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Canada’s automotive sector most vulnerable to supply chain disruptions

By 10/09/2020September 11th, 2020No Comments
Automotive sector vulnerable

Car production line with unfinished cars in a row

Disruptions in international supply chains are most impactful to Canada’s automotive sector, according to a federal government report.

Canada’s trade and investment performance expanded in 2019 before a significant drop in March caused by COVID-19 restrictions. The onset of the COVID-19 pandemic severely impacted global trade. In response to the disease, governments around the world introduced containment measures which affected transportation and sourcing of inputs. Canadian industries were affected differently depending on how severe the restrictions imposed by their source trading partner.

According to the 2020 State of Trade report from Global Affairs Canada, the top trading sectors most affected in March 2020 were automotive, electronics, energy and machinery. Overall, trade of Canadian goods shrunk 2.5 per cent in Q1 2020 compared to the same period last year.

However, trade in services performed better. Canadian services exports decreased only 0.3 per cent YoY in Q1 2020, as travel and transportation declines were counterbalanced by higher commercial services exports. Service imports declined 2.8 per cent YoY in Q1 compared to the 5.5 per cent decline in goods imports.

Canada’s automotive sector is most vulnerable to international supply chain disruptions

The report states that greater internationalization of Canadian firms, though they stay competitive with better access to products, talent, and resources, exposes them to shocks from international catastrophes. For example, manufacturing slowed down due to the unavailability of inputs as a result of “lockdowns” and social distancing measures. Canada’s 25 most vulnerable industries account for 9.5% of the output of all industries.

The top-five most vulnerable industries are all in the automotive manufacturing sector. They are:

  1. Automobile and light-duty motor vehicle manufacturing
  2. Heavy-duty truck manufacturing
  3. Motor vehicle steering and suspension components (except spring) manufacturing
  4. Motor vehicle gasoline engine and engine parts manufacturing
  5. Motor vehicle metal stamping

Canada’s automotive industry is our most productive by output, yet also the most vulnerable due to the high reliance on intermediate inputs required to produce a vehicle. China, the production centre of the world, was one of the first countries to institute a lockdown. As Canadian manufacturers have a heavy dependence on China, shutdowns there caused severe shortages in raw materials, components and finished products.

Retail and professional services the least vulnerable to supply chain disruptions

On the other hand, retail, education, professional and other services are demonstrated to be the sectors which are least vulnerable to international supply chain disruptions. The least vulnerable sectors were lessors of real estate, religious organizations, agencies, brokerages and other insurance-related activities, Aboriginal government services, and real estate agents and brokers.

However, just because an industry is considered to be impervious to supply chain disruptions, they still are impacted in other ways. For example, real estate landlords would be impacted by a reduction in the number of international post-secondary students attending a college campus, or people moving to a city from abroad, as it significantly reduces the market size of renters.

What about ICT as a way to mitigate vulnerability?

In order to survive during this pandemic, Canadian firms must adopt new technologies that accelerate their digital capabilities and stay competitive. According to recent data, more Canadians have intensified their online streaming and video chat, and firms that don’t pivot to conduct transactions remotely will be left behind.

How can companies mitigate future impacts?

  • Implement supply chain risk management and business continuity and inventory strategies
  • Diversify their supply chains from multiple countries and sources to reduce single-supplier reliance
  • Establish strong relationships with suppliers to better understand risks
  • Develop agility to maintain demand
  • Invest in supply chain control solutions to predict and respond to issues
  • Consider advanced technologies that reduce costs and provide improved service

 

Does your organization need help navigating uncertainties in this COVID-19 world? Be sure to check out Canada’s COVID-19 Impact Map for information on how our experts can help you better understand the ongoing impact of COVID-19 on your resources and operations, and help steer your organization towards a successful and sustainable recovery.