Three forces reshaping the future of Canada’s supply chain

The three major forces shaping the Canadian supply chain continue to compel leaders to prepare for today and, more importantly, for the next several years.

Whether it’s how artificial intelligence and automation are changing the way companies look for new talent, how the ongoing conflict involving the U.S. and Iran is stressing supply chains, or how negotiations — or the lack thereof — for a renewed Canada-U.S.-Mexico Agreement (CUSMA) remain up in the air, today’s supply chain leaders must be adaptable during a time of uncertainty.

The Strait of Hormuz

As news shifts from positive to negative seemingly by the hour, Jackson Wood, director of industry strategy, global trade intelligence for Descartes Systems Group, says the situation involving the Strait of Hormuz is unlikely to see a resolution anytime soon.

“Given the rhetoric surrounding possible tolls and other ‘management’ charges that may apply going forward, it’s safe to say that ongoing disruptions will likely remain in the cards for some time,” said Wood. “With that in mind, it’s unlikely that costs for those products/services will decline to pre-conflict levels in the near- to medium-term.”

Wood says geopolitical disruptions such as the Red Sea crisis, the war in Ukraine and the U.S.-Iran conflict have resulted in trade-lane congestion, forcing those in the supply chain to shift sourcing strategies and reshaping global supply chains faster than many organizations can react.

“As the ongoing volatility in the Strait of Hormuz demonstrates, logistics networks can change dramatically in a relatively short period of time, creating new risks, and new opportunities, for importers, exporters, carriers and supply chain professionals,” he said. “Companies should use this event and global trade shock as a trigger to strengthen diversification and scenario planning to better manage ongoing global trade volatility in general.”

Canadian industries that are fuel- and freight-intensive, import-dependent and margin-sensitive are being impacted the most by an unstable Middle East, according to Wood.

He says Gulf exporters are using alternative routes to avoid the Strait of Hormuz, including the Red Sea, the Gulf of Oman, Mediterranean ports, and overland rail, truck and pipeline networks.

“Trade diverted from Hormuz is creating new pressure on other global chokepoints, including the Panama Canal, Bab el-Mandeb Strait and major Indian ports,” said Wood, adding that these alternative routes can also become chokepoints with so many diverted shipments. “Early bill-of-lading data does reveal emerging shifts in sourcing, routing, carrier activity and port utilization. The growth of alternative logistics corridors suggests that some temporary workarounds could become lasting components of global supply chains if geopolitical risks persist.”

Wood suggests that Canadian supply chain leaders remain vigilant when it comes to maritime imports from countries that rely on the Strait of Hormuz, including Iran, Iraq, Qatar, Saudi Arabia and the United Arab Emirates.

“Even short-term disruptions can delay shipments, tighten supply, and create immediate price volatility,” he said. “Canadian shippers should also consider evaluating whether sourcing from other countries of origin and reducing dependence on affected supply chains makes sense to their business and their customers.”

When considering alternative sourcing networks, Wood says companies should look at landed-cost assessments, free-trade agreement qualifications and pricing.

“Companies relying on at-risk product categories should focus on near-term resilience and flexibility,” he added. “This includes increasing visibility into supplier exposure, building buffer inventory where possible and closely monitoring pricing for key inputs.”

CUSMA

Now that U.S. President Donald Trump says he will not seek to renew the trade agreement with Canada and Mexico, CUSMA will enter a 10-year annual review cycle.

“This means the agreement stays in place unless new deals are announced,” said Noah Hoffman, vice-president for Canada with C.H. Robinson.

“Regardless of how the negotiations turn out, what Canadian shippers and carriers want is greater certainty and predictability. As a company that manages more than two million cross-border shipments a year, our customers tell us they need confidence that the rules governing cross-border trade will remain stable over time.”

– Noah Hoffman, vice-president for Canada with C.H. Robinson

Hoffman says healthy supply chains depend on the ability to make long-term decisions about transportation, facilities, equipment and workforce investments.

“To be practical for companies involved in cross-border trade, a modernized CUSMA would also provide clearer definitions and more consistent application of rules, particularly around country-of-origin requirements, so that these businesses can plan, invest and operate with greater confidence,” he said.

Hoffman says a renegotiated CUSMA deal would not only help enhance predictability for shippers but also help them better anticipate future needs and disruptions. He added that companies are facing a growing number of challenges, including the growth of e-commerce, the deployment of new technologies such as AI and changing sourcing strategies.

“They want the next version of CUSMA to enable them to adapt to those changes while preserving the certainty they need to stay competitive,” he said. “For instance, negotiators could add provisions that allow the three countries to review and update operational rules tied to digital trade, supply chain disruptions and emerging technologies without reopening the entire agreement each time.”

Duty drawback rules for goods moving back and forth across shared borders are another issue companies are facing, Hoffman said.

“These rules govern refunds of duties paid on goods that are later exported or incorporated into other products for export, and they were designed during a different trade environment,” said Hoffman. “Today’s North American supply chains are deeply integrated, with products and components often crossing the U.S.-Canada border multiple times and companies paying tariffs multiple times.”

Increasing complexity around U.S. tariffs has also disrupted border operations.

Hoffman said that, before the tariff announcements, products moved quite smoothly across the border in both directions, and a new CUSMA agreement should create clearer, more consistent rules for shippers while also accelerating digitization.

“Reducing reliance on paper documents and improving interoperability between customs systems would lower everyday administrative burdens for our customers and carriers and help freight move more efficiently,” he said. “The simpler the processes, the fewer delays and extra costs shippers will face.”

Hoffman cautioned against a prolonged or contentious CUSMA negotiation process, saying businesses become reluctant to make multi-year decisions, such as facility expansions, equipment investments or industrial hardware purchases, when the future of trade is unclear.

“Uncertainty about the trade environment extends throughout the broader supply chain. It influences where companies choose to source components and raw materials, and how they structure entire manufacturing networks,” said Hoffman. “But no matter what shape CUSMA negotiations take in the months and years to come, trade and manufacturing within North America is likely to remain a source of strength for companies on both sides of the border.”

Technology shaping the industry’s next leaders

Jay Pinniger, a senior recruitment consultant with Lock Search Group, says that over the last five years clients have increasingly asked for leadership talent with more enterprise resource planning experience, as well as expertise in information technology, human resources, finance and procurement.

“Junior- to mid-career-level search projects have been consistent, with clients wanting talent who are continually improving with technology and have the ability to adapt and collaborate in person, which is becoming an expectation again,” said Pinniger.

AI is also changing expectations for warehouse workers.

“Skill-level expectations have decreased for certain material-handling positions, such as operators, as distribution activities are automated with automated replenishment systems and other hands-free material-handling solutions,” said Pinniger, adding that adaptability is becoming a more sought-after skill. “The speed technology is changing leaves today’s experts behind if they aren’t continually looking at new technology and being ready to implement change.”

Much of that change stems from the implementation of AI, which often raises concerns that the technology will replace jobs, something Pinniger says is already happening.

“AI is replacing certain jobs but I haven’t had any clients say it’s reducing their hiring,” he said. “But many clients want talent who can adapt to change, have a continuous-improvement mindset and look for realistic problems to solve.

“[Looking ahead], I believe employers will still want highly productive talent who have a foundation of skills to build on, those who can lead and follow as needed, and again, can adapt and bring energy to seek ways to improve process.”