LEADERS: What a slow growing economy means for airfreight

A sluggish global recovery, excess capacity and increasing security legislation are creating headwinds for airfreight carriers. At the recent Supply Chain Canada conference Lise-Marie Turpin, vice president, Air Canada Cargo; Jim Ramsay, vice president international freight forwarding, UPS Canada; and Jeffrey Cullen, president and CEO North America, Bellville Rodair International, discussed how the industry is coping and evolving.

CT&L: The Canadian economy appears to be slowing. From what you are seeing from your own  customer activity in the domestic and global markets, does this appear to be a minor hiccup or does it reflect more serious damage to the Canadian economy and global trade?

Turpin: We are noticing a slowing in the economy in general. A lot of indicators are a bit worrisome. But we are very dependent on what happens south of the border and in the US there appears to be some slow but steady growth occurring. The housing market has improved, the automotive industry is selling cars. So there are good news that should help in the longer term but there is always a gap between what happens in the US and what happens in Canada. I think we will get through this eventually but all indications when I speak to customers from around the world in different industries, is that things will be flat with hopefully a bit of an improvement towards the end of the year and in 2014.

Ramsay: Certainly it is hard to predict and get a good feel for where everything is going but I always keep in mind the resiliency of the Canadian entrepreneur and the ability of Canadian companies to adapt. Some of the surveys we’ve conducted show that in 2013, three out of five business leaders expect their business to be higher than the previous year. That’s a good signal.

The other aspect to consider is what is going on in the emerging markets and how is Canada positioning itself to shift a little bit away from its reliance on the US.  There are predictions that by 2025 trade with the US will be declining but the decline will be offset by trade with nations such as China, Brazil and India. There is a lot of fluctuation. The Canadian economy is going through some dramatic changes and it’s a great opportunity for people to be looking at their supply chain to take advantage of things going on outside Canada.

Cullen: I would like to share my perspectives on two market verticals we are in: retail and automotive. On the retail side, we are seeing a slowdown in the fashion sector in Canada. The numbers are flat. We are seeing increasing competition with US chains, such as Target, entering the Canadian market. I think that’s going to give shoppers more of an opportunity to value shop, which aligns with price shopping. The challenge for retailers will be maintaining margins, which trickles down through the whole supply chain. Price pressure on the retail side of things is going to place price pressure throughout.

In the luxury retail sector, volumes are flat or slightly lower than in 2012. The expectation is that we are going to see that continue through the rest of 2013 but we are seeing expansion into the sector despite that. Nordstrom is coming to Canada , which is going to put pressure on  the Harry Rosens and Holt Renfrews of the world, and The Bay as it morphs itself into the upper end of things. We are seeing Harry Rosen and Holt Renfrew respond to the pressure by opening new retail outlets and looking at new branding.

The other big thing we are seeing in the luxury market is the slowing of the market in Asia, which is significant for global trade. When I say slowing in Asia, they are just not getting the percentage growth we have been expecting and need to drive success for luxury retailers. That is a worrying factor because most of the luxury world has placed such a focus on Asia evolving into a more sophisticated consumer market.

On the automotive side right now, Canada is on fire. It can barely keep up with demand. The fear that I have, and share with a number of people, is that this is going to be short lived because we aren’t seeing the investment being made here in Canada in manufacturing by the automotive companies. They are investing in Mexico and the US. One of the biggest challenges we have is how to go about developing a manufacturing base here in Canada again and it has to be a 20 year horizon. The challenge for the logistics sector is that we don’t have a six month view, never mind a 20 year vision, so how do we engage with the automotive sector in a way that is not just reactionary?