Lessons from the border blockade

by Jacob Stoller

The Ambassador Bridge that connects Windsor and Detroit reopened shortly before midnight on Sunday, February 13, two days after the City of Windsor was granted a court injunction to remove protesters who had blocked the roadway since Feb. 7. But the damage was done – economic losses from the six-day shutdown are estimated at nearly $1 billion, and repercussions are likely to last for months.

Automotive assembly plants, already struggling with a global semiconductor shortage, were the hardest hit. Unable to receive parts, plants on both sides of the border had to close down entire shifts.

“The blockage of the Ambassador Bridge was impactful for everybody, not just the automakers, but also the supplier community,” says David Adams, president of Global Automakers of Canada. “And it wasn’t just components and parts coming into Canada. There were facilities that were impacted as well with parts coming from Canada. So it was very problematic.”

In other sectors, the blockade was just one more supply chain disruption. In a study released in March by Canadian Manufacturers and Exporters (CME), 44 percent of manufacturers surveyed stated transportation is the biggest problem impacting their business. The trend is affecting companies of all sizes.

“It’s been difficult to get trucks, cross border and domestically,” says Michelle Laframboise, co-owner of Clearwater Design, an Ontario-based family-owned manufacturer of canoes and kayaks. “We have a plastic supplier in the U.S. that tried to book trucks, and seven times in a row they didn’t show up.”

According to the CME study, 60 percent of respondents have experienced major to severe disruptions, costing Canadian manufacturers $10 billion in lost sales since Feb. 2020, and adding $1 billion to their costs. Looking ahead, only 15 percent believe supply chain disruptions will cease by the end of 2022.

Single points of failure

The success of the blockade highlights how easy a target the Ambassador Bridge was for disruptors. “It didn’t take much to block $60 million in auto parts, and $400 million overall each day,” says Adams. “This underscores that there is no redundancy around the Ambassador Bridge for the volume of traffic that’s going through.”

A second span, the Gordie Howe Bridge, is currently under construction, but will not open until 2024. Many have said this is long overdue.

Disruptions of major corridors are rare, but this was not unprecedented. The railway blockade near Belleville, Ontario, and the 12-day Port of Montreal strike in 2020 are recent examples. This, however, was the most severe in recent memory.

On February 10, industry groups, fearing a prolonged shutdown, teamed up with the City of Windsor to seek the court injunction that led to police dismantling the protest.

“This was unique because it was such a significant bridge that was blocked, and to have a protest there that didn’t appear to have a time limit made it a particularly new challenge,” says Brian Kingston, president and CEO of the Canadian Vehicle Manufacturers Association (CVMA).

Trade issues

Concerns about the blockade were heightened by its potential impact on Canada-
U.S. trade. “That bridge handles 27 percent of Canada’s overall trade with the U.S.,” says Adams.

The implications go far beyond the volume of goods that cross the border. Thanks to Canada-U.S .free trade agreements, automotive manufacturers have built a tightly integrated supply chain that seamlessly includes both countries.

“The reality is that if you’re manufacturing a car in Michigan, or in Ontario, by the time it rolls off the lot it has acquired parts that have crossed the border multiple times,” says JF Champagne, president of the Automotive Industries Association of Canada, “so there is no real barrier.”

A particular concern is that Canada has far more to lose than the U.S. “It’s really important for Canada, more so for us than the U.S., because 30 percent of our GDP comes from exports,” says Dennis Darby, president and CEO of CME. “The United States, which is our greatest trading partner, exports around 10 percent of their huge domestic economy. So they can absorb an awful lot of their production.”

With protectionist sentiment growing in the U.S., Darby is concerned about maintaining Canada’s reputation as a reliable trading partner. “As the U.S. focuses more and more on shortening the supply chain and reshoring,” says Darby, “we want Canada to be seen by not just the American government, but American industry, as a reliable partner that they can count on.”

CME has long advocated federal legislation that would make it illegal to block trade corridors, Darby notes.

