Canadian Shipper


Good prospects ahead for nation of traders

In 2014, exports will lead Canada’s growth, with global demand for commodities on the increase, and the US economy picking up.

This, along with cheaper currency, should help Canadian manufacturers and exporters and their logistics partners expand and facilitate their US sales.

According to Export Development Canada’s Export Performance Monitor for the month of February 2014, Canadian exports rose 0.9% in December to $39.7 billion because of a 0.8% increase in volumes while prices were essentially flat.

The top performer was Canada’s metal sector. It rose 19.5% as copper shipments doubled and iron ore rose 7.8%. The industrial machinery sector also had a strong month increasing 3.2% as construction, logging and mining machinery surged by 25% while commercial and service industry machinery gained 5.7%. Rising business investment in the US was the major driver for Canadian machinery, the report noted.

On the downside, Canada’s energy exports contracted by 4.5%, the fourth consecutive month of decline as crude oil shipments fell 5% and natural gas decreased by 6.8%.

Canada’s total exports for 2013 rose 3.2% to $477.4 billion, a big increase over the 1.3% growth in 2012, but we’re still below the $487.3 billion reached back in 2008. Canada’s exports will finally surpass the pre-crisis peak in 2014, particularly because of rising momentum south of the border. In fact, exports to the US grew by 5.3% in 2013, even faster than sales to emerging markets which rose 4.3% and well above shipments to the EU which contracted by 3.6%.

Now that the US economy is gaining speed with GDP growth of 4.1% in Q3 and 3.3% in Q4, business investment will pick up while consumption will gain on the improving job market, said the report.

In a February report on the Canadian economy, Peter G. Hall, vice-president and chief economist with Export Development Canada, said that while Canadian trade “is indeed facing considerable headwinds” with weaker commodity prices and a stalling of the Keystone pipeline construction that has slowed US-bound oil flows, there is a decent list of positive factors, first and foremost of which is world growth, led by US economic revival.

“Canada is already seeing very positive effects in exports that feed off key US leading indicators, suggesting that other exports will soon join the party. The weaker Canadian dollar, now 7% lower than the 2013 average, suggests a boost of about 1% to GDP, if sustained,” said Hall.

André Downs, chief economist at Foreign Affairs, Trade and Development Canada (DFATD), said that improvements in different markets will mean a more balanced pattern of growth internationally.

“What we see over the next year or two will be much more healthy growth in terms of exports,” said Downs in the Bank of Canada’s October 2013 Monetary report.

“We see investment coming back, we see consumption continuing to increase at a more sustainable pace, with all of that leading to a more balanced pattern of growth in Canada as well.”

Canadian exporters also have a comparative advantage in growth areas such as agricultural products.

“We’ve always been a trading nation, and we’re increasingly a nation of traders. The efforts toward diversification didn’t stop during the financial crisis, and they will continue over the next couple of years,” Downs noted.

The Bank of Canada report said that a projected expansion of US business and residential investment in 2014 is expected to fuel a rise in the growth of Canadian exports, with non-energy commodities such as metals and forestry products posting strong gains and crude oil exports contributing to growth.

Canada’s share of exports destined for the US has declined from a high of almost 85% in the years following NAFTA to about 70% today, with the depreciation of the world market and diversification by Canadian exporters. The level should not decline below 70% for the foreseeable future, according to DFATD simulations.

“We make things together, so when the US economy picks up, we follow closely,” said Downs.

The Conference Board of Canada’s Canadian Outlook report also sees recovery ahead in the US economy, which should expand at a pace better than 3% in 2014, with even stronger growth anticipated in 2015, it said.

“It’s a good news story for Canada,” says Pedro Antunes, director of the Conference Board’s National and Provincial Forecast and co-author of the report. “We’re very much part of their supply chain.”

However, the increasing practice of “re-shoring” in the US could reduce the reliance on Canadian imports, especially given the cheaper cost of US labour, Antunes noted.

Canada is better able to compete in capital-intensive manufacturing operations, those that involve automation.

“Higher inflation in 2014 is expected to prompt the Bank of Canada to lift rates ahead of its US. counterpart. This should help stabilize and lift the loonie,” Antunes said.

Further, the Bank of Canada report finds “encouraging signs that Canadian firms are taking steps to improve their export performance,” for example investing in innovations and marketing. It also notes there have been investments to improve efficiency and lower costs, which are helpful, Downs said. “But remember, we have to increase our competitiveness, and we would like to see them invest for expansion. That’s not quite there yet.”

Downs cautions that while the objective is “to increase the value-added in Canada, we may not be good at transforming all resources, other countries may be better at it, so it’s better for us to specialize in areas of transformation where we have a comparative advantage.”

US trade with NAFTA partners exceeds $100B for first time

Data on October North American Freight Numbers from the US Department of Transportation saw US trade with North American Free Trade Agreement (NAFTA) partners Canada and Mexico reach $103.1 billion, exceeding $100B for the first time on record. The Department of Transportation’s Bureau of Transportation Statistics (BTS) reported that three of the five transportation modes carried more US-NAFTA trade in October 2013 than in October 2012.
Total surface transportation trade, comprised of truck, rail and pipeline, was at an all-time high in October, at $85.4 billion. Truck, at $61.4 billion, and rail, at $15.9 billion, also reached record monthly levels. 

Pipelines showed the most year-to-year growth at 23.7%.
The increase in the value of freight carried by pipelines reflects the rise in prices for oil and other petroleum products, the primary commodity transported by pipelines. 
Truck, which carries three-fifths of US-NAFTA trade and is the most heavily utilized mode for moving goods to and from both US-NAFTA partners, rose 3.1% year-to-year while rail rose 7.1%. Vessel declined 3.6% and air declined 1.0% 
Trucks carried 59.5% of the $103.1 billion of US-NAFTA trade in October 2013 accounting for $32.3 billion of exports and $29.0 billion of imports. Truck was followed by rail at 15.4%, vessels at 8.8%, pipeline at 7.8%and air at 3.8%. The surface transportation modes of truck, rail and pipeline carried 82.8%
of the total NAFTA freight flows. 
In terms of trade with Canada, US-Canada trade by vessel, of which 63.3% was imported, had the largest percentage increase of any mode from October 2012 to October 2013, growing 40.2%. Next highest was pipeline trade, which grew 26.7% during the same period. Petroleum products have the highest value of any commodity by bot
h vessel and pipeline although pipelines carry four times the amount of petroleum from Canada to the US as do vessels. US.-Canada pipeline trade comprises 96.1% of total US-NAFTA pipeline trade. Freight moved by truck between the US and Canada grew the least of any mode, 0.7%.