Despite the latest statistics showing Canada’s import/export faring relatively well in the face of 2020’s pandemic-triggered economic upheaval, the picture is far less rosy than it appears, analysts warn.
Statistics Canada data released in December outlining the country’s merchandise trade performance in October shows that exports fell by only about 4.9% compared with the same month in 2019, while imports fell by less than a single percentage point.
Farm, fish and other food exports spiked 37.4% to $3.85 billion year over year in October; forestry product exports jumped 18.4% to $4.01 billion.
Those numbers, however, can create a misleading picture for how trade in those sectors did in 2020 in the context of decade-long trends, one analyst said.
“I would caution – and I would say anecdotally, because I haven’t seen evidence of this – that I think we are seeing countries restocking stockpiles,” said Carlo Dade, director of the Trade & Investment Centre at the Canada West Foundation. “So it may give an artificial boost that’s not going to be sustainable. The question is, when the spike is over, are exports going back to pre-COVID levels?”
As with many other sectors, the Chinese market remains a key component of agrifood exports’ health. Dade noted that one reason 2020 numbers looked so favourable despite COVID when compared with 2019 was because 2019 was a difficult year for Canadian canola and red meat exports to China – a market that banned shipments in response to the Meng Wanzhou arrest.
But not all exports recorded a COVID-era gain from 2019. Exports of aircraft and transportation equipment fell almost 32% to $1.7 billion in October 2020 compared with the same month a year earlier. Energy exports were down 28.5%, but accounted for a much bigger loss due to the sector’s export size. It dropped to $6.65 billion in October. Industrial machinery exports fell by 10.4% to $3.06 billion.
None of those major contributors to a weaker Canadian export scene in 2020 were surprising, said another analyst and trade consultant – and the big reason why is the cancellation and/or delays of major capital projects abroad for which Canadian firms like Bombardier (TSX:BBD.B) may have been a major supplier.
“Mining machinery is the same thing,” said Omar Allam, founder and CEO of the Allam Advisory Group. “In a lot of places, operations have been scaled back to some degree. And if you don’t operate as much, you don’t need the parts, and we would see a decrease in export in machinery.
Allam added that there are other aspects of COVID-19 that hurt the growth of global trade that often get missed by observers outside the industry.
“If you do business globally, it’s a relationship game. The wild card there is that the contact that used to be face to face is now virtual because of travel restrictions, and that also hurts the growth of trade and cross-border business.”
That – along with other factors – has contributed to sectors of export where the overall numbers may be good, but a closer look reveals uneven performance between companies that have liquidity and flexibility, compared with those that don’t.
For customs brokers and agencies at the border helping small and medium-sized businesses to benefit from cross-border commerce, 2020 also brought some regulatory burdens not seen before – especially for importers, one official said.
Graham Robins, president and CEO of A&A Contract Customs Brokers, said the big news in his sector in 2020 was the Canada Border Services Agency’s (CBSA) implementation of its CBSA Assessment and Revenue Management project, which requires importers to register directly with the CBSA rather than go through a customs agency.
Robins said the program protects Canadian importers from customs agencies that may incorrectly handle an importer’s funds, which are supposed to be used to pay fees for cargo crossing the border. But he added that most agencies operate without issues, and the move to require an importer – however small it may be – to dedicate resources to dealing directly with the CBSA may slow cross-border trade.
“Importers in the past could have shipments released and not pay taxes at the time of import, purely on a customs broker’s bond,” Robins said. “Now, the CBSA requires importers themselves to be bonded. … Getting bonded can take weeks if you are not used to the process.”
That means that, even as consumer goods imports grew 12.6% in October 2020 year over year to $11.6 billion, the new system and the requirements for companies to be directly involved in the import process would raise a bar too high for some small businesses to consider imports as a business option, Robins said.
Ultimately, bigger, multilayered import/export corporations will fare better than their small, independent counterparts, Dade said.
He said a closer look at Canada’s trade picture, beyond a macro-level overview on how each sector is doing, is needed for people to have a true understanding of the challenges facing the sector.
“People don’t realize that, in the case of agriculture, farmers don’t sell to China. They sell to a local grain elevator, for instance, and that’s the distributor who does sell to international markets. These people who sell have some cushion; they are multi-level and have the resources. Yes, you have losses in this market environment, but you are not worried about potentially losing your farm. I don’t want to present it like the exporters don’t have risks, but it’s a lesser degree of risk when you compare to the producers.”