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TORONTO (Reuters) - Locomotive engineers and conductors at Canadian Pacific Railway 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 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.
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 talks on Wednesday morning after a fruitless late-night session.
The Conservative government, quick to intervene in other labor disputes over the past year, said it hopes legislation is not needed, because the two sides are close a deal.
Labor Minister Lisa Raitt said a decision on when to intervene would depend on how the strike affects the Canadian economy. She projected that it would cost C$540 million ($525 million) in economic activity each week.
Raitt said the two parties, who remain far apart on pension issues, can keep negotiating or agree to enter a 120-day mediation process with a federally appointed arbitrator.
"My sense is that it's getting more difficult, more constrained," Raitt told the Canadian Broadcasting Corp.
Still, 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.
CP said it would immediately lay off more than 2,000 non-striking staff and expects to lay off 1,400 more workers as the work stoppage continues.
CP's operating performance is currently the worst in its industry, and its chief executive quit last week in the face of a boardroom coup led by the railway's biggest shareholder, who is demanding improvements.
CP's rail network is mostly concentrated in western Canada and in the United States, although U.S. operations are not affected by the strike. CN's network is bigger and broader.
"The suspension of CP's freight network in Canada due to the walkout means tens of thousands of carloads a day of a wide range of products like grain, coal, automobiles, lumber and other consumer and industrial products will not be moving," said CP spokesman Ed Greenberg. "This will have dramatic impacts on our customers' business and Canada's economy."
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 grown more important to U.S. and Canadian oil producers as pipelines have filled with surging production from the Alberta tar sands and Bakken shale oil region of Saskatchewan and North Dakota.
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.
A 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. Work rules and fatigue management are also core to negotiations, 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.
The company said it has contributed C$1.9 billion to its pension plans in the past three years due to funding shortfalls.
Employees have been without a contract since the end of last year and have been in talks with CP since October 2011.
"We're prepared to stay at the negotiating table as long as necessary, said union vice president Doug Finnson in a statement.
Officers from the Federal Mediation and Conciliation Service are available to assist CP and its union in their negotiations, Raitt said.
CP shares rose 7 Canadian cents to end at C$74.99 on the Toronto Stock Exchange Wednesday, about the same as the broader Canadian stock market. CP is about 60 percent higher than it was September 22, the day before hedge fund Pershing Square Capital Management began buying shares in the railway.
Additional reporting by reporters in Detroit, Vancouver, Toronto, Ottawa, Bangalore and Calgary; Editing by Frank McGurty, Janet Guttsman and David Gregorio