The RSM Canada Supply Chain Index in February continued to show stress in the economy, measuring 1.89 standard deviation below normal and little changed from January.
For a while, conditions looked promising as the economy recovered from the omicron variant’s spread. Yet this progress was offset by blockades on the Canada-United States border, which placed a serious strain on Canada’s supply chain and has had a lingering effect.
The protests blocked the busiest border crossings, including at Windsor, Ontario, and Coutts, Alberta. This resulted in serious delays in the delivery of goods and increased delivery prices as commercial vehicles had to drive hundreds of kilometers to alternative border crossings. The auto industry, which relies on the seamless daily crossing of parts, came to a halt.
Unsurprisingly, the Ivey purchasing managers’ index indicates that February’s deliveries were slower and prices were higher. Meanwhile, PMI, wholesale, and manufacturing inventories all improved.
By the end of last year, the health of the supply chain began to improve, and there were signs that a recovery would take place by the middle of this year.
But a series of global geopolitical and social events have changed that. As a result, we do not expect major improvements in the supply chain in the coming months.
Russia’s invasion of Ukraine introduces new disruptions, including soaring energy and commodity prices, and struggles in the food supply chain around the world.
Europe’s auto industry in particular took a major hit as certain auto parts such as wiring harnesses are produced only in Ukraine. Without that, cars cannot be completed and be placed on the market.
Last week, China imposed a lockdown in Shenzhen, a key manufacturing hub and home to one of the busiest ports in the world. Other cities in China might go into lockdown as the omicron variant spreads across the country. This will hurt the manufacturing and delivery of goods in Canada.
The takeaway
These challenges will delay the recovery of the supply chain until the end of this year or into next year. But as consumers face high inflation, demand will weaken, which could help alleviate pressures on the supply chain.
