Trade Balance Update and Analysis July 7, 2022

“If you’ve got to get something from point A to point B and it’s more expensive to do so, you’re still going to do it. Are you going to suddenly stop buying lettuce from California, get on your bicycle and ride to a farmer’s market in Langley to get local lettuce?”

Canada’s merchandise surplus in May was $5.3 billion according to data released on July 7 by Statistics Canada.¹This was up from $2.2B in April and represents the largest surplus since August 2008. Exports were up 4.1% while imports decreased by 0.7%. Total exports rose for the fifth consecutive month, and tenth time in the past twelve months, reaching $68.4B.

Rising prices played a role in these numbers, as real (or volume) exports increased only 1.7%. Import volumes decreased 1.4%. Since the beginning of 2022 the value of Canada’s exports has risen by more than 20%, even as volumes of exports have shrank by 2.3%.

Energy, Aircraft, Metal Exports Rise

Energy exports climbed to $20.4B in May, an increase of 5.7% over April numbers. Crude oil and bitumen exports rose 9.2%. A key factor was rising prices, owing to worldwide supply uncertainties in the wake of the conflict in Ukraine.

Exports of aircraft rose by $524M in May, erasing April’s $489M slide. This helped the larger product section ‘aircraft and other transportation equipment’ rise 34.2%.

Meanwhile, exports of metal ores and non-metallic minerals also climbed 17.2% to a record high $3.1B. Potash exports gained 34.9%, again the result of supply issues as the conflict in Ukraine continues.

Inventory Strategies Wreak Havoc on Import Numbers

Total imports were down 0.7% to $63.1B in May after three straight months of increases. 6 of 11 product sections saw decreases.

Imports of clothing, footwear and accessories decreased by 11.3% in May, contributing to a 4.7% decrease in the larger product group of consumer goods. Despite May’s low total, imports of clothing, footwear, and accessories are actually up 33.9% since the beginning of the year. The wild fluctuations in the category are largely due to evolving inventory strategies as supply chain uncertainties prompt a more prudent approach.

Imports of aircraft and other transportation equipment and parts were down 22.7% after three months of increases. Imports of basic and industrial chemical, plastic, and rubber products rose 8.6%.

Rising Prices in Food Sector

“We have a lot of customers in the food sector that are telling us that they’re concerned that increasing prices may impact sales, but evidence would suggest that everybody in the grocery chain is just jacking up prices,” says William McKinnon.

The Canadian Alliance President observes that most CA customers are continuing to purchase just as heavily as they did in the past, despite rising transportation costs.

“If you’ve got to get something from point A to point B and it’s more expensive to do so, you’re still going to do it,” he says.

While one might expect inflation to impact consumer habits, McKinnon isn’t sure that this has been the case at the grocery store.

“Are you going to suddenly stop buying lettuce from California, get on your bicycle and ride to a farmer’s market in Langley to get local lettuce?” he asks. “I don’t know about that.”

Shipping Fees Inch Downward

Shipping companies garnered significant backlash for charging inflated prices during the pandemic. While the worst may be over, McKinnon says price reductions have been marginal.

“There’s been a little bit of a retraction in rates, but people are still paying double what they paid three years ago,” he says. “If I’m a large shipping line, perhaps my profits fell from $2.8B last quarter to $2.1B this quarter.”

McKinnon believes that shipping companies are attempting to recoup losses that were occurring during the period before the pandemic.

“The industry had many, many lean years and a lot of companies were losing a lot of money, so when the pandemic started it created a perfect storm, allowing them to increase prices,” he says.

Supply Chain Visibility and Integration

The supply chain has become significantly more difficult to navigate in recent years and Canadian Alliance has responded by upgrading their technology, a move aimed at providing their customers with greater transparency.

“We’re telling our customers that they need to take it to the next level and integrate completely,” says McKinnon. “The approach we’re taking as a company is to utilize more nimble software, providing a smorgasbord of routes for customers to connect more easily.”

McKinnon says that transparency provides the ultimate validation.

“I want our customers to be able to look in and see how well we’re doing,” he says. “I think the companies that are going to be successful are those that trust their service partner or trust their own supply chain, and have the data and metrics to support it.”

A New Supply Chain Equilibrium?

While McKinnon acknowledges the pricing and logistical issues that are currently plaguing the supply chain, he believes that renewed stability is an inevitability.

“Over time, a new equilibrium will be achieved in the supply chain,” he says. “What used to be easy is now a lot of work. Will we get back to that steady state again? Absolutely.”

How long will that take?

“Candidly, I don’t know,” says McKinnon. “If it took us 2-3 years to get where we are, and I think it will take 2-3 years to reach a new equilibrium.”