Canada’s merchandise trade surplus reached $1.9B in January, according to numbers released on March 8 by Statistics Canada.1 Exports were up 4.2%, while imports climbed 3.1%.
Exports Reach $67B
Exports rose in every product section, with the exception of energy products. More than two thirds of the gains can be attributed to three categories, farm, fishing and intermediate food products, motor vehicles and parts, and metallic and non-metallic mineral products. In fact, exports excluding energy products rose 6.1% to $51.6B, an all-time high. Total exports in real or volume terms were up 5.3%.
A good harvest and high global demand helped farm, fishing, and intermediate food product exports climb 11.9% to a record $5.9B. Wheat, canola, and soybeans contributed most to the gains.
Motor vehicles and parts exports rose by 8.2%, while metal and non-metallic mineral exports increased by 8.3%, the latter driven by unwrought gold.
A drop in the price of natural gas contributed to a 1.8% decline in natural gas exports.
Imports Rebound After Two Monthly Declines
Imports climbed 3.1% in January after declines in the previous two months.
After decreasing 7.2% in December, motor vehicles and parts imports shot up 11.2% to a record high $11B.
Industrial machinery, equipment and parts exports were up by 10%, with ‘other industry-specific manufacturing machinery’ leading the way. Large fluctuations in this subcategory have been ongoing for over a year as a result of the construction of a new liquefied natural gas terminal in British Columbia.
Imports of electronic and electrical equipment and parts were up by 5.1%. The release of new cell phone models was the largest factor here.
Consumer goods increased 3.8%.
Trade Surplus with US Grows, Deficit with Rest of World Shrinks
Export to countries other than the US was up 7.2% in December, reaching a record 16.7B. Exports to China, the UK and Germany saw the largest increases.
Meanwhile, imports from countries other than US up 4.6%, with Mexico and Switzerland leading this increase.
Overall, our trade deficit with countries other than the US shrunk from $7.2 to 7.1B, a fifth consecutive monthly narrowing of this gap.
At the same time, our trade surplus with the US widened for the second straight month, increasing from $8.4B in December to $9B in January.
Transportation Market Softening
Canadian Alliance President William McKinnon2 has observed a softening of the transportation market and a subsequent emphasis on customer satisfaction.
“When capacity was tight, service levels were lower,” says McKinnon. “Now it’s all about getting value for your dollar and ensuring high levels of customer service.”
McKinnon expects that international ocean shippers will report lower earnings for quarter one as a result of less product coming out of Europe and China.
“The larger organizations that were able to keep their networks in place during the pandemic and avoid over-expansion are poised to reap the rewards,” he says. “Companies who were loyal to their existing customer base during the pandemic may be best positioned.”
Food Service Inventories Decreasing
As consumers tighten their wallets at the grocery store, McKinnon has noticed inventory levels in the sector shrinking. Should we expect to see a reduction in grocery prices?
“Don’t hold your breath,” he says. “The grocery guys are fining everybody for everything.” McKinnon has heard stories about minor infractions on the part of suppliers resulting in punitive measures from major grocers. “They want to make sure everybody knows that they have the distribution network and the shelf space, so they have the hammer.”
Slow Movement in PPE, Appliances and Electronics
“Our healthcare holdings are only a fraction of what they were a year ago,” says McKinnon. “Most of the PPE in our building today is rapidly aging out.”
He’s also not seeing a lot of movement of appliances and electronics.
“When you look at the major appliance retailers like Best Buy, Midland and others, they are holding a lot of sales right now, trying to move product.”
Stable Market for Automotive Parts, Consumer Chemicals
McKinnon says that the automotive parts inventories have held steady, and wouldn’t be surprised to see growth this year.
“More people are going to be taking road trips this year as a result of difficulties in the airline industry,” he predicts.
He’s also seen stability with regards to consumer chemicals, which he attributes to institutional sanitation requirements.
“It doesn’t matter if the hospital is full or not,” says McKinnon. “They still have to scrub the place down every day.”
Recession Likely to be ‘Mild to Moderate’
McKinnon expects a mild to moderate economic downturn to occur this year that is likely to thin out marginal players.
“Companies that leveraged their working capital to expand are now paying a higher interest rate on their operating line to finance their inventory,” he says. “Meanwhile, there’s less demand for their products, so they can’t increase prices. As a consequence, their margin gets eroded and they will move out of the marketplace.”
McKinnon points to layoffs at Amazon as an indicator of things to come.
“That’s as good a gauge as you’re going to get on what consumer spending looks like and what’s driving the economy,” he says. “I don’t think it’s a total disaster, but things are definitely getting much tighter than they were a year ago.”