Supply Chains are Shifting across Canada and the Prairies: Here’s the Evidence
By Jayson Myers
Some pundits refer to it as VUCA. That’s short for Volatile, Uncertain, Complex, and Ambiguous – the world we live in, and most certainly the business conditions facing manufacturers across Canada, the Prairies included.
Conditions have changed drastically over the past three years: the pandemic; factory closures; shortages of critical materials, components, and finished goods and equipment; logistical disruptions; rising trade- and geopolitical tensions; the war in Ukraine; labour shortages. The risks keep on rising. More than a storm, it’s been like a perfect hurricane for manufacturers, not only in Canada but around the world.
Manufacturers are reconfiguring their supply chains in response, but there are longer term trends that are also having a powerful impact on the structure of manufacturers’ supply networks. Changing customer expectations, more stringent regulations, stakeholder- and investor expectations, and increasing concerns over the environment and social responsibility are requiring greater degrees of transparency, traceability, and accountability throughout supply chains.
At the same time, the rapid pace of innovation is requiring companies to collaborate more and search around the world for research and technology partners, talent, and new suppliers as they transform their businesses into advanced manufacturing enterprises. Cost structures are changing, too, as inflation weighs in and manufacturers struggle to keep their prices competitive as the costs of doing business rise across the board.
What has this meant for manufacturers in Canada and across the Prairies? Different things for different companies, for sure. However, some general trends are clearly discernable even over the past three years. (Estimates for 2022 are based on performance during the first six months of this year.)
First, Canadian manufacturers are selling relatively more to domestic customers. Across the country, manufacturers’ sales have grown by 21.4 per cent since 2019, reflecting increases in both production volumes and selling prices. Sales into the Canadian market, which now account for 47 per cent of total manufacturing output, have risen more rapidly, by 25 per cent.
At the same time, Canadians are buying relatively more from domestic manufacturers. Imports of manufactured goods are now 16 per cent higher than three years ago. As a result, the domestic market share for Canadian manufacturers has increased from 37 per cent in 2019 to 39 per cent this year.
While this indicates a localization of supply chains in Canada, it appears that it has come more at the expense of other North American suppliers than of China. Canadians are buying relatively less from other North American producers. Imports of manufactured goods from the US now account for about 29 per cent of the Canadian market, down from 31 per cent in 2019. Mexico’s market share has dropped from four per cent to just over three per cent of total sales of manufactured goods in Canada. Imports of manufactured goods from China, on the other hand, have grown by about 24 per cent while China’s share of the Canadian market has increased slightly from 8.8 to 9.1 per cent over the past
Exports of manufactured goods from Canada are also up; however, they have lagged domestic sales, growing by 18 per cent since 2019. Export sales to the United States, which accounts for 81 per cent of total offshore sales by Canadian manufacturers, increased more rapidly than to other regions, rising 21 per cent, whereas exports to China fell by close to 19 per cent.
But are Canadian manufacturers themselves localizing their supply chains and buying more from domestic producers? The evidence shows a slight trend in this direction as well.
Imports of raw materials, components, parts, and equipment used by Canadian manufacturers have increased by just over 18 per cent since 2019, about three percentage points slower than overall factory sales. Here too, though, Canadian manufacturers are buying more from domestic than from North America suppliers. Inputs from China have increased by more than 28 per cent. Canada’s manufacturers are becoming less dependent on their North American suppliers and more dependent on those from other countries, most notably China.
Manitoba manufacturers enjoy strong export and domestic sales growth
In Manitoba, manufacturers’ sales are 24 per cent higher this year than in 2019. Exports, which currently account for 59 per cent of manufacturing output in Manitoba, are up 23 per cent while sales to domestic customers have increased by almost 27 per cent. Imports of manufactured goods into the province have lagged, increasing by 18 per cent, with imports from the US and China growing at about that same rate. As a result, domestic market share for Manitoba manufacturers has risen from 26 to 28 per cent.
Behind these numbers, there are significant differences from the country as a whole. There has not been a relative shift away from US suppliers as there has been across Canada, and Manitoba manufacturers have been more successful in sustaining export sales. Exports into the United States, which account for 85 per cent of all offshore sales for Manitoba manufacturers, for instance, have kept pace with sales into the Canadian market. Manufacturers’ sales to Mexico have almost quadrupled. Like the rest of the country, however, exports to China are down sharply, falling by almost 44 per cent since 2019.
