The Shifting World of International Trade and Supply Chains

By Jayson Myers

COVID closures. Natural disasters. Shipping delays. Overcrowded ports. Ships stuck in the Suez Canal or waiting offshore. Supply chain disruptions over the past two years have been a nightmare for logistics and purchasing managers. For manufacturers across Canada, they have meant parts shortages and soaring input prices. Margins are under extreme pressure and inflationary pressures are building across the economy.

On the other hand, for those companies, that have been able to pivot to take advantage of gaps opening in supply chains, it’s been a time of opportunity. Investments in product and process innovation have allowed many manufacturers, across Canada and especially across the Prairies, to build new export markets and capitalize on the advantages of more localized sourcing.

There have been some significant shifts in trading patterns as a result. Overall, Canadian exports have rebounded strongly, imports less so. Supply chain disruptions have hit both inflows and outflows of product from some of our largest globally integrated industries like the automotive sector. Other sectors, though, are flourishing. Prairie manufacturers are riding a particularly strong wave of growth.

Much has changed since 2019. Let’s take a look. (Projections for 2021 are based on year-over-year growth rates for the year to date based on the latest available statistics. Manufacturing sales reflect performance from January to August while trade data cover the months of January through September.)

Across Canada, manufacturing sales rebounded by 19 per cent on a year-over-year basis during the first eight months of 2021, a growth rate that puts Canadian manufacturers on track to end the year 5 per cent above 2019 levels. Manufacturing sales growth across the Prairies has been much stronger. Output in the three Prairie provinces jumped 29 per cent in 2021. By the end of the year, sales by Prairie manufacturers are projected to climb to $125 billion which will be 10 per cent higher than in 2019.

On the trade side, Canadian merchandise export sales increased by just over 20 per cent in 2021. By the end of the year, total exports are on track to hit $630 billion, about six per cent higher than in 2019. Exports by Canadian manufacturers have grown more slowly than total sales, increasing by 16 per cent this year to about $391 billion, just less than four per cent higher than 2019 levels. Manufacturing exports will account for 62 per cent of the total value of Canada’s merchandise exports this year; down about one percentage point from 2019.

Across the Prairies, the total value of merchandise exports is on track to grow by almost 36 per cent in 2021 to $188 billion which will be 15 per cent above 2019 levels. Exports by Prairie manufacturers have increased in line with manufacturers’ sales, rising 30 per cent in 2021, and are likely to hit $57 billion by the end of the year, 21 per cent higher than in 2019. Manufactured exports will account for 31 per cent of the total value of prairie exports this year – that’s up two percentage points from 2019.

The biggest export markets for Prairie manufacturers are the United States (75 per cent), China (eight per cent), Japan (four per cent), Mexico and South Korea (1.4 per cent each), and Australia (one per cent). All other countries account for less than one per cent of manufactured exports from the Prairies. Demand has grown strongly in all these markets over the past two years. Prairie exports of manufactured goods has jumped by 24 per cent to the US, 9 per cent to China, 33 per cent to Japan, 47 per cent to Mexico, and 42 per cent to South Korea since 2019.

While Canada’s exports have been recovering well, imports have been lagging. Total merchandise imports into the country are likely to amount to about $612 billion in 2021. That’s up by more than 12 per cent over the past year but less than two per cent higher than in 2019. Imports of manufactured goods, which account for 88 per cent of the total, have also increased by 12 per cent over the past year to around $535 billion, only marginally higher than where they were in 2019.

The story is the same for the Prairies. There total merchandise imports grew by 16 per cent to $63 billion in 2021, only two per cent higher than in 2019. Imports of manufactured products rose by 17 per cent in 2021 to $58 billion, but like all of Canada, manufactured imports into the Prairies are running at around the same levels as in 2019.

Just under 70 per cent of manufactured goods imported into the Prairies come from the United States, about 10 per cent from China, four per cent from Mexico, and two per cent from Germany – other countries account for one per cent or less. Since 2019, manufactured imports from China, Japan, Southeast Asia, Germany, and Italy have all seen strong double-digit growth. Imports from the US, UK, and other European countries have all declined. This suggests a strong shift to sources of high value commodities and technologies, and particularly to suppliers from Asia Pacific, over the course of the last two years.

