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Published: 31 January 2009
Canadian logistics costs skyrocket
A recently completed study by the Supply Chain & Logistics Association of Canada has stated that logistics costs for Canadian retailers are disproportionally higher than in the US
Logistics costs for the retail sector rose by 22% over 2005-2007 while the manufacturing sector experienced a 2% rise and the wholesale sector a 2% decline, said the SCLA.
Compared to the US supply chain, management and logistics costs are 30% higher for retailers, 12% higher for manufacturers and 18% higher in the wholesale sector. Some of this can be explained by Canada’s geography and low population density pushing up unit costs, but SCLA’s president Bob Armstrong said that Canada has a “supply chain agility gap” that is pushing costs up.
Inventory turns per year are lower, meaning that less use if made of just-in-time supply chain management. In addtion, pro rata an addtional 50% of logistic activities are outsourced in the US, and even when Canadian companies outsource they often pay too much for transport (mainly trucking). This is because businesses are running “so lean” that they do not have personnel to shop around in the one mode, let alone compare whether short sea shipping might be advantageous.
Armstrong forecast that by 2015 the Port of Prince Rupert would become the main gateway for Chinese imports to Canada, handling around 4M TEU/year.
Strong growth in Chinese imports, however, has not been matched with improvements in supply chain efficiency and the study found that the “unpredictability and variability of that specific supply chain for Canadian retailers has resulted in a sharp increase in their inventory levels and transportation cost.”
Lowering costs to the point where they are more in line with the US will be important if Canada is to achieve its aim of attracting more US-bound cargo for processing and other value-added activities before re-export to the US through the three “gateways” it is spending millions to develop.