For Manitoba manufacturers themselves, there has been a slight shift to greater dependence on foreign suppliers over the last three years. Imports of materials, components, and equipment used by manufacturers have increased by just over
26 per cent since 2019 – about two percentage points more rapidly than manufacturers’ sales. Purchases of inputs from the US and China have grown at that rate while imports from Mexico are up by more than 36 per cent.
Global trade propelling manufacturing in Saskatchewan
Sales by Saskatchewan manufacturers have grown at more than twice the rate of those across Canada as a whole, increasing by almost 46 per cent since 2019. Sales into the domestic Canadian market are up by 40 per cent. Meanwhile, imports of manufactured goods into the province have increased by 34 per cent. As a result, the domestic market share for Saskatchewan manufacturers has risen from 53 to 54 per cent.
Exports, which account for three-quarters of the province’s manufacturing output, have risen 57 per cent. The United States buys 79 per cent of Saskatchewan’s manufactured exports, and sales there have increased by 71 per cent over the past three years. The province’s manufactured exports to China have grown by 13 per cent while those to Mexico have contracted by almost 10 per cent.
Like their counterparts in Manitoba, Saskatchewan manufacturers have maintained their overall dependence on imported materials, parts, and equipment. Imported inputs have kept pace with manufacturers’ sales growth in the province. However, in contrast with other provinces, inputs from China have declined by 17 per cent while those from the US, which now accounts for about 80 per cent of imported goods used by Saskatchewan manufacturers have grown at the same rate as manufacturers’ sales, while those from Mexico are up more than 67 per cent.
Alberta bucks the trend
Alberta manufacturers account for 69 per cent of manufacturers’ sales from the Prairies and 18 per cent of sales across Canada. Sales by Alberta manufacturers have increased by just over 40 per cent since 2019, yet Alberta is the only Prairie province where domestic manufacturers have lost share in the Canadian market. Domestic sales have risen by 33 per cent since 2019. Imports of manufactured goods into the province have increased by 39 per cent, driven in large part by imports from the US which account for 63 per cent of the total and have grown by 41 per cent over the past three years – just about the same as imports from China. Alberta manufacturers sell 56 per cent of the goods they produce to Canadian customers. Yet over the past three years, their domestic market share has fallen from 63 to 62 per cent.
On the other side of the coin, exports of goods manufactured in Alberta have grown 52 per cent over the past three years. Exports to the US, which account for 72 per cent of total manufactured exports from the province, are up by 57 per cent. Sales to Mexico are eight per cent higher. Sales to China, though, which in 2019 represented 10 per cent of Alberta’s exports of manufactured goods, are down by 10 per cent.
As is the case in the other Prairie provinces, there is no evidence of an overall shift in manufacturers’ own supply chains. Alberta manufacturers are currently purchasing the same proportion of the inputs they use from outside the country as they did in 2019. Imports of materials, parts, and equipment used in manufacturing have increased at exactly the same rate as sales by manufacturers in the province. Imports from the US, where Alberta manufacturers source 80 per cent of their imported inputs, have kept pace with sales growth. Manufacturers’ inputs from China have grown slightly more quickly by 48 per cent.
Prairie supply chains depend on open markets
What then of supply chain restructuring across the Prairie provinces? The evidence is mixed, and the trends that do stand out are often at odds with those across Canada as a whole.
First, Canadians are buying relatively more goods manufactured in the Prairies. Except for Alberta, Prairie manufacturers have increased their share of the Canadian market. However, unlike the rest of Canada, Prairie manufacturers have not reduced their relative dependence on imported materials, components, and equipment. In fact, despite much publicity about reshoring, Prairie manufacturers have become even more dependent on imports from China. They also remain highly dependent on export sales – particularly to the United States.
Are these long-term trends or short-term adjustments to market challenges? Time will tell.
One fact stands out: Access to global markets – for exports as well as for sourcing inputs – is vital to the health of the Prairie manufacturing economy.
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.