Canadian businesses continue to see challenges ahead, even as vaccine rollouts and reopening plans have improved sentiment across the board. While the pandemic has yet to recede fully into the background — indeed it appears that it will remain a credible threat for some time to come — Canadian businesses see even more challenges on the horizon.
“The rising cost of inputs, including labour, capital, energy and raw materials, was the most commonly expected obstacle over the next three months (37.8%), up from 25.5% of businesses that expected this to be an obstacle last quarter,” according to Statistics Canada’s Survey on Business Conditions for the second quarter. As many as 60% of businesses in the construction, agriculture and manufacturing sectors reported rising cost of inputs as a major obstacle to future growth.
COVID-19 has upended global supply chains, with long-established logistics infrastructure in the midst of major upheaval, leading to higher costs and delays. The latest Drewry Composite World Container index, which tracks shipping costs across the world, has surged 293% in a year — its highest level since the shipping consultancy started tracking the index in 2011. Costs to ship goods from Shanghai to New York has jumped 178% over the past 12 months, while Shanghai to Los Angeles rose 238%. The cost of shipping a 40-foot container from Shanghai to Rotterdam rose to US$10,174, up 3.1% from the week of May 24 and a 485% increase compared to the same period last year.
Wholesalers and retailers are reporting months-long delays for shipments from suppliers in Asia. Canadian manufacturers are scrambling to source raw materials, paying elevated prices for scarce commodities and passing those costs along to customers.
Pressure on North American supply chains has been building since last summer. Now rising transportation, storage and commodity prices are showing up in producer and consumer prices, just as large parts of the economy are preparing to reopen and concerns about inflation are on the rise. The question for importers and central bankers alike is whether these disruptions are temporary, as the network of global manufacturing and trade resets after the shock of COVID-19, or whether capacity constraints and backlogs will feed into more permanent price increases.
Supply-chain constraints are hitting smaller companies particularly hard, as they face both higher freight prices and difficulties securing space on container ships. A survey published by the Canadian Federation of Independent Business found that small companies plan to raise their prices by an average of 3.3% over the next year, which is the highest reading since data collection began in 2009.
The Canadian Imperial Bank of Commerce is also warning that bottlenecks in both the manufacturing and construction could cap the pace of the North American economy which is expected to boom post-pandemic. “There are goods backed up in overseas ports due to a shortage of ships, and the earlier blockage in the Suez Canal,” stated Avery Shenfeld, economist at CIBC, in a report, noting that manufacturers of everything from cars to appliances are waiting for the computer chips they run on.
“Construction labour availability is stretched amidst a housing and renovation boom, and if the workers are there, the new kitchen cabinets might not be. Some industrial metals are in short supply due to earlier COVID-related snafus in mining. Expanding lumber supply faces barriers due to the lack of the requisite machinery.”
Recruiting skilled labour was another key issue for nearly 28% of all businesses, especially in manufacturing, construction, retail and accommodation and food services sectors. “In addition, shortage of labour force (23.8%) and retaining skilled employees (22.1%) were expected obstacles for over one-fifth of businesses,” Statistics Canada noted.
Finally, businesses were also worried about attracting new customers and retaining their customer base, with nearly 28% viewing this as a major issue. The anxiety is understandable given that COVID-19 has altered consumer habits — perhaps permanently.
Overall, the business community’s mood appears to be subdued over the period, with most businesses not sharing consumer’s optimism. Over the next three months, a third of the businesses surveyed by Statistics Canada expect their profitability to decline, with a quarter forecasting their revenues to decrease.
One-fifth expected to increase the prices they charge and three-quarters expected their number of employees to remain the same, according to respondents who were surveyed by Statistics Canada between April 1 to May 6. “Businesses were concerned with future survival and expected to face a variety of obstacles in the short term.” Still, 77.6% of businesses expected their number of employees to remain the same.