State of logistics: the Canadian report 2008

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2 — Business Drivers

2.1 — Global Commerce

Global sourcing and integrated global value chains have made supply chain management extremely complex in the past few years. In 2007, Canadian goods exports amounted to $450.3 billion while Canadian goods imports totalled $406.7 billion.

Looking at trade from a regional perspective, most imports in 2007 went to Central Canada (Ontario and Quebec). While the U.S. was still dominant in most regions, with the exception of the Atlantic provinces, China continued to increase its market share rapidly in Central Canada and British Columbia.

Figure 11 - Value of Regional Imports from Top 5 Countries 2007 January - 2007 December10

Figure 11 - Value of Regional Imports from Top 5 Countries 2007 January - 2007 December (the link to the long description is located below the image)

Between 2006 and 2007, the Atlantic Provinces had the highest import growth, with a rate of 5.6 percent, followed by Central Canada (4.4 percent), the Prairies (4.25 percent), and British Columbia and the Territories (-1 percent) (Figure 11).10

Although Central Canada was the dominant exporter in 2007, the Prairies also performed strongly (Figure 12). The type of export goods also varied widely by region (Central Canada focusing on automotive, the Prairies on oil and gas products). Between 2006 and 2007, the Atlantic Provinces also had the highest export growth, with a rate of 9.7 percent, followed by the Prairies (3.4 percent), Central Canada (0.2 percent), and British Columbia and the Territories (-8 percent).10

Figure 12 - Value of Regional Exports to Top 5 Countries 2007 January - 2007 December10

Figure 12 - Value of Regional Exports to Top 5 Countries 2007 January - 2007 December (the link to the long description is located below the image)

The final category of trade practices is re-exports, defined as the export of goods that have entered the country and are leaving in the same condition as when they were first imported. In 2007, most re-exports transited through Central Canada to the U.S. (Figure 13).10

Figure 13 - Value of Regional Re-Exports to Top 5 Countries 2007 January - 2007 December10

Figure 13 - Value of Regional Re-Exports to Top 5 Countries 2007 January - 2007 December (the link to the long description is located below the image)

Most re-exported products consist of industrial goods such as machinery and electronics/telecommunications equipment. Re-exporting was the trade activity experiencing the highest growth in all the regions of Canada. Between 2006 and 2007, growth in Atlantic Canada was over 500 percent; the Prairies, 148 percent; British Columbia and the Territories, 17 percent; and Central Canada, 9 percent.10

From 2002 to 2007, container volume from the Far East (including China) to Canada increased by 130 percent (Figure 14). Inbound volume to Canada from countries such as China was 2.15 times greater than outbound volume in 2007. By 2011, volume from China to Canada is expected to grow by an additional 57 percent. In the same period, Canada is expected to increase its volume to China by 35 percent.9

Figure 14 - Far East - Canada Container Volumes in Million Ton Equivalent Units (Mio TEU)9

Figure 14 - Far East - Canada Container Volumes in Million Ton Equivalent Units (Mio TEU) (the link to the long description is located below the image)

India is also a growing market in terms of inbound and outbound container volume. From 2007 to 2011, inbound container volume from India is expected to grow by 62 percent while the outbound growth rate is expected to be 52 percent (Figure 15). It is important to note that China's inbound and outbound container volumes to Canada are forecasted to be close to 10 times greater than the Canada-India volume by 2011.9

Figure 15 - India - Canada Container Volumes in Mio TEU9

Figure 15 - India - Canada Container Volumes in Mio TEU (the link to the long description is located below the image)

2.2 — Energy Costs

Since 2004, energy costs have increasingly become a major cost driver in Canada's total SCM and logistics costs structure in most sectors. An upward trend in diesel costs not only has a large impact for firms that manage their logistics in-house through the use of private fleets, but it also drives up costs for firms that outsource their logistics activities. To deal with a higher cost structure, the logistics service providers often choose to pass on a portion of this cost increase to their customers, commonly in the form of fuel surcharges.2

Overall, the annual average price of diesel in Canada was relatively unchanged from 2001 to 2003 (Figure 16). However, a rapid rise in the average price of diesel took place in 2004, driven mainly by the aftermath of the hurricane season that year and geopolitical uncertainties in crude oil markets.2

Figure 16 - India - Average Annual Diesel Retail Prices in Canada15

Figure 16 - Average Annual Diesel Retail Prices in Canada (the link to the long description is located below the image)

Energy costs in truck transportation went from 21 percent of GDP in 2003 to close to 29 percent in 2007 (Figure 17). Air and marine transportation were also highly affected by the surge in diesel prices. Energy costs became the second highest operating expense, trailing only labour costs.1 Consequently, rising energy cost may result in a shift in transportation modes as well as sourcing location.18

Figure 17 - Energy Cost as Percentage of Logistics Service Sectors GDP1

Figure 17 - Energy Cost as Percentage of Logistics Service Sectors GDP (the link to the long description is located below the image)

2.3 — Security

As business activities become more global and trade continues to flow between countries, it becomes more important to develop measures that protect countries and facilitate trade. Recently, Canadians have read or heard about incidents such as the global withdrawal of some non-steroidal anti-inflammatories (cox-2s), high levels of lead found in imported children's toys, and food recalls that crossed national borders. These events, changing consumer expectations, new technologies, and the increasing complexity of global supply chains are major drivers behind governmental initiatives to modernize regulatory and security tools.

Overall, the global trade environment is increasingly complex and the number of products and producers is vast and growing. Globalization of trade flows has resulted in expanded supply chains, often crossing multiple borders. As a result, many products manufactured in one country are made from parts and ingredients that have been produced elsewhere - and many products used by Canadians are imported. The volume of imports has increased substantially in the past ten years, with products coming from a wide variety of countries, not all of which have similar safety standards. At the same time, in today's environment of global supply chains, it is often difficult to differentiate between imported and domestic products.

