© Reuters. A worker assembles bullet fairings for the Global 7500 aircraft at the Bombardier Saint-Laurent manufacturing center in Montreal, Quebec, Canada, November 22, 2021. REUTERS / Christinne Muschi
By Allison Lampert and Julie Gordon
(Reuters) – Global shipping and supply chain bottlenecks are encouraging Canadian companies to bring production back home, but some companies are expected to absorb higher costs and develop expertise in certain sectors for the local manufacturing is accelerating.
While carefully woven global supply chains have helped the fashion industries https://www.reuters.com/article/benetton-reshoring-idCNL8N2QQ3N0 to automobiles cut costs and increase margins over the past decades , COVID-19 has eroded these advantages and exposed weaknesses like semiconductor chip shortages.
In Canada, supply chain issues, recent rail and weather disruptions, as well as the pressure to source ethically and locally to reduce emissions, are pushing companies to buy closer to home or produce. internally, according to executives.
Even before storms and recent flooding in Canada stranded two of its containers at the Port of Vancouver, Toronto-based Progress Luv2Pak was looking for more Canadian and American suppliers due to soaring shipping costs and delays.
“In some cases, the value of the goods in the container is less than the freight,” said Ben Hertzman, president of Luv2Pak, which supplies shopping bags and other packaging to retailers.
He said about half of Luv2Pak’s seven-member buying team are now focused on sourcing in North America, up from a part-time position just a few months ago, although the company often obtains better prices and better quality for its products abroad.
Canadian manufacturing activity hit a seven-month high in October, according to IHS Markit. While it’s too early to say whether relocation has contributed to this rise, economists say companies are taking concrete steps to buy local, unlike previous crises.
“This time around, it’s not just about talking about it, it’s actually some action,” said Peter Hall, chief economist at Export Development Canada.
This prompts cautious optimism that the relocation could support Canada’s manufacturing sector, which, according to Statistics Canada data, has been in steady decline since the late 1990s.
The investment arm of Quebec recently launched its first “Buy Local” campaign targeting businesses and supply chains.
“The number of calls our Buy Quebec team receives each week from companies is probably about 10 times higher than it was just three months ago,” said Stéphane Drouin, an executive at ‘Investissement Québec.
Quebec Economy Minister Pierre Fitzgibbon said in an interview that he is presenting the benefits of a North American supply to American automakers like Tesla (NASDAQ 🙂 as the resource-rich province targets batteries for electric vehicles as a sector where it wants to be competitive on a global scale.
Montreal-area furniture maker Artopex, which already sources primarily in Canada, is taking steps to manufacture in-house some components it once purchased in Asia due to delays and higher shipping costs, said General Manager Daniel Pelletier.
“It is a major problem that we cannot be certain about the timing of deliveries.”
Montreal business jet maker Bombardier (OTC 🙂 has already brought in aerostructure work from North American suppliers outside of its home province, Quebec, and is considering other opportunities relocation, said a spokesperson.
Bombardier has seen fewer production delays and better quality after repatriating work, such as machining the spars used in the aircraft wings of an American supplier, said spokesperson Marie-Andrée Charron.
But policymakers warn that relocation is a “two-way street” that risks damaging business if US producers avoid Canadians for US suppliers.
“Canadian companies could relocate production from overseas to Canada,” Bank of Canada Deputy Governor Lawrence Schembri said last week. “But other producers, for example the United States, can bring production from Canada to the United States.”
Another challenge is the lack of expertise that would prevent Canada from rapidly developing industries like semiconductor chips, despite a global shortage.
“The auto industry is being held hostage by Taiwan and Korea,” said Jerry Dias, president of the country’s largest private sector union, Unifor.
However, companies, like Luv2Pak, see the benefits of sourcing locally, given the uncertainty of imports.
“It would be so nice to get into good supply lines that don’t have to cross an ocean,” Hertzman said.