The Impact of the Canadian Rail Labor Lockout

Speaker 2: 0:10

Welcome to Auto Care On Air, a candid podcast for a curious industry. I'm Stacey Miller, vice President of Communications at the Auto Care Association, and this is Traction Control, where we chat about recent news from the global to the local level and what it may mean to the industry, featuring guests on the front lines. Let's roll All right. We're talking about a pretty serious issue today, a really timely issue that's happening with our friends up north in Canada. So I wanted to call my friend, adam Malik. Adam is from Turnkey Media, which manages automotive magazines such as Jobber News, cars and EVWorld, and, quite frankly, anytime I have an issue that's going on in Canada, I turn to Adam because he's one of the greats reporting what's going on up north and making sure that we're all on the same page talking about the effects on the automotive aftermarket. So welcome, adam.

Speaker 1: 1:00

Thank you, stacey, happy to be here.

Speaker 2: 1:02

Awesome. So Adam, tell me what's going on with the Canadian railways. Something pretty serious happened at midnight.

Speaker 1: 1:08

Yeah, midnight this morning Cane Railways both main railways went on strike, basically shutting down movement of goods across the country, and not just across the country but into the US as well, going back and forth They've shut down. We've been hearing about this for several weeks, if not maybe months, that this could be happening. I think most people hope that. You know, like most serious negotiations, you know it would reach a last-minute decision, but it didn't happen. Everything from consumer goods, commercial goods, commuter trains, even in Toronto, all ground to a halt.

Speaker 2: 1:46

That is absolutely insane to think about. I was doing some research and it said, like you said, everything from agriculture there's auto parts on those trains, which is something that we need to talk about here today but even the commuters. So this is going to affect people going to work this morning, right?

Speaker 1: 2:03

Yep, yes, on the news this morning, people were just going I can't go in, you know or they're finding alternative methods. What the methods are, I don't know. Either. You know grabbing an Uber for the normal, you know, hour long commute, I don't know. But yeah, people, people aren't going to work, things aren't moving and yeah, it's just really shutting down a lot of the way we're just doing business around here.

Speaker 2: 2:23

So the labor dispute? From what I read, it shut down two major freight railroads. Do we know how many people that affects the people who actually work there?

Speaker 1: 2:34

I don't know how many people it affects, but these are two significant rail lines in Canada. They crisscross the country and, like I said, they go into the US, from the US back in Canada. They crisscross the country and, like I said, they go into the US, from the US back into Canada. These are the major lines for goods movement in Canada.

Speaker 2: 2:53

Yeah and this is something that I didn't really think about until the news broke is how many goods travel across the borders that are kind of vital to the US economy. So this is a pretty big deal for a lot of businesses. But we're going to look at it from the lens of automotive, so has this I mean, I'm just very new to the topic has this happened before with the railways in Canada? Do you know?

Speaker 1: 3:17

In terms of a strike? No, not that I can see. There was one guy from CH Robinson, which is a 3PL company. He was saying they've been in Canada for 100 years. One guy from CH Robinson, which is a 3PL company. He was saying they've been in Canada for 100 years. Never had a railway disruption, at least in terms of a strike, anyway. No labor disruption to railway. So this is really unprecedented for us.

Speaker 2: 3:40

Wow, really new, really fresh. They're saying billions of dollars in all the goods period are on these trains. It's confirmed that auto parts are on these trains. But tell me a little bit about your take on what you think the effects could be on the automotive aftermarket.

Speaker 1: 3:52

It's pretty, pretty widespread, I think, the effects on the aftermarket. If you start looking at first at the automotive industry as a whole from the OE side, you know we got parts coming in from Europe. They'll hit Montreal, the port of Montreal, and they'll be shipped to Detroit, for example, you know, to build vehicles or rail, or these railways will be used to build cars and then they can't get the cars, maybe they already have shipped out. Well, now we're kind of back in that problem of where new vehicle inventories are now suddenly going down because dealers can't get their cars, cars can't be built, and we're going to see that effect that we kind of saw during the pandemic, where lack of inventory, all of a sudden now people look to the used market, used prices go up, people hang on to their cars longer, that sort of thing. And on first glance to me I think you know, hey, that sounds good for the industry, because you know if it's more expensive to buy a new car, or just aren't new cars available, or even if it's too expensive to buy a used car, and the people are going to say, hey, well then I'm just going to replace my car, I'm going to go to my shop down the street and I'm going to get it repaired there. Great good stuff for the aftermarket, right? Well, yes, on first glance, I suppose.

