Canadian officials scrambled Thursday to resolve a labor dispute that ground the country's freight railways to a halt, threatening dire economic consequences for businesses and consumers throughout Canada and the U.S.

Canadian National and CPKC railroads both locked out their employees after a 12:01 a.m. EDT deadline to resolve a dispute with Teamsters Canada Rail Conference passed.

Talks resumed later in the day as workers picketed outside and business groups urged the government to force the union into binding arbitration.

All of Canada's freight handled by rail – worth more than $1 billion Canadian (US$730 million) a day and adding up to more than 375 million tons of freight last year – stopped, as did rail shipments crossing the U.S. border.

About 30,000 commuters in Canada were also affected because their trains use CPKC's lines. CPKC and CN's trains continue operating in the U.S. and Mexico.

Many companies in both countries and across all industries rely on railroads to deliver their raw materials and finished products, so without regular rail service they may have to cut back or even close. Billions of dollars of goods move between Canada and the U.S. via rail each month, according to the U.S. Department of Transportation.

"They are now holding the Canadian economy hostage to try and pressure the Liberal government to impose final binding arbitration and take your rights away to free collective bargaining," Paul Boucher, president of the Teamsters Canada Rail Conference, which represents about 10,000 engineers, conductors and dispatchers, said on social media platform X.

Both railroads said they would end the lockout if the union agrees to binding arbitration. Prime Minister Justin Trudeau declined to immediately force the parties into binding arbitration for fear of offending unions and the leftist NDP party that his Liberal government relies on for support to remain in power.

His position appeared to be shifting, however. On Thursday, his administration was exploring how it could use Canada's labor code to end the lockout, including binding arbitration, according to an official familiar with the discussions who spoke on condition of anonymity as they were not authorized to speak publicly on the matter.

"It is something that has an impact right across the country, from workers to businesses to farmers to consumers. ... That's why we are on this," Trudeau told reporters in Sherbrooke, Quebec. "We are taking it so seriously. The minister is engaged directly," Trudeau said.

Trudeau's support for unions may have its limits – such as it did for U.S. President Joe Biden, who blocked a rail strike two years ago.

Business leaders fumed over the lack of early government intervention.

"When you completely shut down the coast-to-coast supply chain, nothing good can come from that," said John Corey, president of the Freight Management Association of Canada. "This is infuriating. People are going to lose their jobs. There is going to be a real hardship to the economy."

Most businesses will probably have enough supplies on hand and room to store finished products to withstand a brief disruption. But ports and other railroads will quickly become clogged with stranded shipments that Canadian National and CPKC won't pick up.

Edward Jones analyst Jeff Windau said many companies made supply chain changes after the COVID-19 pandemic that can help them withstand a short disruption. The real trouble starts if it drags on.

Most previous Canadian rail stoppages have only lasted a day or two and usually involved only one of the big railroads, but some have stretched as long as eight or nine days. Pressure for government intervention will increase if the lockout continues, with the impact magnified because both railroads are stopped.

"They are so integrated and tied into the economy," Windau said. "Just the breadth of products that they haul. ... Ultimately, I think we need the rails to continue to be running. And so at some point the government will start to get involved more."

Chemical businesses and food distributors will be among the first to be affected. The railroads stopped accepting new shipments of hazardous materials and perishable goods as they began gradually shutting down last week, but most chemical plants have said they will be OK for about a week.

The auto industry also may see problems quickly because it relies on just-in-time shipments, with significant cross-border deliveries of engines, parts and finished vehicles.

Flavio Volpe, President of the Automotive Parts Manufacturers' Association, posted on X that about four of every five cars made in Canada are exported to the U.S. almost exclusively by rail. He said a prolonged lockout could cause temporary work stoppages similar to the impact of the five-day 2022 Ambassador Bridge blockade.

Union Pacific, one of the U.S. railroads that regularly hands off shipments to and from the Canadians, said the stoppage "means thousands of cars per day will not move across the border."

"Everything from grain and fertilizer during the critical summer season, and lumber for building homes could be impacted," Union Pacific said in a statement Thursday.

More than 30,000 commuters in Vancouver, Toronto and Montreal were the first to feel the pain of the lockouts. They had to scramble Thursday morning to find a new way to work because their commuter trains aren't able to operate while CPKC is shut down.

CN had been negotiating with the Teamsters for nine months while CPKC had been trying to reach an agreement for a year, the union said.

The Canadian negotiations are stuck on issues related to the way rail workers are scheduled and concerns about rules designed to prevent fatigue and provide adequate rest to train crews.

Both railroads had proposed shifting away from the existing system, which pays workers based on the miles in a trip, to an hourly system that they said would make it easier to provide predictable time off. The union said it doesn't want to lose hard-fought fatigue protections.

The railroads said their contract offers have included raises consistent with recent deals in the industry. Engineers already make about $150,000 a year on Canadian National while conductors earn $120,000, and CPKC says its wages are comparable.