Introduction

Supply chains are not immune to global and domestic events and activities. Similar to how a physical jerk can damage the integrity of a metal chain, the wake of the COVID‑19 pandemic and unprecedented climate change events have cascaded into various issues that highlight existing vulnerabilities throughout Canada’s supply chain network.

The House of Commons Standing Committee on Transport, Infrastructure and Communities (the Committee) adopted the following motion on 31 January 2022:

That pursuant to Standing Order 108(2), the Committee study the state of Canada’s supply chain; in particular, how the Covid pandemic and climate change are impacting it; the state of container transport of products in Canada; and ways to protect and strengthen Canada’s supply chain infrastructure with a view to proposing solutions to make the supply chain more resilient.

The Committee dedicated six meetings to this study between 31 March 2022 and 5 May 2022. It heard from 42 witnesses and received five briefs. The following sections outline what various stakeholders discussed regarding the current state of Canada’s supply chain and suggestions to protect and strengthen its infrastructure in the short- to long-term. This report is the third in a series of studies by the Committee to investigate the development of a Canadian transportation and logistics strategy. The Committee presented two reports in the 1st Session of the 42nd Parliament, highlighting ways in which the Government of Canada can improve the efficiency of the nation’s trade corridors.[1]

Long-Term and Short-Term Disruptions

Many witnesses who testified before the Committee acknowledged the interconnectedness of the global supply chain system and shared their concerns on matters that are causing disruptions within their field or line of business in Canada. For example, Joan Hardy, Vice-President of Sales and Marketing, Grain and Fertilizers at Canadian Pacific Railway, declared that no one single supply chain exists in the country as “[e]ach commodity has its own unique, interdependent and complex supply chain that links the producer with the final end-user.” According to Julia Kuzeljevich, Director of Policy and Communications for the Canadian International Freight Forwarders Association, manageable disruptions such as weather-related delays are intensified when compounded with additional phenomena like blockades, strikes, the COVID-19 pandemic and related restrictions, travel restrictions, and the spike in consumer online purchases. The following sections outline common supply chain disruptors that witnesses raised before the Committee.

COVID-19 Pandemic

The Committee heard that the COVID-19 pandemic has accentuated and exacerbated pre-existing structural issues in the various sectors and industries of Canada’s supply chain. Karen Kancens, Vice-President of the Shipping Federation of Canada, attributed most of the stress on the Canadian transportation system to a couple of factors, including “global lockdowns and worker shortages created by the COVID pandemic…” In contrast, David Montpetit, President and Chief Executive Officer of the Western Canadian Shippers’ Coalition, pointed out that supply chain strains in the past two years such as labour and equipment shortages among all transportation modes were present well before the onset of the pandemic and believes that they will remain part of the supply chain imbalance.

Hubert Rioux, Researcher at the Institut de recherche en économie contemporaine (IREC), claimed that the health crisis’ main effect has been to highlight growing risks in the global supply chain, which include economic and financial crises, climate change, trade disputes, the resurgence of economic nationalism, geopolitical instability and migration movements. Similarly, Christian Alan Buhagiar, President and Chief Executive Officer of Supply Chain Canada, agreed that the pandemic has brought forward the challenges that were already present such as production, sourcing, labour and transportation issues—all of which have led to many disruptions and shortages. Mr. Lemaire, President of the Canadian Produce Marketing Association, underscored other complications that have been amplified over the past two years such as “port congestion, delays and exploding costs in container shipping, continuing labour shortages from farm to retail, growing costs of inputs and shortages and inconsistent product delivery.”

Climate Change and Extreme Weather Events

A number of witnesses identified the effects of climate change—flooding, heat waves, cold snaps—as the most serious challenge to overcome, with British Columbia having experienced some of the worst in the past year.[2] For the agri-food sector, Mr. Lemaire expressed concern over the frequency and breadth of disruptions to supply and production caused by weather-related events. James Bekkering, Chair of the Board for the National Cattle Feeders’ Association, spoke to the Committee about the shortcomings he observed:

Last year’s drought […] was unprecedented, causing significant shortages of livestock feed and resulting in a surge of feed imports from the U.S. This increased feed demand, along with the fires and floods in B.C., exposed a multitude of weaknesses in our transportation systems. To date, dry, cold conditions in parts of western Canada are hampering the crop outlook, which may result in ongoing pressure on the transportation system.

As well, Serge Buy, Chief Executive Officer of the Canadian Ferry Association, voiced that “erratic freeze-thaw cycles, flooding, erosion and other consequences of climate change have introduced an unprecedented level of uncertainty and risk” to the ferry sector.