Speaker 1: 5:16

But on those railways are auto parts as well like aftermarket auto parts as well. And this is the whole part of the USMCA, the new NAFTA agreement, north American Free Trade Agreement. You know, parts go back and forth between our countries very often I can't remember the exact number, but I think it's at least some parts are a dozen times They'll go back and forth. And if there's no way to send them by rail, well now you're sending them by trucks, and trucks simply can't carry the load that railways do, right, just the volume and they're.

Speaker 1: 5:50

I mean, it's summer now, you know, but if this were to carry on in the winter, or if this happened in the winter, you know, you know weather becomes a factor in moving freight around by trucks. So you really want to have a solid rail system. So, uh, you know, I can see that driving up aftermarket prices, maybe we can't even get the parts now. Uh, kind of that problem we had in the pandemic, where just supply, supply constraints just really, really hurt the aftermarket. Uh, could we see that again? It depends how long on. This goes um. But that just high level second base suppose, is just the impact it could have on our industry.

Speaker 2: 6:24

Yeah, and my mind went exactly. We had the same thought train that it's like COVID, or when the ship couldn't make it through the canal right. We've seen major delays in the supply chain and day after day after day means another day of impact. So, you know, I think about how did our industry respond during that time, and we saw companies you know I think about how did our industry respond during that time and we saw companies, you know, opening up new warehouses, diversifying where their supply was across the US from east to west, in order to make sure that they had distribution networks. So you know, if they're affected on one side of the US, they can be able to distribute from the other side. Canada is obviously massive. Are you seeing the same, with aftermarket companies looking to diversify their distribution strategy, their strategies, rather as a result of what they learned from COVID and these other major, unprecedented supply chain impacts that we've had the past couple of years?

Speaker 1: 7:21

yeah, canada's very much unique in that way from the us, where we are a large land mass that is sparsely populated. Right, americans have numbers 10 to 1, basically, right. So we are spread over a large area and we're really most of our population is concentrating on toronto, montreal, vancouver, that sort of thing, but there's a lot in the rural areas, uh, so getting parts out to them is is a totally different ball game. But you're seeing, seeing, I don't necessarily, I'm not necessarily going to say that the distributors here have put a thought into putting mobile warehouses everywhere. But you know there is at least one distributor. You know, vast Auto, for example, just opened a new satellite warehouse west of Toronto. You know, was that just to anticipation of this or just to serve the greater market? I'm not quite sure, but I think this or just to serve the greater market, I'm not quite sure, but I think it's more to serve the greater market. But you know, having an extra warehouse, I'm sure it doesn't hurt. But when I talk to, to jobbers, to the, to the parts of the sellers, you know they are always looking to expand their footprint, their physical footprint, their store, because there's just so many auto parts out there right now they need more and more space, open their store, because there's just so many auto parts out there right now. They need more and more space.

Speaker 1: 8:27

And something that came out of covid was there was a lot of talk you know the just in time uh shipping method, the lean uh shipping. You know, toyota was famously uh famous for that, you know, and that's. You know where you order something and you know it just comes. You know you order it and it comes. And there's a lot of movement. Now I I think to move away from that to say, hey, you know what Labor disruption, supply chain disruptions, we don't want that again. So we're going to fill up our warehouses, we're going to expand our warehouses, we're going to have more parts in our warehouses so that when there is another pandemic Well, not in this case and now it's a real strike that could impact the parts you can get. So now it's a real strike that could impact the parts you can get.

Speaker 1: 9:05

Now I think there's much greater attention being paid to distributors, suppliers, just making sure that they have more in stock as opposed to you know just that lean manufacturing. And even you want to own nearshoring. You know nearshoring has been a big topic recently. You know, moving more production to Mexico, for example. Well, how's that stuff be moved? Again is what you would generally would want because it moves faster. Yes, some stuff moves by truck, but you know this idea of one idea. It's happened now the strike, um, how does that impact nearshoring? Now, because you're, if you're depending on, on these, uh, these systems to move your stuff around, and now it's on this labor disruption, is it still reliable? You know it's, it's just, you know, kind of feels like one blow after another for for the auto sector. You know it's, um, it's just, the hits keep coming and it's just another, uh, another thing that this industry has to react to yeah, absolutely.

