The announcement of an agreement to build a Pacific-Atlantic rail link across South America is important to global commerce. If it actually succeeds, it would allow many goods to skip the Panama Canal in transit from Brazil to the Far East, including China.
The idea seems to be a combined intermodal and bulk rail line from the East Coast of Brazil to Chancay Port in Peru.
China of course imports bulk grain and oilseed cargoes from Brazil. Brazil also is home to some manufacturing which might be cheaper than Chinese manufacturing has become. And Brazil consumes many manufactured goods now as the country develops. China is an ideal source for these.
It’s called the “Two-Ocean Railway”. It should cut the China-Brazil trip to 10 days.
China is already investing $1.3B in Chancay Port in Peru. This railway will create guaranteed demand for the port’s capabilities.
In the light of President Trump’s tariff machinations and his threats surrounding the Panama Canal, it’s wise for the Chinese to create an alternative.
Brazil and China are an ideal trading pair to show comparative advantage at work; each nation produces what it’s best at, and trades for the other goods. The result produces lower costs for both parties, even including transport costs.
This interesting article ties together several efforts by national rail agencies to drum up more traffic. The countries range from Russia to the UK.
When you have a national railroad, rather than private enterprise, you can make quick changes that will reduce costs for the kinds of shipments you want.
The article focuses on Russia, which is losing lots of cargoes from the Far East headed for Europe. Russian rail traffic is suffering from sanctions the West has imposed due to the war in Ukraine. Recent efforts by Ukraine on the war front around Kursk have also compromised Russian rail. Apparently grabbing a few rail nodes has given Ukraine access to some control over much of the Russian rail network!
And some of the competitors, such as Kazakhstan, are making competitive moves as well, to garner even bigger shares of the Asia to Europe rail cargoes. With the Red Sea attacks on ships by the Houthis, which forced ships to avoid the Suez Canal and take on much longer voyages from Asia to Europe, the Kazakhstan rail link is prospering greatly. It skirts Russia to link to European rail lines.
Other national rail agencies are also acting to promote rail cargo. That’s a good thing for emissions. It takes trucks and their emissions off the road. That’s part of the motivation in the UK.
Anything we can do to promote rail cargoes over trucks will benefit the environment.
Now is the time for labor unions to press ports and railways for new benefits for workers. There is a perfect storm of labor stoppages about to take place.
Thursday (that’s two days from this writing) the Teamsters Canada union (TCRC) expects to strike the CPKC railroad, one of the two largest in Canada. CPKC is also a large US and Mexico railway, and we’ve yet to see if US unions will honor a Canadian strike. The Canadian National (CN) rail line has blocked the strike by giving a lockout notice to the union. So there’s a high likelihood that most Canadian rail shipments will be shut down later this week.
The TCRC has turned down offers made in January, April and May. The labor agreements with the rails expired at the end of 2023, and the workers are working under the old contract. There have also been some rules changes by the government to reduce fatigue, that are not accounted for in the contracts. In fact, the union claims the rails want to ‘gut the collective agreement of all safety-critical fatigue provisions’. That may be hyperbole, but it’s indicative of the bitterness of disagreement.
The Teamsters represent about 10,000 workers. The Labor Minister has not issued an order for binding arbitration, so it’s likely there will be stoppages.
The cessation of rail movements means there are likely to be major disruptions at ports, where rail takes goods into the interior of Canada and also to the US. The rails are already announcing embargos which mean that they will not accept new shipments in certain areas because of expected port congestion.
The Port of Vancouver has already ordered ships on their way there to slow-steam because they fear they will not be able to move cargo out or into the port.
To top off the labor confusion, the US East Coast Ports are engaged in negotiations with the International Longshoremens Association (ILA), the major union representing 85,000 members. The ILA has indicated that October 1 will begin a strike if a new contract is not agreed. There does not seem to be a clear path to agreement.
Shippers and Ocean Carriers are already preparing. Cargo is shifting to the West Coast US Ports, where an agreement was completed last year. I expect the East Coast ILA members expect similar if not better contracts, because East Coast ports have been prospering for the last couple of years. Their first glitch was when the Panama Canal reduced its traffic due to an extended drought. Traffic started shifting to the West Coast then. Now the Panama Canal is near its former levels, and traffic is rising again. The East Coast Ports do not need a strike right now.
But that’s exactly why the unions are playing hardball.
Supply Chain and Logistics 