Long-Term Environmental Sustainability Solutions

According to Ms. Hardy, “Measuring the strength of Canada’s supply chains is fundamentally a question of resiliency.” While discussing how to boost Canada’s competitiveness and render the nation’s supply chain more robust, many witnesses concurred on the solution of decarbonization, whether it be by using short-sea shipping to offset rail and road emissions, powering vessels with alternative marine fuels, expanding electric and alternatively powered fleets, or implementing carbon pricing on imports.[3]

Witness testimonies indicate that certain businesses and companies will require additional support to adapt to climate change and reduce greenhouse gas emissions while transitioning towards low- and zero-emission forms of transportation. Mr. Buy maintained that the ferry sector has no dedicated support for this collective goal. Witnesses representing the auto manufacturing industry called for the government to help provide consumers with a better range of incentives for electric vehicle purchases and more funding commitment to charging infrastructure.[4] In the words of David W. Paterson, Vice-President of Corporate and Environmental Affairs at General Motors of Canada Limited, “Supply chains, therefore, are not just a challenge. They are a generational economic and environmental opportunity, but we will need to get the policy framework right.” He suggested to look towards Norway’s consumer incentives, as the country has the highest electric vehicle adoption level.[5]

Daniel-Robert Gooch, President and Chief Executive Officer of the Association of Canadian Port Authorities, commended Canada for signing the Clydebank Declaration for Green Shipping Corridors and urged the federal government to “scale up the support to port authorities” in the effort to accelerate the decarbonization of the shipping sector and the formation of green corridors.

Labour Shortages

Many witnesses emphasized the effects of labour shortages on Canada’s supply chain stability. Francis Lalonde, Vice-President of Transportation at Walmart Canada, highlighted that “many supply chain jobs in Canada are in communities with an aging population and a slowing growth rate.”

Chris Given, Director of Government Relations for the Seafarers’ International Union of Canada, described the difficult working conditions seafarers endured under contract extensions since the beginning of the pandemic. Daniel Dagenais, Vice-President of Port Performance and Sustainable Development of the Montreal Port Authority, was more concerned about atypical schedules. Mr. Buy cited Transport Canada’s prediction that “43% of the marine transportation workforce will retire in the next 10 years.”[6] He asserted a much higher percentage and a much shorter time frame for ferry workers and that only “regulatory work, increased immigration [and] work on automation” will solve additional pressures from vacancies.

Kathleen Sullivan, Chief Executive Officer of Food and Beverage Canada, anticipated that “one quarter of the [food and beverage] industry’s workforce will reach the age of 65 in the next five years.” She reported that recent changes[7] to Canada’s Temporary Foreign Worker Program (TFWP) will provide short-term relief while longer-term measures are still needed. Randy White, President of Sysco Canada, reiterated that “there were over 22,000 open truck driver positions across Canada” by the end of 2021 and urged for speedier approval of applications to the TFWP.

In addition to reviewing some immigration policies, witnesses proposed other solutions that could help fill in labour gaps, such as increasing access to training, licencing and long-term career opportunities, increasing capital and automation, and providing a legislative framework for the fair and orderly resolution of labour disputes.[8]

Vessel Dwell Times and Container Shortages

Ms. Kuzeljevich indicated that a cargo ship normally takes 22 days to travel from Hong Kong to Vancouver, but that shipping company Maersk recently reported the average wait time for a berth in the Port of Vancouver to be around four weeks.[9] Furthermore, Canada Border Services Agency (CBSA) inspection delays can result “in significant demurrage and detention costs to the importer…”.[10] Bruce Rodgers, Executive Director of the Canadian International Freight Forwarders Association, recounted how, in one instance, a one-day process ended up requiring 73 days to complete. Marko Dekovic, Vice-President of Public Affairs at GCT Global Container Terminals Inc., clarified that the imbalance of readily available containers for Canadian exporters is not an issue of container terminal capacity. He went on to explain that vessels were backed up in anchorages due to rail service interruptions, whereas the shortage of containers is due to increased North American consumer demands, which have resulted “in ocean carriers and exporters from Asia evacuating containers to Asia more rapidly without having had a chance to go into a cycle of the supply chain here…”.

Participating in the discourse on container shipping capacity, Ms. Kancens argued against greater regulation of the container sector and prohibition of operational agreements between container lines as a solution to increasing capacity while lowering shipping costs. She stated that “most carriers rely on them to offset the extremely high capital costs of operating in the container shipping market” which then allows the partners to serve “across a wider range of ports on larger and more efficient vessels than would be possible if they were all operating individually.” According to Ms. Kancens, greater regulation would not resolve bottlenecks and delays, but instead “could potentially disincentivize some carriers from serving the Canadian market altogether.”