Legislation introduced in the Thirty-Ninth Parliament proposed to enhance the government's ability to act quickly to protect the public when a problem occurs. Provisions included the authority to require the removal of unsafe consumer and health products from store shelves and the enhanced capacity to oversee food product recalls. Fines and penalties are also proposed to increase deterrence and reflect current economic realities. Finally, there is increasing consumer demand for broader, more accessible, consumer-friendly, and credible product information.

In a North American context, Canadian companies shipping to and/or importing from the U.S. may also need to enhance their security programs to meet the requirements of the Free and Secure Trade (FAST) and Customs-Trade Partnership Against Terrorism (C-TPAT) programs. FAST is a joint Canada-United States initiative involving the Canada Border Services Agency and U.S. Customs and Border Protection. C-TPAT is a U.S. program similar to the Canadian program. Although FAST and C-TPAT are voluntary programs, some business opportunities are being limited to firms that are certified with FAST or C-TPAT.

These programs support moving pre-approved eligible goods across the border quickly and verifying trade compliance away from the border. It is a commercial process offered to pre-approved importers, carriers, and registered drivers. Shipments for approved companies, transported by approved carriers using registered drivers, will be cleared into either country with greater speed and certainty and at a reduced cost of compliance.

These supply chain security programs, which are based on sound risk management techniques, focus on greater speed and certainty at the border and on decreasing the cost of compliance through a number of means: reducing the information requirements for customs/border clearance, eliminating the need for importers to transmit data for each transaction, dedicating lanes for clearances, reducing the rate of border examinations, verifying trade compliance away from the border, and streamlining accounting and payment processes for all goods imported by approved importers (in Canada only).12

2.4 — Skills Shortages

Overall, the Canadian logistics and SCM workforce in all sectors of the economy is expected to grow annually by approximately 1.7 percent as a result of new job creation over the coming years. Additional supply chain sector employees will also be required to fill existing positions that are predicted to become vacant as a result of retirements and turnover.13

Considering the current sector population and its demographics, the total annual demand for employees to fill new logistics and SCM jobs, as well as anticipated vacancies is estimated at approximately 86 330 employees annually, or 12.3 percent over the next three to five years.13

In 2007, there were 590 000 logisticians and more than 239 000 truck drivers in Canada. When looking at provincial logistics and SCM workforces, Quebec and Ontario had the most logisticians and truck drivers. These two provinces accounted for more than 60 percent of the total Canadian logistics workforce (Figure 18).14

Figure 18 - 2007 Canadian Logistics and Trucking Employees14

Figure 18 - 2007 Canadian Logistics and Trucking Employees (the link to the long description is located below the image)

British Columbia and Alberta are the two provinces that had the highest growth rate in the logistics workforce, while the Atlantic Provinces experienced negative growth during the 2001-2007 period (Figure 19).14

Figure 19 - Logistics Workforce and Average Hourly Earnings Growth14

Figure 19 - Logistics Workforce and Average Hourly Earnings Growth (the link to the long description is located below the image)

Average hourly earnings of logistics employees also varied widely by region. Alberta had the highest rate in 2007 at $19.49/hour, while the Atlantic Provinces were at $14.78/hour. In terms of salary growth from 2001 to 2007, Alberta had the highest average wage increase while British Columbia was at the low end.14

2.5 — Sustainable Development

With the combined impact of increased energy costs and the emergence of concerns about global warming, many Canadian firms are introducing a supply chain sustainability scorecard as part of company-wide environmental programs. Drivers of "green" supply chain initiatives in organizations include risk mitigation, regulatory compliance, cost savings, productivity improvement, increased revenue, good corporate citizenship, better relationships with suppliers, pressures from customers and consumers, process innovation, and product differentiation.

New measures introduced by firms are intended to spur collaboration among suppliers, target corporations' measures, and reduce the environmental footprint of their product shipping process. Part of the process may include an assessment of the company's providers based on sustainable business practices.

Leading Canadian firms intend to assess their performance based on criteria such as:

  • Use of environmentally friendly energy sources
  • Reduction of harmful air emissions
  • Water conservation or processing
  • Waste reduction
  • Product or packaging recycling
  • Ecosystem and land or ocean biodiversity preservation/natural resource conservation
  • Reduced packaging/increased use of biodegradablepackaging
  • Green procurement practices (e.g., selecting suppliers based on their sustainability practices)2

2.6 — Technology

In order to respond to the challenges posed by supply chain drivers, Canadian firms are revamping and reprioritizing their SCM technology footprints. Supply chain innovations and drivers vary widely by sector. Pharmaceutical and chemical manufacturers are pushing for item-level traceability and supply chain visibility in order to better respond to governmental requirements such as anti-terrorism acts and food and drug regulations, as well as corporate responsibility issues such as product recall and public safety. The aerospace sector mainly emphasizes total supply chain quality ratios such as Six Sigma processes and other quality standards such as ISO standards, with less emphasis on costs. Retailers focus on reducing out of stocks and increasing visibility with their suppliers from low-cost countries. Transportation service providers also have a different focus on reducing operational costs and maximizing energy consumption with the aim of minimizing their environmental footprint.16

In terms of the perceived benefits of conducting business over the internet, Canadian manufacturers, wholesalers, and retailers prioritized better co-ordination with suppliers and/or customers, over lowering costs. It is also important to note that these three sectors perceived more benefits from these practices both in terms of costs and co-ordination than do logistics service providers (Figure 20).17

Figure 20 - Perceived Benefits of Conducting Business Over the Internet14

Figure 20 - Perceived Benefits of Conducting Business Over the Internet (the link to the long description is located below the image)