For the month of May 2021, Canada defied predictions of a slight surplus, instead posting a deficit of $1.4 billion. The deficit fell wider than the forecast surplus, resulting from an increase in merchandise imports by 2.1% with a decrease in exports totalling 1.6%.1
Within May’s numbers, imports increased by 2.1% to a total of $50.9 billion and exports of goods fell -1.6% to $49.5 billion. Notably, Canada’s trade surplus with the US fell from $6.6 billion to $6.1 billion in May. At the same time, Canada has reached a record deficit with non-US countries, widening the gap to $7.5 billion in May.1
This trade balance update reflects on Statcan data pertaining to May 2021; reports are generally released 35 days following month end.
Survey: Key May Sectors in Imports and Exports
The category including metal and non-metallic mineral products rose 17.7% in May to reach a record high of $5.3 billion. This was especially due to imports of unwrought gold, silver, and platinum-group metals and their alloys, all of which traded at higher prices through May.1
The medical category, including COVID-19 vaccines, rose 43.6% to $427 million on a customs basis (not seasonally adjusted). This value remains 12 times higher than in May 2020.1
Seafood exports, however, fell in May, though this represents an expected decline resulting from the snow crab season opening one month earlier this year. Exports began at a peak in April and will likely fall steadily in the coming months.1
Lastly, exports of motor vehicles and parts declined a further 5.8% in May—the sector’s seventh decline in eight months. After falling by over 20% in April due to the semiconductor chip shortage, discussed below, passenger cars and light trucks were down a further 8.8% in May.1
Chip Shortage Drags On
In April’s trade balance update, Statcan predicted that depressed trade activity due to the ongoing semiconductor chip shortage was at its worst. They expected that the impacts of the global scarcity would still be felt through May, but to a lesser degree.2
This proved true.
Chip-related production shutdowns were lessened in May but, in the end, this was not shown to drive an increase in exports. This is partly because Canada’s exchange rate appreciated by 2.4 cents US in May against the US dollar, which means that when converting all US trade transactions into Canadian dollars, the values are lower.1
“We knew the shortage would have lasting effects, but it is still frustrating to see this trend continue to carry on,” says William McKinnon, President of Canadian Alliance. “Now we’re into the period of waiting. We don’t know when this will end. Manufacturers will need to find ways to adapt for the medium term.”3
The shortage first became apparent a year ago, with a surge in demand for laptops and other consumer electronics that also rely on the chips in question. Presently, the shortage’s impacts continue to ripple outwards across the globe, causing growth to slow to a four-month low in China and see a 6% drop in Japan.4
“Our customers had been generally insulated from this shortage,” says McKinnon, “but there are several juggernauts at work in the supply chain at present, and our industry contacts are beginning to feel that pain.”3
Sea freight continues to display volatility as the container shortage continues, which slows TransPacific movement. Compounded by a shortage in critical semiconductor chips, it’s likely that wider industries and consumers will feel the impact of these circumstances in a more acute fashion before the year is out.
The Perfect Storm: Inflation Imminent
“I’ll go on the record with this prediction,” said McKinnon, “I anticipate we’ll see rates of inflation reaching 5% by the end of this year.”3
An upward trajectory in Canada’s inflation was already present in April, when the country posted an inflation rate of 3.6%.5 But considering just how extensive recent supply chain challenges have been, it’s reasonable to expect this trend to continue.
Following the global trade upset caused by the coronavirus outbreak and pandemic, many aspects of the supply chain have yet to recover and settle. In logistics, trade, and supply chain management, predictability is king—and lately, there’s been too little to go around.
“I don’t foresee an imminent end to the container shortage or the corresponding price volatility,” says McKinnon.3
“When it’s this difficult to manufacture common consumer goods like vehicles or electronics, I would expect to see prices rise,” he adds. “But now, manufacturers are additionally facing an extremely challenging—and costly—logistical landscape. Moving freight across the ocean is the biggest challenge faced by our customers at this time.”3
“These prices will, without a doubt, need to be passed on to the consumer. Prices will have to go up. I’m all but certain.”3