Speaker 2: 9:58

I mean talk about nearshoring and having things in mexico I was reading related to the labor dispute that CDK, I guess, has trains in Mexico but they're allowed to run in Mexico but they can't, you know, cross any borders or anything like that, so it doesn't really help us get more parts, unfortunately. So really really big deal. You know, one of the other things that I heard coming out of the pandemic and coming out of some of the other supply chain disruptions gosh, we had so many thinking back upon it, yet we were still such a resilient industry as we heard. You know, parts suppliers and and warehouse distributors talking about having more inventory like more inventory than they need, you know, in order to be able to surmount something like this, would it, you know, should it happen again? And here it is happening again? Are you hearing things like that on the ground in Canada?

Speaker 1: 10:51

Well, I don't think it's just the Canada, I think it's the industry as a whole. Right, I think they're saying we need to have more parts in stock. You know, parts proliferation alone is an issue. I remember actually I think it was John Washbush from the Alliance issue. I remember actually I think it was John Washbush from the Alliance and he was talking I believe it was a Yang seminar where he said you know, this is more about the peak of the pandemic, or maybe he was talking about the peak of the pandemic anyway, but you know, we were just selling out of everything. You know, it didn't even matter good, bad or best, it's just what do you got? Do you got this break part? Do you have this muffler? Do you have? Just give it to us. We need to serve these customers and we may end up seeing that again.

Speaker 1: 11:28

If, again, if parts are supply chain disrupted. You know these retail outlets just maybe going yeah, here, here's what we got. This is all I got left here. You know, just have your pick. Which of these do you want? Like, do you want your preferred brand? Well, sorry, that's not really going to happen here.

Speaker 1: 11:43

Um, we got. You don't want brand a, we got brand b. Here you go. That's all we got. That's what you got to deal with, and you know it's chaos. It can't be chaos. I suppose you know, when you don't know what you're going to get, if you're going to get the reliable part that you're always used to, um. But you know, it's what you said. This industry is resilient, found a way to get through it, we got through it it and probably came out better for it at the end. Now has enough time passed to really build up that resiliency to be prepared for the next disruption. I don't know, we'll find out. But you know this is a resilient industry. You always be able to bounce back and you know you got to expect the same to happen here.

Speaker 2: 12:21

Yeah, that's right. I mean, I get a little freaked out Maybe you do too when I hear about parts not being available and the prices going up, and that gets passed down to the drivers. It gets passed down to me, to you, to our friends, to our family, to our colleagues. And there's this stat that we publish. We publish every couple of years in the fact book. It comes from IMR, which is now Endeavor.

Speaker 2: 12:44

It's the delayed maintenance number. So there's something like $30 billion in delayed maintenance and some of that can be due to cost. So if cost is rising and drivers aren't maintaining their cars because it's too expensive at the time and they're making decisions in this economy that's rife with inflation, hey, I'm going to buy groceries, I'm not going to change the brakes on my car. That's a scary thought, knowing that there's unsafe cars on the road because they can't afford those parts. So it's a big deal and this industry really needs to respond to make sure that we have some sort of parts to provide to the drivers in the end and that we can offer them at a price that's still going to allow them to be on the road safer longer, absolutely.

Speaker 1: 13:25

And I don't want to misattribute to who said this, I can't remember, but I'm pretty sure it was said at Apex last year, where people, yeah, it's everything, everything is going up in terms of cost, and when it's got my car fixed or buy groceries, you know well, groceries come out on top.

Speaker 1: 13:42

You know, and and it's it changed a bit of the customer too. You know, the people who could afford it, um, were uh, um, uh, there's a certain segment of the of the population that can afford to get their car fixed, and so they didn't really have those concerns. And it was changing the shape of the customer that shops and outlets were seeing. Because, you know, you're so used to seeing maybe the, the lower income guys, because they need their car, they have to get to work, it's their livelihood versus maybe more the white colored people who maybe work from home, are now more remote, less so, but they are the ones who, uh, have the money to spend in the aftermarket, versus the, the lower income folks who are saying, listen, let's get my car fixed or buy dinner tonight. You know what's it going to be. You know it's really changed how, how this industry, uh, the customers we're seeing and how we basically think.

Speaker 2: 14:30

It really has and it's something you know. Unfortunately, we have to anticipate this now, um, for the rest of our lives, right? Anything could happen. Anything could happen at any time and we're not going to get much warning. I think um really changed that and it changed the way that companies think about their strategies and their parts proliferation, as you were saying. So astounding really astounding to hear this news overnight.

