Donald Trump’s tariffs have wreaked havoc on the Canadian economy. And, as Prime Minister Mark Carney keeps reminding us, there is no going back. This is the new reality.
Many of Canada’s major industries have been affected. It started with steel, aluminum, energy, and autos, then came copper and new tariffs piled on softwood lumber. More recently, furniture, cabinets, and trucks have been targets. Small businesses have been hit by the elimination of the de minimis exemption that allowed packages worth less than $800 to be sent duty-free to the U.S.
There’s undoubtedly more to come. Mr. Trump has now taken to slapping on new tariffs any time someone annoys him. Brazil has convicted a former president Mr. Trump liked? Fine, we’ll hit you with a 50-per-cent tax on imports. Ontario has created an ad that used a portion of a Ronald Reagan radio speech to promote free trade? The prize is a 10-per-cent tariff increase and a suspension of trade negotiations with Ottawa.
Many companies are caught in the crossfire, including some who don’t export any goods at all to the U.S. One example is Waterloo, Ont., based Descartes Systems Group DSG-T. It’s in the business of providing a wide range of information and solutions for companies involved in global trade.
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The company’s stock, which posted a 47-per-cent gain last year, is off 17.4 per cent year-to-date in the light of what CEO Edward J. Ryan referred to the “very challenging market conditions” faced by Descartes and its clients.
Ironically, Descartes’ revenue and profits in the first half of the year showed respectable gains. The market’s negative view of the stock appears to be based on the concern that global trade will continue to slow, cutting into the company’s future business.
Mr. Ryan doesn’t think that will happen, despite the escalating trade wars.
“Our customers continue to face uncertainty in the costs of sourcing and moving goods across borders,” he said. “This has also impacted their ability to make pricing and investment decisions in an uncertain economic environment.
“For our customers, Descartes is a trusted provider to help them deal with the complexity of changes in trade relationships, tariffs, sanctions and modes of transportation. Descartes’ Global Logistics Network of technology and connected parties continues to be relied on by shippers, carriers, and logistics services providers to keep goods moving.”
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The World Trade Organization now expects the volume of global merchandise trade to decline by about 0.2 per cent this year. If there is further escalation, for example more reciprocal tariffs, such as those Canada announced for automakers GM and Stellantis last week, the drop could be as much as 1.5 per cent.
Descartes is in an unusual position. The more complex global trade rules become, the greater the need for its services. But the lower the volume, the less the potential demand.
The stock has been on the recommended list of my Internet Wealth Builder newsletter since 2017. Here is an update.
Descartes Systems Group (DSG-T)
Originally recommended on Oct. 30/17 at $37.83. Closed Friday at $135.61.
Background: Descartes provides on-demand, software-as-a-service solutions focused on improving the productivity, performance, and security of logistics-intensive businesses. Customers use its services to route, schedule, track, and measure delivery resources; plan, allocate, and execute shipments; rate, audit, and pay transportation invoices; access global trade data; file customs and security documents for imports and exports; and complete numerous other logistics processes. The company’s headquarters are in Waterloo, Ont., and Descartes has offices and partners around the world.
Performance: It’s been a choppy year, but the trend line is down. The stock is off over 17 per cent year-to-date. We recommended taking half profits in March, 2023, when the shares were trading at $103.27, giving us a gain of 173 per cent to that point. This means we have a guaranteed profit no matter what the stock does from here. The stock is up 258 per cent since the original recommendation.
Recent developments: The impact of Donald Trump’s tariffs on world trade are affecting Descartes’ business, although the company was still able to report increases in revenue and profits in the second quarter of fiscal 2026 (to July 31).
Revenue came in at $179.8-million, up 10 per cent from $163.4-million in the second quarter of fiscal 2025 and up 7 per cent from $168.7-million in the previous quarter. Note that the company reports in US dollars.
Net income was $38-million ($0.43 a diluted share), up 10 per cent from $34.7-million last year. Net income as a percentage of revenue was 21 per cent, consistent with last year’s result.
Revenues for the first six months of the fiscal year were $348.6-million, up 11 per cent from $314.8-million in the same period a year ago. The bulk of the business is services revenue, which was up 14 per cent to $323.4-million (93 per cent of total revenues). The balance was made up of professional services and other revenues of $24.6-million (7 per cent of total revenues) and license revenues of $0.6-million (less than 1 per cent of total revenues).
Acquisitions: Descartes has grown both organically and by acquisitions and the company announced the purchase of two more related businesses.
On June 18, Descartes acquired all the shares of PackageRoute Holdco, Inc., a leading provider of final-mile carrier solutions. The purchase price was approximately $1.9-million, net of cash acquired, which was funded from cash on hand.
On Aug. 1, it purchased all the shares of Finale, Inc., a U.S.-based provider of cloud-based inventory management solutions designed to support ecommerce businesses across their growth lifecycle. The purchase price for the acquisition was approximately $40-million, net of cash acquired, which was funded from cash on hand, plus potential performance-based contingent consideration of up to $15-million based on Finale achieving revenue-based targets over the first two years postacquisition.
Outlook: The company did not update its forward guidance, but the evidence of a slowdown in world trade, which is the core of its business, is evident in the falling share price.
Action now: Hold.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.