Supply chain disruptions in Canada worsened in December as businesses continued to be hindered by the fallout from flooding in British Columbia and a shortage of workers.
The RSM Canada Supply Chain Index stands at 2.17 standard deviations below zero, down from 1.47, in a sign of just how persistent the supply chain woes have been.
Although the index remains above the pandemic lows reached in the summer of 2020 and early last year, the index has recently showed a downward trend in supply. And the spread of the omicron variant could post further strain as COVID-19 restrictions are imposed.
The index declined in December because of a deterioration in delivery times and increasing delivery prices as floods and landslides in British Columbia wreaked havoc on the province’s road and rail network. The infrastructure is being rebuilt, but this is not a task that can be accomplished overnight.
The worsening index came about also as a result of a tightening labor market, where the shortage of workers, from warehouse employees to truck drivers, further strained the system.
We have updated the index to include capacity utilization, which refers to the extent to which companies use their productive capacity. Early in the pandemic, in the summer of 2020, capacity utilization in Canada plummeted in the wake of reduced demand and strict COVID-19 rules. By the summer of 2021, capacity utilization had almost recovered, only to fall slightly toward the end of the year.
Now, as the omicron variant spreads, many restrictions are being reimposed, resulting in large numbers of workers having to isolate. The health of the supply chain might stay well below the efficiency level for a few more months.
The takeaway
Historical data suggests that there are structural problems in the global supply chain. In recent decades, the index has plunged following major economic fluctuations including the dot-com bubble, the financial crisis and now the pandemic. Because of this, companies would need to adopt structural solutions like finding alternative sources of materials, rather than continuing to use the just-in-time approach.
