Supply Chain Disruption Continues

As written before, the world’s dependence on low cost manufacturing and a well-tuned, efficient supply chain meant that companies could operate with relatively low inventory. Goods were manufactured at low cost and moved across the globe via ship, plane and train. Today, passenger planes are grounded (cargo space is in the underbelly of the plane), and ships and trains in some cases are moving more empty containers than full ones.

When the virus hit China, we witnessed the early disruption, particularly in the electronics sector. This escalated further when the world woke up to its reliance on China for medical supplies. It is easy to think that this is all correcting itself behind the scenes. Some of its coming back and our dependence will not evaporate (see our podcast with Carl Breau), but the problems persist and are quite evident in North America and Europe.

Consumer pull-back on discretionary spend – the concern of not having an income in the future when the government subsidies come to an end – is causing savings rates to soar. Imports and exports have declined. In March 2020, Canadian imports declined 3.5% and exports declined 4.7%.

There is silver lining to this story. Technology is playing a key role in allowing companies to manufacture goods, at lower cost and more efficiently near home markets (see our podcast with Jay Myers and Canada’s manufacturing super-clusters). Over time, domestic manufacturers will become stronger exporters themselves.

© 2020 Elevate Export Finance Corp.

Phone: (833) 203-4426    Email: info@elevatefinance.ca

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