Additional Disruptions

While expressing concerns about Canada’s reputation as a reliable supplier of goods and resources, witnesses remarked, among other aspects, how geopolitical tensions, semiconductor chip shortages, and regulatory changes were recent drivers of supply chain challenges.

Geopolitical Tensions

Of the witnesses who mentioned Russia’s invasion of Ukraine, Mr. Buhagiar cautioned the Committee that there are not enough discussions on cybersecurity risks among suppliers. Ms. Sullivan traced the origins of price increases for wheat and Canadian flour to the war in Ukraine, as she cited both countries combined represent “almost 30% of the world’s wheat exports.” Mr. Bekkering also commented that the global food crisis added “further stress to the livestock supply chain.”

Brian Kingston, President and Chief Executive Officer of the Canadian Vehicle Manufacturer’s Association, reminded that “companies on both sides of the [Canada–United States] border undertook extraordinary measures and cost burdens to deal with the sudden trade diversion” due to the blockade at the Windsor-Ambassador Bridge[11] in February 2022.

Semiconductor Chip Shortage

A few witnesses spoke about the shortage of semiconductors as a main culprit behind supply chain challenges.[12] David Adams, President and Chief Executive Officer of Global Automakers of Canada, spoke in more detail of the ongoing shortage, “which has resulted in lost vehicle production globally of about 12 million units.” He explained that the result of lower vehicle inventories for the past two years “has had the secondary impact of higher prices for new vehicles and subsequently for used vehicles as well.”

Regulatory and Policy Disharmony

The Committee heard of a variety of regulatory misalignments that have had a negative impact on supply chain integrity. In the agri-food sector, Canadian food supplier drivers were stuck at border crossings and could not re-enter the country because of frequently-updated COVID-19 regulations.[13] Also, cattle transporters grappled with federal regulations that, according to them, fail to consolidate mandated breaks for both driver and livestock.[14]

The Committee also heard that updates relating to the Canada-United States-Mexico Agreement[15] had a significant impact on vehicle manufacturers,[16] while other small to mid-size manufacturing companies struggle to accommodate evolving regulations on carbon emissions reductions.[17] Moreover, Dennis A. Darby, President and Chief Executive Officer of Canadian Manufacturers and Exporters, focused on current United States protectionist measures such as “Buy America” policies and proposed the integration of a North American supply chain.

Structural causes and solutions to supply chain issues in Canada

As the Committee heard throughout this study, supply chain issues are complex and interconnected, and there is no single solution to address them all.[18] It is precisely due to this interconnection that many witnesses strongly recommended the development of a national supply chain strategy, to holistically evaluate the state of Canada’s supply chains and coordinate their development and growth.[19] In fact, Mr. Buhagiar further expanded this idea to suggest a North American supply chain strategy would be even more beneficial to ensuring an efficient flow of goods, while other witnesses proposed a complimentary manufacturing or industrial strategy.[20]

Leadership and Oversight

Another potential approach to strengthening Canada’s supply chains is the establishment of a Supply Chain Commissioner, as proposed by Mr. Lemaire. This government-appointed position, selected from within the industry, would ensure oversight over multiple jurisdictions and departments. He further recommended that such an individual have direct experience with the variety of transportation modes used throughout Canada, that the role be ensured a significant level of authority, and that it not be housed within Transport Canada.

Though they did not specifically refer to a Commissioner, Mr. Kingston and Mr. Paterson similarly agreed with the need for clear federal leadership to provide guidance and direction in a variety of areas.

Visibility and Data collection

Mr. Buhagiar explained to the Committee that, given the complexity of the supply chain network, an individual corporation may have a different level of visibility into its own supply chain, which he described as follows:

You can imagine that, in a chain, you have tier one, or those that supply you. Tier two supplies your suppliers. Downstream, you may have multiple levels, depending on how complex your corporation is. Many Canadian corporations—again, many of these challenges are not unique to Canada—only have the ability to see tier one and maybe tier two. They don't have the visibility, downstream, into their supply chains to understand exactly where things are coming from.

Some witnesses advocated for an improvement of visibility as a way of optimizing supply chains, identifying bottlenecks, predicting potential disruptions, and more effectively directing infrastructure funding.^[21] Mr. Gooch proposed new technologies such as artificial intelligence as a way of achieving this goal, while David Miller, Senior Advisor to the Executive of the Vancouver Fraser Port Authority, emphasized ”the importance of data sharing among all the supply chain players.” Mr. Buhagiar, while agreeing with the importance of data sharing, pointed out that this solution would first require “a single operative working language” that is not currently used.

