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Transportation a “critical element” in Canada’s economic history

OTTAWA, Ont.—In a recent editorial, Peter G Hall, Vice-President and Chief Economist, with EDC, commented on the critical element that transportation is in Canada’s economic history.

”Blessed with a vast land mass, Canada’s opportunity – and massive challenge – has been in great measure defined by the development of transnational transportation systems and the various multi-modal networks that feed them. The development of rail, road and water transportation systems are among our greatest early national achievements. Transportation was important then, is even more so today, and given the state of global trade development, critical to Canada’s economic future,” Hall said.

Transportation is not a standout as a share of Canada’s national output, but in its own right, accounts for a decent amount of economic activity. It’s hovering around four percent of GDP at present, and has actually outpaced growth in other industries, recently rising to its highest share of GDP since 1997. Trucking forms the largest share of transportation GDP, at 29 percent. Support activities for all transportation modes comes next, at 18 percent. Then there is a cluster of categories at the 10 percent level, in their rank order from highest to lowest , air transport, transit and sightseeing, rail, pipeline and postal/courier services. Water-borne transportation picks up the rear, at just 2 percent.

Canada’s transportation compares favourably with the rest of the world. As Hall noted, scores for our infrastructure tabulated in the annual Global Competitiveness Index produced by the World Economic Forum typically put us in the top 20 overall, and also in the specific transportation categories.

“However, we have been slipping. Our overall score slid from 11th to 14th from 2010 to 2014, and in three of four sub-categories – air, rail, roads and ports – scores also went down. For the quality of our roads, we were actually ranked 26th, well off our 14th-place finish in 2010. Given our winters, keeping pace is not easy, but given how much trucking we do, this is alarming. Our port infrastructure also fell out of the top-20, getting a score of 21 in 2014,” Hall said.

Admittedly, trade growth hasn’t been stellar worldwide since the Great Recession, and as such, the urgency for keeping up and enhancing trade infrastructure may not have been as intense as in prior years. However, it’s still not so long ago that we experienced transportation capacity crises: North America’s West Coast ports fiasco in 2004, and the winter-hobbled rail logjam in Canada in early 2014. On both occasions, reliability of supply lines were the key issue. Fast-growing countries sourcing goods and services were considering adjusting to more reliable suppliers, given the immense costs of potential disruption. Couple that with the future demands of an increasingly wealthy emerging market arena, and any economy deemed to have insufficient transportation capacity is at risk of being bypassed, regardless of the available supply or quality of its products.

Of note is the increasing sophistication of transportation networks. Increasingly, the most efficient networks are looking in detail at all aspects of international trade’s transportation continuum, from sourcing inputs, producing goods and services, participating in supply chains, delivery, the calibration and digitization of these functions and movement of the people involved in trade. Increasingly, these functions are being looked at as a whole, said Hall.

“Filling transportation deficits can be a Herculean task for any government – but it’s increasingly essential to get it right. Transportation is critical to national competitiveness and the participation in trade on a broad, diversified  front.

The burden doesn’t just fall on national governments, though. Private investment funds, eager to diversify and boost returns, have long-since looked to infrastructure plays as a great source of stable future income. P3 structures have sprung up everywhere, and with the increasing prominence of institutional investors in the post-recession financing market, there are at least ample sources of funding for transportation projects.

The bottom line? The importance of transportation to Canada’s economic development pre-dates Confederation. Our location and geography dictate this. It’s disquieting that we appear to be falling behind, but our transportation legacy and the still-high position we enjoy suggests that we have what it takes to succeed on this front,” he said.

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