One of the biggest railroads in Canada,
Canadian Pacific Railway Limited
) is facing labor strikes by railway workers given disagreements
over a new labor contract. Approximately 5,000 union workers went
on strike, thus significantly affecting freight services across
Canadian Pacific's rail
The strike has substantially halted operations at Canadian
Pacific leaving fewer requirements of other workers. With freight
not moving, the company has temporarily laid off 2,000 other
workers. Management also indicated another round of furlough, which
could affect 1,400 employees.
Meanwhile, Canadian regulators are expected to come up with
back-to-work legislation by next week, forcing union workers to
resume their duties if both parties fail to reach an agreement.
Canadian Labor Minister, Lisa Raitt pointed out that apart from
raising employment issues, a prolonged strike would create cost
headwinds of approximately C$500 million (US$489 million) per week
for the Canadian economy.
The strike was called by the union members of Teamsters Canada
Rail Conference (TCRC), who were working without any effective
contract after expiration of their agreement in December last year.
Approximately 79% of Canadian Pacific's employees are unionized.
These employees are represented by around 39 bargaining units.
Canadian Pacific has existing contracts with 27 bargaining
units, of which five are in Canada and 22 are in the U.S. By
the end of this year, the company expects four out of five
contracts with Canadian union workers to expire. We believe that
given a lack of clear visibility over employee issues, Canadian
Pacific's service capabilities would remain pressured, ultimately
weighing over margin performance.
Apart from these labor related concerns, the company is also
subject to competitive threats from peers like
Canadian National Railway
). Moreover, exchange rate fluctuations, rising fuel prices and low
utility coal shipments limit the upside potential of the stock.
We have a Neutral recommendation on Canadian Pacific. For the
short term (1-3 months), the company has a Zacks #2 Rank (Buy).
CDN NATL RY CO (CNI): Free Stock Analysis
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