Speaker 1: 14:54

Yeah, and these black swan events right that they were calling them. You know, pandemic is one, now is this labor disruption going to be one? How long will this last? I'm If I were to guess it's not going to last too long. I imagine that the disruption to commerce will be too much for the government to ignore. I think eventually they will step in. Eventually I mean really soon they will step in and say you know what, back to work legislation or binding arbitration, something like that. Because for our understanding, speaking for our industry, you're going to see their warning of auto plants is shutting down because they can't get the parts. So people aren't going to be working, people are going to be out of work. I think the pressure will really be on to get a quick resolution to this. I can't see it dragging on. I mean, who knows? But I think this would be resolved. I hope it gets resolved fairly quickly.

Speaker 2: 15:43

That is all of our hope and you know I neglected to mention. I wanted to have you share some of kind of like the top line industries for the automotive aftermarket in Canada, for those who aren't really well versed on how many parts and how many people actually make up our industry in Canada.

Speaker 1: 16:00

So we're about a 37.8, if I'm hearing correctly, about $38 billion industry in Canada. 8, if I'm hearing correctly, about $38 billion industry in Canada, affecting hundreds of thousands, directly and indirectly, of jobs across Canada. You know we have, like we're a vast country, a very unique country in the sense you know we have. You get the French-speaking population in Quebec, you got way out in BC and then you got the prairies in the middle there which are, you know, everybody's got their own dynamic here, but it's very widespread, very, I like to. You know it's, it's a, it's a, it's a, it's a vast area, but we're very small and very connected here. So, yeah, a lot of, a lot of people put to work thanks to the automotive aftermarket in Canada, that's for sure, including me.

Speaker 2: 16:49

A really amazing industry and a massive part of our ecosystem here in North America. So, Adam, is there anything else or any other thoughts on this event that we want to share with our listeners?

Speaker 1: 17:01

No, I think you know, I think people's jobs here are at risk. I mean, no, I shouldn't put it that but way. But when you talk about plants shutting down for auto production because they can't get the parts, I think that's a very real risk to our broader sector. And then the cost of parts if we can't get it, they'll go up because we just can't get the parts. Keeping that supply chain moving, I think it could have a huge effect like pandemic-like effect that we saw. So hopefully this gets resolved in short order and you know we can go back to the way things were. But I think that resilience part is really hits home for this. We've got to be resilient, we are resilient and just make sure that we can always respond to such issues.

Speaker 2: 17:46

All right, and I hear that there's maybe another implication related to this labor dispute in Canada. What is that?

Speaker 1: 17:54

Well, less in Canada, more US. Now there's talk of US port strikes happening on October 1st, I think. 85,000 members, something like that, are now in a position where they could walk off the job. So we could be looking at if this rail strike drags on, which I don't think it will, hopefully it doesn't. You know, we could have a rail strike and a port strike. And how will that affect? Because, you know, in anticipation of these rail strikes, a lot of shippers were diverting their ports. So, instead of coming into Montreal, instead of coming to BC, they were going around to other ports. Well, instead of coming into Montreal, instead of coming to BC, they were going around to other ports. Well, if these ports now go on strike and this rail situation hasn't been settled, chaos is the word that comes to mind. Anarchy maybe, I don't know, but it could really set things pun intended, I suppose, off the rails.

Speaker 2: 18:44

Oh my gosh, no way, I mean we've dealt with the port of Los Angeles. Obviously, the Baltimore Bridge collapse was a really big deal for automotive. We're actually going to be at the Port of Baltimore in a week at our fall leadership days to see the impacts and see how they've been recovering, so that's a pretty big deal. So we're hoping that a resolution comes through here very, very soon.

Speaker 1: 19:07

I want to punch after the other. It feels like.

Speaker 2: 19:10

Adam, where can people find you if they want to keep in touch with you or read some of the stories that you're publishing, as you're doing? Some of the most relevant content that I've seen coming out of Canada.

Speaker 1: 19:19

Oh, thank you, I appreciate that. So, online we're at autoserviceworldcom. That is the online portal for, like I mentioned, our magazines and daily news. Always, that is the online portal for our like. You mentioned our magazines and daily news. You know, always keeping people updated as best we can. We've got multiple newsletters going out throughout the week for a week and then, as I'm on LinkedIn, you can find me there, search my name. I'm sure you'll find me happy to connect, and I always would like to like to share our top stories, our top reads, just what's happening in the industry. You know I'm all about making this industry better and making a better place for all of us and make it successful, because I want it to be successful. So, yeah, autoserviceworldcom, our website, and yeah, find me on LinkedIn.

Speaker 2: 19:58

Great. Thank you so much, Adam.

Speaker 1: 20:00

Oh, Stacey, it was a pleasure to be here. Thank you so much for having me.

Speaker 2: 20:04

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