UPDATE 3-CP Rail workers reject contract, resume negotiations -union

(Adds comments from Canadian Pacific)

MONTREAL, May 25 (Reuters) - Canadian Pacific Railway conductors and locomotive engineers on Friday rejected the company’s latest contract offer, with their union saying negotiations would resume and raising the prospect of another possible strike at Canada’s second-largest railroad.

A strike by the estimated 3,000 workers could be called if talks fail or if CP refuses to negotiate - but only after providing 72 hours notice, Teamsters Canada said in a statement.

Teamsters Canada Rail Conference President Doug Finnson said by phone that the union expects to resume talks with Calgary-based CP on Friday.

The labor strife comes at a time of tighter rail capacity in Canada, with CP and rival Canadian National Railway facing strong demand for shipments of grain, potash and other commodities.

In a statement, CP said it was “disappointed with the outcome of the vote given that both final offers provided for significant improvements to wages, benefits and working conditions.”

Canada’s Labour Minister Patricia Hajdu said federal mediators would continue to work with the parties involved and that she was monitoring the situation closely.

“Our government believes in the collective bargaining process and I remain hopeful that the parties will be able to negotiate new collective agreements,” Hajdu said.

Canadian shippers rely on CP to deliver about 400,000 tonnes of grain that will not move for each week the railroad is on strike, said Wade Sobkowich, executive director of the Western Grain Elevator Association.

While a strike would impact CP’s Canadian operations, some U.S. shippers fear it would have a ripple effect since the rail extends into the Northern United States.

“It’s a concern as everything is so interconnected,” said Mike Steenhoek, president of the Iowa-based Soy Transportation Coalition.

Steenhoek said one of his members, an agricultural shipper that declined to have its name published, fears a CP strike in Canada would “result in them having to slow their processing plants down or shut down entirely.”

CP said on its site the company’s wages and benefits “meet or exceed those of our competitor,” Canadian National Railway .

CP is offering Teamsters employees a 2 percent annual salary increase during the three-year contract.

The workers, whose collective agreement expired late last year, are asking for more predictable schedules to combat crew fatigue, among other demands.

CP and the unions reached an agreement in April to postpone a strike, which would have been the third in six years at the railroad. (Additional reporting by David Ljunggren and Leah Schnurr in Ottawa; editing by G Crosse and James Dalgleish)