Innovation and Improvements to Existing Infrastructure

Port congestion was identified by some witnesses as another contributing factor to supply chain disruptions,[22] with the Committee hearing several potential avenues for improvement. Some witnesses proposed increased investment in technology and automation,[23] a solution that some argued should seek to support, not replace, labour.[24] Mr. Gooch also reported that set borrowing limits can hamper a port authority’s ability to move forward on large projects, and that a simplified approach to amending the authority’s letters patent would help to address this issue.

Many also spoke positively of the National Trade Corridors Fund (NTCF),[25] which some argued should be continued beyond its current end date of 31 March 2028 or even made permanent.[26] Ms. Hardy recommended a quicker funding approval process for projects “that can provide immediate tangible improvements for Canada’s supply chains.”

Some witnesses also suggested more targeted funding, for small marine ports[27] and for small airports,[28] either within the NTCF, or as a separate, parallel funding stream. With regards to funding for short-line railways, however, Mr. Brazeau recommended the creation of a dedicated program “to ensure that they continue to reinvest in infrastructure and their rolling stock.” He explained that the NTCF is not currently supporting short-line railways and recommended an approach inspired by those currently used in the United States and through provincial programs in Quebec. Such an approach would provide a combination of tax incentives and capital project incentives, as well as direct funding.

Addressing Rail Monopolies

Some witnesses identified rail “monopolies”, particularly in western Canada, as a potential supply chain bottleneck.[29] Steve Pratte, Manager of Policy Development of the Canadian Canola Growers Association, spoke to the Committee of the need for tightened contractual relationships between railways and shippers of grain product, and for establishing more robust reciprocal penalties.[30] As Tyler Bjornson, Consultant for the Western Grain Elevator Association, explained, in 2018, the Transportation Modernization Act introduced a requirement for reciprocal penalties to be embedded into service level agreements. He was very critical of this approach, as it would require shippers to negotiate with a monopoly. Instead, he proposed directly regulating reciprocal penalties, which would require railways to pay for non-delivery. Kara Edwards, Director of Transportation for the Chemistry Industry Association of Canada, also spoke of the imbalanced relationship between shippers and railways. She recommended that the Canadian Transportation Agency be granted broader authority to help address this imbalance.

Several witnesses also strongly recommended establishing rail as an essential service, to ensure the flow of essential goods is not interrupted by labour disputes involving a railway company when no alternative transportation is available.[31] Meanwhile, Mr. Lemaire expressed the need for a way of prioritizing the movement of perishable and essential goods.

Establishing additional corridors

The importance of resiliency was a common theme throughout this study. As Mr. Dekovic explained, “You could have seven new terminals built in the Port of Vancouver, and each one of them would be cut off if the infrastructure coming to it, road and rail, was not enabled or didn't have resilience.”

Several witnesses told the Committee that expanding the number of trade corridors would improve supply chain resilience, Mr. Brazeau spoke in general of building new marine or inland ports,[32] and Mr. Kingston and Mr. Paterson referenced the need to complete the Gordie Howe International Bridge.[33]

Mr. Dagenais was uncertain that new marine ports would be necessary, though he did underscore the complementary role that the network of existing ports can play for each other. However, a commonly mentioned challenge to developing new ports was the limited resources of the CBSA. Witnesses had a generally positive view of the work of the CBSA but noted that the Agency is stretched to capacity as it is and would benefit from increased staffing.[34]

Mr. Given proposed cabotage, or domestic marine freight transportation, as a means of reducing congestion on trucking routes, particularly along the St-Lawrence seaway, as “one seaway-sized vessel is capable of carrying the same cargo load as approximately 300 railcars, or almost 1,000 trucks.” He clarified this approach was not meant to replace trucking, but rather to diversify transportation routes. The Committee also heard of the important role played by ferries in ensuring supply links to ferry-dependent communities throughout Canada.[35] Mr. Buy and the Canadian Ferry Association, in its brief, argued that the ferry industry is often excluded from funding programs and requires significant support.

Robert Lewis-Manning, President of the Chamber of Shipping, similarly suggested that Transport Canada consider facilitating the expansion of shortsea shipping, or coastal marine freight transportation, on a regional basis. According to Mr. Dekovic, at least one ongoing expansion project at the Global Container Terminals Canada Deltaport terminal in Delta, British Columbia, is being designed to offer the optionality for shortsea shipping, in the event that appropriate terminals be developed along the Fraser River.

