There's no doubt that manufacturers across Canada and the globe are facing difficulties adapting to the changing industrial market, just like many other sectors.
While the Canadian government has implemented emergency support programs such as the Canada Emergency Wage Subsidy, it will take time for the sector to return to pre-pandemic levels of production. In fact, only 30 percent of manufacturers have seen their production return to pre-pandemic levels, and merely an additional six percent think they will reach there soon. To illustrate the effects of COVID-19, the Canadian Manufacturers and Exporters (CME), along with BDO Canada, interviewed 563 manufacturing leaders in 19 different industries and compiled their experiences in the 2020 Management Issues Survey.
Ontario, otherwise known as Canada's manufacturing heartland, is home to about half of the country's manufacturing companies—with 57 percent consisting of small businesses employing less than 100 workers. The companies range from the food and beverage industry (22 percent), fabricated metal products (20 percent), and machinery and equipment (11 percent). As a leading export contributors, Canadian manufacturers believe that the U.S. offers the best opportunity for growth, even during the pandemic.
“This year has been a year like no other for Canadian manufacturers, with the combined impact of a rail blockade early in the year, U.S. tariff uncertainty, Brexit, and of course the wide-ranging impact of a global pandemic and the resulting recession,” said BDO Canada's National Manufacturing and Distribution Leader David Linton. “It has brought into sharp focus many of the issues that previous CME Management Issues Surveys have highlighted: the need to invest in technology to remain competitive, the challenge of attracting and retaining skilled workers, and the challenges of operating in a global economy.”
According to CME, the largest trade and industry association in Canada, the manufacturing sector has rebounded since the first lockdown at a somewhat faster pace than the overall economy.
“Many manufacturers suffered a simultaneous fall in demand and rise in supply chain disruptions in the early weeks of the pandemic,” said Alan Arcand, chief economist at CME. “While the overall industry experienced a strong rebound coming out of the lockdown, activity has cooled markedly in line with exhausted pent-up demand and the second wave of infections. Not surprisingly, our survey found that more manufacturers have seen their production decrease on a year-over-year basis than those that have seen it increase.”
Many companies have increased their use of remote work, e-commerce, automation, and physical distancing amidst the pandemic. While 60 percent of respondents said they look forward to adopting online sales and automation after the pandemic, they also stated that physical distancing has hindered their businesses. Manufacturers have also spent a whopping $201,500 on personal protective equipment (PPE), and these costs continue to rise as the pandemic drags on to its 11th month.
However, manufacturers still face many challenges, including labor shortages and a lack of government support, while also balancing the second lockdown.
With COVID-19, Canadians are facing a record unemployment rates. Many are staying at home due to their fear of the virus, as well as obligations around childcare. Unemployed citizens and residents are relying on the Canada Emergency Response Benefit (CERB) and its successor, the Canada Recovery Benefit (CRB). With this said, 60 percent of manufacturers have stated that they are experiencing immediate labor and skills shortages, down from 70 percent in the previous year. More than half of Canadian manufacturers are also having difficulty recruiting skilled trades professionals as well as for general labor or assembly positions, a problem that could last the next five years. Many have tried paying higher wages, increasing their efficiency, and outsourcing to fill positions, which entails higher and consistent unemployment rates across Canada.
There is also an ever-growing need for specialized training as technology improves in advanced manufacturing.
“[The labor shortages] are limiting manufacturers' ability to innovate and invest in technology. The reason for this is simple: as advanced manufacturing technologies become more commonplace and as production processes grow ever more sophisticated, the skillsets that businesses need are changing rapidly," said Arcand.
“Canadian manufacturers have lagged other G7 countries in investment in technology for several years,” added Linton. “The report shows that many still have challenges deploying technology, citing cost, lack of skilled workers, and lack of sufficient financial and tax incentives. More respondents say that government tax and regulatory policies have become less rather than more supportive over the past three years.”
Manufacturers are relying on the government and post-secondary institutions to develop better programs and training for a skilled workforce. In fact, about 52 percent of respondents stated that they need the government to implement better education and training since current programs leave gaps in today's manufacturing needs. Many manufacturers worry that the shortage of skilled workers is limiting their ability to expand production.
They are calling on the government to step in and lower payroll and other corporate taxes, something 40 percent of respondents agree on. Manufacturers are also asking for tax credits for new capital, machinery, and equipment to match the tax incentives in place in the United States. Other policy changes include rewarding growing companies instead of small businesses, cutting red tape on business growth and competitiveness, and modernizing regulations.
Under the Paris Agreement, the Canadian government aims to reduce greenhouse gases by 30 percent below 2005 levels by 2030, as well as achieve net-zero emissions by 2050. According to the U.S. Department of Energy, advanced manufacturing produces 1,064 cumulative million metric tons (MMT) of CO2e. Thus, manufacturers must take action to deter the risks of climate change. Around one in five manufacturers have made changes to implement their own environmental policies, while 70 percent have yet to start on their plans.
To increase the number of companies supporting Canada's environmental targets, manufacturers are looking to the government for help. With the recent rise in climate change policies and awareness, it is more important now than ever to create policies that help manufacturers. Only 11 percent of respondents feel that environmental policies surrounding manufacturing have improved over time, and one in five respondents feel that they are lacking support—down from nearly one-third year-over-year.
Manufacturers want to see investments in measures to reduce greenhouse gases. They are also asking for funding programs that increase the use of recycled raw materials, new recycling technologies, and domestic recycling capacity as well as offering incentives to those that reduce plastic waste.
Luckily, global carbon emissions have already started to drop due to the lockdowns and decreases in manufacturing activity during the pandemic.
“COVID-19 is clearly having a profound impact on all aspects of our lives, including on the economy and the manufacturing sector. Some of the specific ways in which the virus is affecting manufacturing are explored in this survey,” said Arcand. “Nevertheless, even when these temporary factors are behind us, there is no doubt that Canada's manufacturing sector will continue to struggle with labor and skills shortages, and they are acting as a serious impediment to growth.”
The manufacturing sector has a huge task ahead of it as the pandemic comes to an end, increasing Canada's global competitiveness by restoring the manufacturing sector.
What are your thoughts about the future of manufacturing in Canada?