Trade Balance Update and Analysis September 7, 2022

Canada’s trade surplus narrowed from $4.9 billion to $4.1 billion in July according to numbers released on Sept 7 by Statistics Canada.¹Despite the drop, it continues a streak that has seen Canada post a monthly surplus each month this year.

Exports were down 2.8% on the month, while imports shrank by 1.8%.

Exports Down Due to Cooling Prices

Exports narrowed to $68.3 billion in July despite being up 1.7% in real (or volume) terms. 6 of 11 sectors saw decreases on the month, including consumer goods (-14.3%). Exports of pharmaceutical products decreased by 49.1%, following a surge of Covid medication exports to the US in June.

Energy exports fell 4.2% as oil prices decreased. Crude oil export values were down 4.7% despite actually rising on a volume basis. Natural gas exports were down in terms of both value and volume.

Mental and non mineral products decreased 8.4%, while farm fishing and intermediate food products rose 9.1%, bolstered by a 55.8% rise in wheat exports.

July marks the first time in 2022 that Canada saw a decrease in exports.

First Import Decrease of 2022

The 1.8% decrease in imports also represents a first for 2022, with a drop in 7 of 11 sections. Imports were down 1.4% in real terms.

Imports of miscellaneous goods and supplies contributed significantly, falling 9.8%, largely the result of fewer gold bars being imported from the U.S. Imports of energy were down 10.2%. Industrial machinery, equipment and parts decreased 6%. The import of pharmaceutical products also fell.

Imports of motor vehicles and parts actually rose 8.4%.

Trade Surplus with US Narrows

Canada’s trade surplus with the US narrowed from $13.3 billion to $11.8 billion in July as exports fell 2.2% and imports grew by 0.7%. This was the first such decrease of the year.

Meanwhile, Canada’s trade deficit with the rest of the world narrowed for the third consecutive month. Imports from non-U.S. countries decreased by 5.7% as exports were down 4.8%. As a result, our merchandise trade deficit with the rest of the world narrowed from $8.4 billion to $7.8 billion.

Inventory Management and Collaboration with 3PL is Key

One supply chain challenge currently facing companies is tight warehouse capacity.

“We moved 5,000 pallet positions out of here in July,” reports Canadian Alliance President William McKinnon, “and now the space is all gone again.”²

In an environment where nothing can be taken for granted, companies are being urged to sharpen their pencils.

“I’m urging our clients to work with us to forecast and collaboratively plan,” says McKinnon. “This will bring about synergies and efficiencies that will produce better results than reactive purchasing.”

Those who value and invest in sharp supply chain minds will find themselves in a better position to mitigate risk. McKinnon advises companies to prioritize technology and more sophisticated analytics for purchasing. He also believes that companies will benefit from establishing more balanced contracts within the grocery trade, but acknowledges that this is easier said than done. “If Heinz Kraft can’t beat up Sobey’s, who can?” he asks.

Adjusting to the New Supply Chain Normal

Recent media reports have offered wildly differing viewpoints on the prospects of a return to so-called normalcy within the supply chain. After several years of challenges and fluctuations, McKinnon believes the industry has simply become more adept at making adjustments.

“I think we’re just getting accustomed to the new norm,” he says. “Things are not as predictable as they used to be, but we’re becoming more comfortable with less predictability. My team doesn’t panic, and our customers have adjusted as well.”

A Smoother Q4?

Part of that adjustment has been a more forward-looking approach to inventory, which could lead to a smoother ride this holiday season.

“From what I’ve observed with our customer base, they’ve loaded up on inventory quite heavily this summer,” says McKinnon, “which I think is a hedge against typically high consumer demand, through the last quarter of the year.”

A Return to Retail

While the pandemic certainly hastened the rise of e-commerce, delivery services, and D2C models, McKinnon believes that retail has bounced back considerably.

“Box retailers have seen a bit of a resurgence in consumers going in and buying goods, and have adjusted their inventories accordingly,” he says. “Whenever I go shopping it seems that everybody is back to normal. Alice, who likes to pick out her own romaine lettuce, is doing so now and no longer ordering it online.”