Canadian logistics firms scramble as tariffs disrupt supply chains

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Canadian logistics businesses are scrambling to adjust to the new realities of the U.S.-Canada tariff war, battling rising costs, trade route disruptions and possible job losses as they recalibrate their operations.

The uncertainty of the past months has been a challenge for the industry, which relies on long-term trade agreements and yet must react nimbly to changing demand. Tuesday’s imposition of sweeping tariffs from the U.S. marked the start of a new, volatile supply environment, industry leaders say.

Across the diverse supply chain industry, some companies have been able to be pro-active in preparing for the onset of tariffs, but many have been left on hold waiting on decisions from suppliers and manufacturers.

“There’s a scramble on both sides of the border to figure out what the impacts are going to be,” said Julia Kuzeljevich, director of policy at the Canadian International Freight Forwarders Association, a non-profit representing the shipping industry.

While businesses surged to bring items over the border before the March 4 deadline, she said, now shipping is expected to slow immediately as companies seek to mitigate the effect of the tariffs. While freight transporters are relatively agile, she said, they can expect added cost to their transactions as they adjust.

“We are in a trade war, and it is very uncertain what will transpire over the next several weeks, whether this will be a long-lasting event or whether these tariff impositions will suddenly reverse,” she said. “That cost of uncertainty is hard to measure.”

Among producers of wooden packaging, which conveys most of the products moving through the Canadian supply chain, the mood is “gloomy at best,” said Scott Geffros, director of the Canadian Wood Pallet and Container Association.

“From what I am hearing today, our members are busy discussing the future with their clients. A common theme is that many companies dependent on U.S. exports are considering temporarily mothballing Canadian operations, moving operations to the U.S., or even facing the reality of having to close their doors,” he said.

Short term, he said, companies in the industry – which is at the mercy of the needs of Canadian manufacturers and exporters – will focus on managing the ebbs and flows of demand, but if volumes of shipped goods decrease, the wood packaging sector will suffer casualties, he said. In the long term, this could drive up the price of pallets, a cost which could make its way to consumers.

Reduced product volume could also have an immediate impact on jobs, warned Mike Millian, president of the Private Motor Truck Council of Canada. With 120,000 Canadian drivers relying on cross-border trade, Mr. Millian expects some trucking companies will have to cut jobs if product volumes fall. “Plain and simple, some will just go out of business,” he said.

While the organization has joined in on advocating for lowering barriers to interprovincial trade, internal routes alone won’t be enough to replace those volumes entirely, he said. “And once you lose people from the industry, it’s hard to get them back.”

For many manufacturers, importers and exporters, the question now is whether to take on the costs of adjusting their supply chains, or hold existing agreements under the hope that the tariff war won’t last.

Paul Glionna, vice-president at Universal Logistics, which handles transportation and customs brokerage, said his company has been fielding urgent calls from businesses debating if they should absorb the costs or overhaul their supply chains.

“Right now, our clients are weighing that out versus wondering how long is this tariff war going to last. Because there’s a big cost involved in the tariff war, but there are big costs involved in switching your supply chain, too. It’s a balancing act.”

The 30-day reprieve from the initial February date was not enough time for companies to redesign their supply chain, he said. In reality, finding new vendors requires six months, on average. On Thursday, the U.S. issued another pause on tariffs on goods from Canada and Mexico that comply with the North American free-trade agreement until April 2.

And as a customs broker, Universal is now speaking with customers to address another change, he said. While some U.S. customers have typically paid any tariffs directly to the U.S. government, in other cases, Universal pays them upfront and is reimbursed later. With the 25-per-cent tariff now being applied, that means a lot more money flowing through the company – and therefore more risk.

“If everyone’s paying, there’s no problem. But if that company goes out of business and declares bankruptcy, you still owe the duties and taxes. It can come to us quickly. And unfortunately, you will see some bankruptcies out of all this,” Mr. Glionna said. “We want to help them through all this, but we’re also not a bank.”

Indeed, customs brokers will be among the most impacted in the weeks to come, as they rush to update their databases to capture and declare new duties and taxes electronically, said Scott Sangster, general manager of global logistics service providers for The Descartes Systems Group Inc. The Waterloo-based company produces supply chain management software.

This will continue to be a challenge, as the tariff rates from the U.S. and retaliatory tariff rates from Canada could change further as the countries’ leaders continue negotiating terms. If the required product information doesn’t arrive in time for security screening, that could create delays moving items across the border, he said.

“Sometimes the movement of the data is almost as important as the movement of the goods,” he said.

Some Canadian companies have been actively considering logistics changes for months. Since the threat of new tariffs was first introduced in the fall, Toronto-based software company Kinaxis has seen a doubling in the number of supply chain “what-if” scenarios that customers are running daily on its supply chain platform, according to Mark Morgan, the company’s president of commercial operations.

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One Canadian manufacturer has already seen the effect of such shifts on their bottom line. Mosaic Manufacturing, also based in Toronto, produces fully automated 3D printing systems that fabricate parts for industries such as medical, automotive and heavy machinery on-site, reducing the dependence on imports from China, now made more costly by U.S. tariffs.

Mitch Debora, Mosaic’s co-founder and chief executive officer, said the company is experiencing a surge in demand as U.S. businesses shift to onshore production, with the company expecting to set a sales record in the first quarter.

However, the company hasn’t emerged totally unscathed. As Mosaic’s products are made in Canada, they are subject to the 25-per-cent tariff for American buyers, the company’s main market. “That’s a barrier to sell. So that hurts the economics,” he said. Despite this, many customers are willing to accept the added cost in order to reduce reliance on overseas producers, he said.