State of logistics: the Canadian report 2008

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Executive Summary

In today's complex business environment, the extent to which firms are integrated into global value chains and the efficiency and effectiveness of their product distribution and associated services are key determinants of competitiveness. In this context, Supply Chain & Logistics Association Canada (SCL) and Canadian Manufacturers and Exporters (CME) partnered with Industry Canada to review this important service business function. By drawing on industry-based intelligence, existing government statistics and on Industry Canada-based economic models and analysis, this industry-government partnership has resulted in the first assessment of the state of Canada's logistics and supply chain environment. This novel analysis is intended to help Canadian supply chain managers and decision-makers understand current and future trends, their competitive position in relation to leading firms within their own sector, and the steps that can be taken to become more competitive.

Logistics / SCM Costs and Global Sourcing

Synchronizing the distribution of goods with supply chain partners around the globe has made logistics and supply chain management (SCM) extremely complex and a strategic issue for decision makers. From 2005 to 2007, total logistics and SCM costs increased by 3 percent for the Canadian economy. Of the three main distribution sub-sectors, logistics costs increased by close to 22 percent in retail, while manufacturers and wholesalers kept their cost increases within a 1 percent range.1 Most of the logistics costs increase in retail was attributed to inventory carrying costs (an increase of more than 35 percent in inventory levels) related to the shift of sourcing from North America to low-cost countries such as China.2

By 2011, the container volume from China to Canada is expected to grow by an additional 57 percent. A 35 percent increase in volume from Canada to China is also expected.9 The increased inventory levels in sectors such as retail, combined with the need to enhance supply chain agility in sectors such as manufacturing, generated more than 60 percent growth in investment in new distribution facilities in Canada since 2001.4 In addition to inventory management and global sourcing, energy costs, logistics outsourcing, skills shortages, and technology are the key competitiveness factors for logistics and SCM in Canada for 2008.2

Energy Costs

Since 2004, energy costs have increasingly become a major cost driver in Canada's total SCM and logistics cost structure for most sectors.15 Energy costs in truck transportation increased from 21 percent of GDP in 2003 to close to 29 percent in 2007. Marine and rail transportation were also highly affected by the surge in diesel prices. Energy costs became the second highest operating expense, trailing only labour costs in all transportation-related activities.1 Consequently, rising energy cost may result in a shift in transportation modes as well as sourcing location.18

Logistics / SCM Outsourcing

Compared to Canada, logistics and SCM outsourced activities were 52 percent higher for U.S. manufacturers, 53 percent higher for U.S. wholesalers and 54 percent higher for U.S. retailers, in 2007.1 In Canada, the logistics service industry had a gross domestic product (GDP) growth rate of 47 percent since 1998.4 Logistics service providers GDP is expected to increase by an additional 40 percent between 2007 and 2015, reaching 56 billion CAD.6

Skills Shortages

Based on current sector employment levels, the total estimated annual demand for employees to fill new logistics and SCM jobs, as well as anticipated vacancies resulting from retirements and turnover, is approximately 86 330 employees annually, or 12.3 percent over the next three to five years.13 British Columbia and Alberta were the two provinces that had the highest growth rate in the logistics-trucking workforce, while the Atlantic provinces experienced negative growth during the 2001-2007 period.14

Logistics and SCM Technology

In order to respond to the challenges posed by supply chain drivers, Canadian firms are revamping and reprioritizing their SCM technology footprint.2 In the coming years, SCM innovation by retailers, wholesalers, and manufacturers is expected to be focused on the adoption of internet-based systems for inventory management and organizing delivery to customers and from suppliers.17

Final Remarks

In order to benefit from the productivity gains arising through the use of logistics and SCM, individual firms need to develop their own action plans. This exercise can include documenting long-term perspectives and classifying their components into specific action items linked to deliverables, performance indicators, objectives, return on investment, and project time frames.

For some firms, a first roadmap action item could be an internal evaluation of their logistics key performance indicators (KPI) with some participation in associations and networking activities. For others, it could be implementing a pilot project with a customer and a supplier. Examples include radio frequency identification (RFID), green supply-chain management, and just-in-time (JIT) processes. In all cases, a well-documented roadmap allows firms to gain the support of all stakeholders and their involvement in the implementation phases of the firm's logistics and SCM action plan.