Manitoba – Rebound in Domestic Demand

Manufacturing sales in Manitoba remained relatively stable during the first year of the pandemic, then jumped by 15 per cent in 2021. They are on track to exceed $21 billion by the end of this year, almost 15 per cent higher than their value in 2019. Sales have been driven largely by increases in domestic demand.

Total merchandise exports from Manitoba grew by 9.1 per cent in 2021 and are likely to exceed $17 billion by the end of the year, up by eight per cent over 2019. Manufactured exports have grown more slowly, increasing by 10 per cent this year to about $12 billion, five per cent higher than in 2019. Manufacturers account for about two-thirds of Manitoba’s total exports and exports for just under 60 per cent of the province’s manufacturing sales.

Manitobans imported less in 2021 than in 2019. There has been a healthy bounce of 11 per cent in total imports and 12 per cent in manufactured imports over the past year. Total imports into the province amounted to $22 billion in 2021 and imports of manufactured products accounted for over 90 per cent of that at $20 billion. However, total imports are still running at two per cent and manufactured imports about four per cent below 2019 levels.

Saskatchewan – Export-fueled Growth

Manufacturing sales are running 42 per cent higher this year than last in Saskatchewan. By the end of 2021, they are likely to exceed $19 billion, almost 20 per cent higher than in 2019.

Merchandise exports from Saskatchewan have grown by 22 per cent and are likely to top $36 billion in 2021, a 23 per cent increase since 2019. Manufactured exports, on the other hand, have grown by more than double that rate. They are on track to increase by 46 per cent this year to almost $8 billion, a 42 per cent increase from 2019. Exports have accounted for most of the growth in Saskatchewan manufacturing over the past two years. Manufactured exports now account for about 22 per cent of total exports from the province, compared with 18 per cent in 2019.

Imports on the other hand are still below where they were in 2019. Total merchandise imports will reach $11 billion in 2021 – that’s up by seven per cent on a year-over-year basis but still lower than 2019 levels. Imports of manufactured goods, which represent 92 per cent of total imports into Saskatchewan, are on track to reach $10 billion in 2021, an increase of 16 per cent over last year, but still three per cent lower than in 2019.

Alberta – Stronger Import Growth

Sales by Alberta manufacturers are running 30 per cent higher in 2021 than in 2020. At that pace, they will reach almost $83 billion by the end of this year, or 10 per cent higher than in 2019. As in Saskatchewan, exports are fueling manufacturing sales growth in Alberta.

The province’s manufactured exports grew more slowly in 2021, increasing by 35 per cent which was still faster than overall manufacturing sales. They are likely to surpass $38 billion this year which would put them 24 per cent higher than in 2019. Exports now account for about 46 per cent of total manufacturing sales. Overall merchandise exports from Alberta are likely to exceed $133 billion in 2021, up 44 per cent from last year and 13 per cent from 2019.

With respect to imports, Alberta stands as an exception to the Canadian and Prairie rule. Total merchandise imports into the province increased 22 per cent in 2021 to $29 billion, which is more than six per cent higher than in 2019. Manufactured goods account for more than 92 per cent of all Alberta imports. They also jumped 22 per cent in 2021 and are likely to reach $27 billion by the end of the year, which will be five per cent higher than in 2019.

Where do we go from here?

Supply chain disruptions and resulting price pressures are unlikely to end any time soon. The pace of recovery from COVID-19 is still far from certain in many of the countries that are large industrial suppliers to Canada. It will take time to unravel the snarls holding up international logistics. Meanwhile, larger suppliers facing spiralling demand for their products remain reluctant to boost capacity knowing that prices may collapse if too much supply is brought on board. Shortages and higher prices are here to stay, at least through 2022.

Prairie manufacturers have two options. They can wait for the wave to completely roll over them. If that is the case, it may be difficult to get above water. Or they can proceed as many are doing, by focusing on new market opportunities, proactively managing supply chain risks, designing products and supply relationships to minimize parts and logistical risks, and investing in new products and processes that will allow them to grow in markets where there is strong demand, a premium placed on customized products and services, and gaps arising where other companies fear to tread. 

Prairie manufacturers are pioneers and entrepreneurs. That’s what will ultimately guarantee their success in a world of accelerated change.

Jayson Myers is CEO of Next Generation Manufacturing Canada – the country’s advanced manufacturing supercluster. An award-winning business economist and leading authority on technological change, Myers has counselled Canadian prime ministers and premiers, as well as senior corporate executives and policymakers around the world.