “When we don’t have rail, it presents a challenge both in shipping out the product and in bringing in raw materials. You then have to rely on trucks, but the driver shortage makes it much more costly. You’re talking about tens of thousands of dollars a day in additional costs, assuming you can even get a truck.”

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Montreal-based Resolute operates nine pulp and paper mills and 19 wood products facilities in Canada.

Quebec’s forest-products makers export about $12 billion worth of products annually, including a “vast majority” by rail to the U.S., according to data from the provincial trade association. Canada’s forest-products industry accounts for about 10 per cent of the total tonnage transported through the Canadian railways.

Olin warned this week that the disruptions could soon impact not just economic activity, but public health as well. Chlorine and its co-product, caustic soda, are used in thousands of products in industries such as agriculture, aerospace, forestry, plastics, telecommunications and water treatment.

“We are concerned that customers and municipalities will not receive shipments of vital chemicals including chlorine within one week,” Olin CEO John Fisher wrote in a Feb. 11 letter to federal Transport Minister Marc Garneau. “Without a near-term resolution to the current multi-pronged rail challenge, Olin may be forced to curtail or cease all production in Canada. If Olin is forced to shut down its plant, restarting it in freezing temperatures presents significant safety and operational difficulties.”

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Many companies rely on just-in-time production methods, which exacerbates the problem, according to Véronique Proulx, head of Manufacturiers et Exportateurs du Québec, a trade group that represents more than 1,100 manufacturers.

“It’s become urgent that the federal government solve this,” Proulx said. “Time is of the essence. Some of our members have told us they’re contemplating shutting down production lines.”

Many manufacturers are still recovering from an eight-day strike at CN that disrupted economic activity in November.

“This is the second time in short succession that our members are forced to scramble,” said Proulx. “It makes us realize how vital rail is to the entire economy. With trucks in short supply, we have no other solutions and this is worrisome.”

Operations at the Port of Montreal are also feeling the effects of the blockades.

Containers transiting through the CN network and intended for export through Montreal have fallen “sharply,” while merchandise and commodities shipments from Western Canada are also down, spokeswoman Mélanie Nadeau said Friday in an e-mailed response to questions.

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“We are not in a critical situation yet, but things could deteriorate over the next week,” Nadeau said. “So obviously, we’re monitoring the situation closely.”

CN’s Eastern network shutdown means the impact of the blockades will be felt more acutely in Quebec, according to Bob Masterson, head of the Chemistry Industry Association of Canada. A lack of chlorine would especially affect municipalities, which depend on the chemical and its derivatives to treat about 85 per cent of drinking water and keep it clean.

“There is a crisis coming, and it‘s coming quickly,” Masterson said. “We’re not talking months. In some municipalities, it’s a matter of days.”

Unlike November’s CN strike, there was no advance warning of the blockades, Masterson said. That left chemicals users no time to order extra supplies.

“In the lead-up to the strike, CN was telling its shippers that the labour negotiations were going to be difficult, so many customers ordered as much as they could in case of a disruption,” he said. “These blockades came out of nowhere.”

Still, it’s too early to assess how damaging the impact of the disruptions will be on the Quebec and Canadian economy, said Benoit Durocher, an economist with Mouvement Desjardins in Montreal.

“Some companies can operate with the inventory that they have, but the longer this goes on, the greater the chance it will show up in economic growth numbers,” Durocher said Friday. “All we can say for now is that there is a temporary impact.”

Following up on his message Thursday that Trudeau needed to act to end the impasse, Premier François Legault spoke with Trudeau Friday on the phone.

“I told him it is urgent to act to put an end to blockades on rail lines,” Legault wrote on Twitter. “The economic impacts for Quebec are major.”

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ftomesco@postmedia.com

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