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Supply chain woes, shortages are good reasons to make things here

References to the supply chain emerged almost immediately in tandem with the COVID-19 pandemic, first in relation to shortages of personal protective equipment and, more recently, in connection to shortages of some goods and related price increases.

The shortages of materials directly related to the pandemic – the likes of masks, gowns, shields and, later, in-house pharmaceuticals – quickly became a political issue. The crisis underscored the dangers of offshore production, namely the reliance on not-necessarily-friendly countries, particularly China, for essential goods and the lack of timeliness of long-distance transportation.

As Canadians hunkered down due to travel restrictions and lockdowns, demand skyrocket for certain products – home renovations were a particularly popular outlet for people unable to channel time and money into their usual activities – which led to shortages and higher prices. Manufacturers, domestic or otherwise, that had shut down or curtailed production due to the pandemic and initial drop in demand were unable to quickly ramp up again. Even as they tried to do so, pressures on, say, the transportation sector meant it was difficult to find shipping containers and to find space for them on ships. Those ships that did arrive at domestic ports faced delays when it came to unloading, leading to backlogs. In turn, warehouses became backed up, often due to staff shortages, which also afflicted the trucking industry, already beset by a shortage of drivers.

Throw in a spike in oil costs and you can call it a perfect storm of troubles that led to empty shelves or weeks-long waits for products on back order, with price increases to add insult to injury.

The situation has put a spotlight on repatriating manufacturing to Canada – as well as the US and allies such as the EU – after decades of outsourcing. There’s already been some effort to boycott China in that regard, not only for national and economic security reasons, but over environmental, human rights and health concerns.

Ottawa has already moved to increase domestic capacity for PPE and pharmaceuticals, and there’s a growing interest in the reshoring movement and shortening the supply chain. That said, the efforts has been underwhelming thus far, with Canadian companies much less likely than their American counterparts to alter supply lines in favour of domestic work and jobs. That’s in part due to strong existing domestic links.

A report last month from the Conference Board of Canada, for instance, finds most Canadian businesses do not plan to change their supply chain design in the wake of the ongoing pandemic-induced issues.

“The recent pandemic was a catalyst for businesses to examine and streamline their processes to be more efficient and nimble,” said Conference Board senior economist Swapna Nair. “Interestingly, our research found the pandemic-induced pressure to reduce or eliminate dependence on producing and distributing in other countries may not be a major factor for Canadian businesses because of the domestic nature of their supply chains.”

Most Canadian businesses – 90 to 95 per cent of respondents – already have production and distribution sites in Canada and expect them to remain here, the report finds.

Eighty per cent of Canadian businesses that source services, 76 per cent that source raw materials, and 60 per cent that source semi-finished or finished products intend to maintain their current sourcing locations. These results are not surprising given that current sourcing locations are predominantly domestic.

With that in mind, non-Canadian businesses are more likely than Canadian businesses to make changes to their sourcing locations, the Conference Board reports.

Earlier in the year, The Conference Board of Canada suggested the pandemic-driven changes could have long-term impacts on the supply chain.

 “This period of disruptions in global supply chains caused by COVID-19 could be the catalyst prompting businesses to completely rethink the way they operate, interact with suppliers and buyers, and make long-lasting changes,” said Julie Ades, a senior economist with the Global Commerce Centre, of a report entitled COVID-19 Global Supply Chain Disruptions – A Catalyst for Long-Term Changes? “How Canada and Canadian businesses respond to the crisis today can affect the sustainability and the well-being of our economy and population over the long term.”

 BDC, the Business Development Bank of Canada, notes there’s been more talk than action when it comes to reshoring over the past decade. In a report last fall, vice-president Pierre Cléroux notes the trend’s future remains unclear.

“It’s a reversal of the long-standing phenomenon of offshoring, in which manufacturing has been moving out of the country to lower-cost areas, such as China and the ASEAN region,” he said of reshoring.

“There are also signs that the cost advantage of offshore locations could be declining. Labour costs are rising quickly in China, for instance, while they’ve remained stagnant in the U.S. Other drivers of reshoring include: lower energy prices in the U.S., rising shipping costs, lack of intellectual property rights in China, protectionism and trade disputes.”

What is clear is that the pandemic has changed the dynamic of how we buy goods and where we source them. Just as the buy-local aspect has taken hold of the food sector, we made an effort to support the likes of local restaurants forced to offer only takeout through the lockdowns.

Given the supply chain woes, now is also a good time to concentrate on goods made closer to home, particularly when it comes to eliminating items made in China, where the issues go well beyond losing local jobs and the environmental impacts of cross-Pacific shipping.

Still, there has been plenty of talk about offshore job losses as many companies set up shop in China. Add to that the environmental concerns due to that country’s lack of controls and the issue of buying items manufactured there becomes more than just the price tag. The question, then, is how much are willing to pay to buy from other sources?

Those of you who’ve been around long enough will remember when the label “Made in Japan” was both common and the sign of some low-cost, low-quality goods. Later, Taiwan was a frequent source. Today, of course, “Made in China” appears on a wide variety of products.

With a frequency that wasn’t seen from past imports, those Chinese-made goods are the subjects of health scares and product recalls. There’s a long list of unsafe toys (lead paint and other toxins, swallowing hazards) and even more dangerous foods (melamine, heavy metals, toxins). There have been scares involving toothpaste, pet food and unsafe tires.

Consumers are at risk both in China and in countries where Chinese food products end up, including Canada.

With food products, beyond poor handling practices the threat extends to environmental pollutants and the use of chemicals deemed unsafe here.

Lax environmental standards and business practices in China have consumers increasingly worried.

Consumer groups have long advocated for governments to take a closer look at the rules governing the importation of Chinese-made goods. Right now, there are few real assurances that goods are safe.

While the government is unlikely to place a ban on Chinese-made products, or even the most risky categories of goods, Canadians can vote for change with their wallets.

Stop buying Chinese products and maybe they’ll change the way they do things.

That’s easier said than done, of course. We’re happy with the low prices that come from China’s lack of labour, environmental and safety regulations, even if manufacturers and retailers are passing on the full savings they enjoy by doing business there.

Worse still, finding alternatives can be difficult. Certainly, much of the cheap plastic stuff you can find in dollar stores isn’t available from other sources. But even with larger items such as household goods, the Made-in-China label is hard to avoid. It’s a conundrum even for those looking at the larger implications of trade with a country known for its poor human rights record, lax environmental laws and unfair labour practices even as the economy boomed.

Current circumstances could prompt more of us to do the right thing, a pursuit that will be aided by reshoring in an attempt to shorten the supply chain.

A little more local for your inbox.

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