In Eastern Canada, some witnesses indicated the potential for a broader expanded use of the St-Lawrence seaway and the Great Lakes.[36] According to Mr. Given,

the tie-in with the rail lines and the access to such a large market via the Great Lakes are really important for marine shipping. As for the ways in which we can take advantage of some of those opportunities, I think you could look at some of the vacant land that's along the Seaway as a potential container depot, where you could have some of that short-sea shipping, removing some of the congestion off the highways and the rail lines, as well as moving containers into that region, which can then be trucked or moved via vessel down into some of the larger markets in the U.S.

Bob Masterson, President and Chief Executive Officer of the Chemistry Industry Association of Canada, agreed that the Great Lakes offer an opportunity for trade routes with the United States. However, he argued that more focus should be put on seafaring ports, particularly those with ties to Asian markets. Larissa Fenn, Director, Public Affairs and Corporate Secretary for the Hamilton-Oshawa Port Authority, pointed out that the Port of Hamilton is indeed internationally oriented. She added that underutilized spaces in the Niagara region also provide an opportunity to address what she called “an acute shortage of multimodal-served industrial spaces” in Ontario.

On the West Coast, Ken Veldman, Vice-President of Public Affairs & Sustainability of the Prince Rupert Port Authority, suggested that greater resiliency could be achieved by enhancing the capacities of both the Port of Vancouver and the Port of Prince Rupert. The latter, he argued, is in the midst of significant development and is well-placed to play a growing role in the export of future fuels. Mr. Dekovic agreed that Prince Rupert has the potential to act as “a backup for Vancouver” but indicated that additional rail capacity and a more diverse local market should be considered in expanding it for such a role. Greg Rogge, Director of Land Operations for the Vancouver Port Authority, spoke of the potential to leverage inland capacity, for example in Calgary, though he noted this would still require increased container capacity within marine ports.

Strengthening domestic supply chains

The need to tighten domestic supply chains was a central theme of this study. In Mr. Rioux’s words,

“the COVID-19 crisis revealed the vulnerabilities of economies that are too dependent on global value chains. They were destabilized by the closure of plants and restrictions on exports, highlighting the risks of deindustrialization and offshoring. The rise in geopolitical tensions such as economic nationalism around the world will only increase the number and severity of the risks associated with too much globalization of supply chains.”[37]

Throughout this study, the Committee heard several suggestions relating to reducing Canada’s reliance on external supply chains. According to Mr. Buhagiar, “It's vital that Canada become more self-reliant, have more internal capacity and have systems that can collaborate more easily to solve these challenges.” Some witnesses recommended encouraging domestic manufacturing capacity and enhancing Canadian export capacity.[38] Mr. Paterson praised the critical minerals plan outlined in the government of Canada’s Budget 2022 in fostering the ability for domestic production of electric vehicle batteries.

Mr. Darby told the Committee that automation in the manufacturing sector would increase competitiveness and the scale of production, thereby reducing reliance on foreign suppliers, though he indicated manufacturers need more support to accelerate adoption of automation technologies. Ms. Sullivan offered that the Canadian food and beverage industry falls “well behind other countries” in adopting technology automation.

In terms of agricultural products, Guy Milette, Chair of the Board of Directors of the Canadian Produce Marketing Association, was in favour of promoting local supply chains when possible, though he pointed out that many fruits or vegetables must necessarily be imported to Canada, at least part of the year. He also suggested that it would be preferable to encourage the creation of multiple microproducers across various regions, rather than give current microproducers greater access to the supply chain, in order to maintain local distribution.

To strengthen domestic supply chains, the IREC, in its brief, emphasizes the importance of putting in place policies to substitute imports with local production. This substitution would strengthen our supply chains by limiting our dependence on internationalized chains. The economic crisis of 2008 and the COVID-19 crisis are good examples of the impact of over-reliance on imports on our economy. The brief highlights the importance of policies such as carbon pricing on imports, local content requirements in public contracts, and the implementation of industrial policies for strategic sectors in achieving this objective.

Conclusion

Throughout its study, the Committee heard of how phenomena from the past couple of years—including COVID-19, climate change, long-standing labour shortages, container shortages, geopolitics and conflicting regulations—have compromised Canada’s supply chain infrastructure and had an impact on the people, businesses and companies that are integral to it. Witnesses proposed solutions aimed to bolster supply chain resiliency and sustain future growth in Canada. Examples include supplementing labour forces with greater access to licensing and long-term career opportunities, innovating existing infrastructure through targeted support for smaller marine ports, small airports and short-line railways, increasing the number of trade corridors by completing construction of the Gordie Howe International Bridge, and optimizing underutilized industrial spaces such as the Niagara region. Their testimonies also indicated that further action is required in respect to intergovernmental collaboration with provinces and municipalities, ongoing dialogue with international partners, public-private partnerships, funding, and strategic investments.