The aftermarket keeps pace

The automotive aftermarket, the $39 billion industry that keeps 26 million Canadian vehicles on the road, fared far better than the OEMs at weathering the blockade.

“Our members did experience some longer lead times from what I call the bridge protest,” says Chris Gardner senior vice-president, operations, Automotive Aftermarket Suppliers Association (AASA), “but we were able to manage the disruption and meet customer requirements.”

“When you think of Covid and the disruptions we had recently, those two events really showed the resilience of the aftermarket,” says Champagne.

The key difference is that the OEMs work on a low-inventory just-in-time model, while aftermarket producers have to be ready to provide parts on demand for virtually every vehicle on the road.

The approach is an absolute requirement for the sector, which maintains an average order fulfillment rate of around 95 percent. “Once your automotive service provider has your car up on the lift, it’s not really cost effective if it stays there for two weeks,” says Champagne. “So that’s driving the business to be very effective and able to forecast in advance. If a car breaks down, there’s probably some intelligence in the system that already knows that this is a particular part that tends to fail on that particular type of vehicle.”

Another headache

“The blockade at the Ambassador Bridge was yet another headache for us,” says Paul McCarthy, AASA’s president and chief operating officer. “Our members talk about this being a game of whack-a-mole. We didn’t expect this one to come up, but it just seems like business as usual these days – another crazy obstacle to us being able to meet customer demand.”

Covid, the chip shortage, port disruptions in Los Angeles, Vancouver, and elsewhere, inclement weather, high gas prices, and labour shortages have all created challenges that the aftermarket has had to circumvent. “And if that wasn’t enough, we’re in a period when demand is way up,” says McCarthy.

“We all know disruptions are going to happen,” says Gardner. “But one of the lessons we learned from the pandemic is that we need better visibility to data up and down the supply chain, and better collaboration and communication with both customers, our channel, and our sourcing partners. So that’s being communicated more clearly and more frequently with customers now than ever before.”

Is inventory the answer?

OEM vulnerability to the blockade is causing some to question the just-in-time approach, which has been the de facto standard for automotive manufacturing for several decades. What’s often misunderstood, however, is that just-in-time is not just a supply chain strategy, but a production strategy that has yielded enormous efficiency gains for the industry.

“These events don’t mean that just-in-time doesn’t work,” says Kingston. “This model has been highly effective and efficient, and the automakers have perfected it. Yes, we’ve had unique challenges over the past few years, but I would categorize these as black swan events. There’s no doubt that going forward there will be some more redundancies built into supply chains, but I don’t think it leads to a conclusion that just-in-time is no longer feasible.”

“I think it’s caused people to think that this isn’t really maybe the well-oiled machine that we think it is,” says Adams, “and there are a number of vulnerabilities in the supply chain. So we have to figure out how we’re going to harden that supply chain and make it more resilient.”

Kingston predicts that CEOs who took their supply chains for granted will be consulting their logistics people more frequently. “I think there is a realization that the very efficient supply chain that we relied on has shown that it doesn’t have a lot of slack,” he says.

Looking ahead

One of the big priorities in the U.S., supported by significant government initiatives, is the reshoring movement, which seeks to establish domestic production capabilities. Building semiconductor chip facilities is the most ambitious of these efforts.

Canadians aren’t so optimistic. Only 28 percent of manufacturers said that they are likely or very likely to relocate or scale-up production in Canada in response to supply chain disruptions, compared to 47 percent that said this was unlikely or very unlikely.

“We’ve asked whether this is the right time to rebuild manufacturing capacity, and the feedback I’ve gotten from our members is that it’s easier said than done,” says Champagne.

Labour costs, small population, and government red tape are factors working against that. “We hear announcements that we’re going to rebuild manufacturing capacity here, but we haven’t seen this. So I’m not optimistic.”

For now, the priority is to make sure Canada doesn’t get shut out by U.S. reshoring efforts. “We want to be inside the tent with Americans because we know them so well, and we basically have been trading with them for 150 years,” Darby says.