Canada’s merchandise trade deficit in May was $3.4 billion according to numbers just released by Statistics Canada.1 This comes after a $894 million trade surplus a month earlier. In May, imports rose 3%, while exports decreased 3.8%. The deficit is Canada’s largest since October of 2020.
Exports of Energy Products, Food Decrease
Energy product exports fell by 7.3% in May, largely because of lower prices. Crude oil prices were down 8.3%, which explains much of the loss. Coal exports also decreased, down 14.5%.
Exports of farm, fishing, and intermediate food products were also down, decreasing by 13.4%, a third consecutive monthly decline. This comes after exports in this category spiked by 40% between August 2022 and February 2023. Global grain supplies have stabilized, correcting market values and prompting many Canadian producers to hold on to product.
In all, 7 of 11 product sections posted decreases.
Silver, Gold, Motor Vehicle Imports Up
As exports decreased, imports trended up, growing by 3% in May.
Imports of metal and non-metallic mineral products were up 12.3%, largely the result of a 42.8% spike in the import of unwrought gold, silver, and platinum group metals and their alloys. Unwrought silver shipments from the UK were a large factor here.
Motor vehicles and parts imports were up 4.5% to a record high $11.3 billion. Imports of engines and parts were up 6.9%, while passenger cars and light trucks were up 4.6%.
In all, 8 of 11 categories saw import increases.
$6.7 Billion Trade Surplus with US Lowest in Two Years
Canada’s trade surplus with the US was down from $8.7 billion in April to $6.7 billion in May, the lowest such surplus since May of 2021.
Exports to our southern neighbour were down 2.9%, with crude oil the largest factor. Imports from the US were up 1.3%, owing largely to higher imports of motor vehicles engines and parts, as well as aircraft.
Exports to countries other than US were down 6.6%, while imports rose 6%. Canada’s merchandise trade deficit with countries other than the US widened from $7.8 billion in April to $10.2 billion in May.
Port Workers Strike an Abuse of Power?
The B.C. port workers strike is threatening to inflict substantial wide-ranging economic damage on Canadians. Canadian Alliance President William McKinnon believes that the situation is dire.
“In my opinion ports are an essential service,” he says.2 “Employers and employee bargaining units should not use this as an arena to settle disputes at the expense of the users. The ports effectively operate as a monopoly and their customers have no option but to work around the current situation. This is an abuse of monopolistic power.”
Economic Uncertainty Leading to Caution
“We’re seeing a lot of customers being quite tentative in their inventory buildup, more so than they’ve been in the past four or five years,” says William McKinnon. He believes that people are nervous about the economy and responding accordingly.
“The amount of product we’ve been receiving has been down, but inventory levels are being maintained, which tells me that customers are selling less,” says McKinnon.
This conservative approach comes after some customers over-invested in inventory and later paid the price.
“They’re being very perceptive as to what they need to maintain in order to meet consumer demand and they’re not going to get caught with overstock,” says McKinnon. “They’d rather have high demand and price their product accordingly than to have too much supply and be stuck with inventory they can’t sell.”
Poor Port Efficiency Could Lead to Greater Automation
A recent ranking compiled by World Bank and S&P Global Market Intelligence placed the Port of Vancouver second last of 348 container ports for port efficiency.3 McKinnon believes that the upcoming Delta Port 2 project will make greater use of automation in an effort to improve efficiency.
“You want containers to move quickly and at the lowest possible cost,” says McKinnon. “If you can do that with capital, infrastructure, and automation, so it should be.”
Price Fixing in Bread Related to Lack of Distribution Competition?
Canada Bread has been fined $50 million after pleading guilty to price fixing.4 While McKinnon doesn’t endorse the actions of Canada Bread, he believes it’s part of a larger issue in Canada’s grocery market.
“The grocery trade has been able to hammer suppliers for years, because they have the power of distribution,” says McKinnon. “There are only a few channels suppliers can work with and, as a consequence, people will work together to try and push back. I don’t condone what Canada Bread did, but in desperate times people take desperate action. They should have acted on their own accord, but they may not have enough power.”
Meanwhile suppliers in the industry are becoming more reliant on distributors to handle transportation.
“The grocers have very aggressive supply chain fines programs that are designed to penalize their suppliers when deliveries are late or have minor imperfections.,” says McKinnon.
He says that suppliers are fined for late deliveries, even when circumstances are beyond their control, such as with government mandated road closures.
“Today many of the grocery chains offer their own fine-free transportation networks at above market pricing,” McKinnon continues. “They do this in order to convert more revenue dollars into their companies under the guise that they’re assisting vendors by helping them avoid punitive supply chain fines. At least it’s consistent. Customers convert because they’re tired of being surprised.”
Cited Sources
1 Government of Canada, Statistics Canada. “Canadian International Merchandise Trade, May 2023.” The Daily – , July 6, 2023. https://www150.statcan.gc.ca/n1/daily-quotidien/230706/dq230706a-eng.htm.
2 Direct Communication with William McKinnon
3 “Port of Vancouver Disappointed by Poor Efficiency Ranking, Says Change Is Coming | CBC News.” CBCnews, June 14, 2023. https://www.cbc.ca/news/canada/british-columbia/port-of-vancouver-change-coming-1.6875600.
4 Stober, Eric. “Canada Bread Pleads Guilty to Price-Fixing Bread Prices, Fined $50m – National.” Global News, June 22, 2023. https://globalnews.ca/news/9783925/canada-bread-price-fixing-guilty-fine.