CP Rail strike stops freight, Feds may step in

Locomotive engineers and conductors at Canadian Pacific Railway (CP-T) walked off the job on Wednesday after contract talks broke down, shutting down freight operations on Canada's second-biggest railroad.

As some customers began seeking alternatives to move their autos, grain, coal and other goods, the Canadian government said it may introduce back-to-work legislation as early as next Monday if the strike drags on and harms the economy.

Talks between the company and the Teamsters Canada Rail Conference, whose 4,800 engineers, conductors and traffic controllers represent nearly a third of CP Rail's workforce, resumed on Wednesday morning after a fruitless late-night session Tuesday.

The Conservative government, quick to intervene in other labour disputes over the past year, said it hopes legislation is not needed, because the two sides are very close a deal.

Labour Minister Lisa Raitt said a decision on when to intervene would depend on how the strike -- which she said would cost $540 million in economic activity each week -- affects the Canadian economy.

"If they cannot conclude their deal, we will have the ability to intervene," Raitt told reporters in Ottawa.

"We want to make sure they have some room at the table. They're very close. They can conclude their own deal, and we ask them to do it as soon as possible."

Raitt's willingness to give the two sides more time contrasts with the speed with which she acted to get Air Canada employees back to work in their recent disputes with the country's largest airline.

That's partly because CP's larger rival, Canadian National Railway Co., can pick up some

freight that might otherwise ship on CP Rail.

RIPPLE EFFECT

The strike comes at a difficult time for CP. Its chief executive quit last week in the face of a boardroom coup led by CP's biggest shareholder, who is demanding that the railway improve its operating performance, currently the worst in the industry.

CP's rail network is mostly concentrated in western Canada and in the United States, although its U.S. operations are not affected by the strike. CN's network is bigger and broader.

"In addition to customer and supply chain impacts, the suspension of CP's freight service will also impact many of the connecting railways with whom we do business," said CP spokesman Ed Greenberg.

Customers were watching the situation with concern.

"The CP Rail strike will cause a shortfall of essential fuel and supply shipments to mines across Canada," the Mining Association of Canada said in a statement. "It will also prevent mines from delivering their products to their ... destinations."

Rail transport has become an important release valve for U.S. and Canadian oil producers as surging production from the Alberta tar sands and Bakken shale oil region of Saskatchewan and North Dakota fills up pipelines.

The railroad also transports grain, vehicles and auto parts, as well as coal for Vancouver-based Teck Resources Ltd , a diversified miner that is CP's largest customer and one of the world's biggest exporters of steel-making metallurgical coal.

"It is critically important that we try and get a resolution to this as quickly as possible," said head of external affairs Marcia Smith.

The Canadian Wheat Board said the strike would delay at least 162,000 tonnes of grain shipments.

Two of the Big Three U.S. automakers, Ford and Chrysler Group, said they were seeking alternative shipment methods, while General Motors Co. and, said it did not anticipate any impact on production.

Commuter rail services in Vancouver, Toronto and Montreal, which operate along CP's tracks, will continue without disruption during the strike, CP said.

But Via Rail, a federally owned company that operates passenger rail services, said the strike was affecting two of its Ontario routes and it would offer alternate transportation.

PENSION FUNDING

The key stumbling block in the talks between the railroad and the union is CP's desire to reduce pension plan funding by 40 percent, the union said.

CP Rail, which says is offer is "fair and reasonable" has said it needs to cut legacy pension and post-retirement benefits to bring them in line with the rest of the industry.

Employees have been without a contract since the end of last year and have been in talks with CP since October 2011.

Officers from the Federal Mediation and Conciliation Service are available to assist CP and its union in their negotiations, Raitt said.