Evidence of meeting #103 for International Trade in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was infrastructure.
A recording is available from Parliament.
4:45 p.m.
Liberal
The Chair Liberal Judy Sgro
Thank you very much, sir.
We're moving on to PECO Pallet and chief commercial officer Lisa Vegso.
4:45 p.m.
Lisa Vegso Chief Commercial Officer, PECO Pallet
Thank you, Madam Chair.
My name is Lisa Vegso, and I am the chief commercial officer of PECO Pallet.
I am pleased to be here today to share PECO Pallet's perspective on Canada's supply chain ecosystem and how it impacts international trade for Canadian businesses.
PECO Pallet is a leader in the North American pallet pooling market, with a fleet of over 24 million pallets.
In case you aren't familiar with pallet pooling, PECO rents pallets to manufacturers, who use our pallets to ship their products to retailers where consumers purchase their goods. Once they are empty, pallets are returned to PECO to be inspected, repaired and recirculated within our network.
PECO was founded in the U.S., and as we grew our network, American manufacturers who were using our pallets domestically began urging PECO to allow them to ship pallets to Canadian retailers. There were many challenges along the way as PECO expanded into the Canadian market, due to the market's high barrier to entry, including a high capital investment. PECO has invested nearly a billion dollars in our pool. There was a need for support from retailers who had to agree to accept and return our pallets.
By making these investments, PECO now has long-term relationships with over 700 food and consumer packaged goods manufacturers supplying North American retailers, including club stores, grocery stores and food service providers. Today, PECO is one of the largest pallet providers in North America.
As a cross-border pallet supply company, we experience first-hand any impact on the supply chain. Simply put, everything that you eat, drink and wear travelled on a pallet at some point.
The pandemic demonstrated that there were gaps in supply chains across the world, including in Canada. At a time when pallet availability challenges were rampant, PECO fully maintained its operations across North America while following health protocols and avoiding work stoppages within our facilities, demonstrating our ability to navigate through supply chain disruptions.
In the last 12 months, more than two million of our pallets have moved food and consumer packaged goods products between the U.S. and Canada.
While COVID-19 did create challenges, it also created an opportunity to develop positive change. It resulted in the creation of the supply chain task force and its final report, culminating in the establishment of the national supply chain office. When the initiative was announced, PECO welcomed this review of barriers that were impacting the efficiency of supply chains.
The most important recommendation to ensure strong supply chains would be to maintain and regularly consult with stakeholders through the national supply chain office. By receiving feedback end to end from the many parties involved in ensuring a product goes from production to the store aisle, the government can gain a full scope of the complexities of supply chains. PECO would be more than willing to participate in any consultations moving forward.
Our second recommendation would be to maintain consistency with requirements across North America and to help prepare stakeholders for any expected changes. Canada-U.S. trade relations are uniquely intertwined, and uneven requirements can create additional costs for an already costly process.
The ISPM 15 bilateral exemption between Canada and the U.S. remains in place and eliminates the need to heat-treat wood packaging, including pallets, which facilitates easier and more cost-efficient trade between the two countries. This is just one example of the importance of maintaining consistent policies with our largest trading partners.
In conclusion, PECO supports the committee's commitment to this study and urges the government to prioritize stakeholder engagement with all levels of the supply chain.
Thank you for your time.
4:50 p.m.
Liberal
4:50 p.m.
Conservative
Kyle Seeback Conservative Dufferin—Caledon, ON
Thank you very much, Madam Chair.
I was interested to hear the comments with respect to the reliability of the supply chain, which is something that I think we should talk about. Everyone around the table respects the right to collectively bargain and, of course, the right to strike, but disruptions do have impacts on Canada's supply chain and our reputation as a reliable partner.
I have a couple of questions.
First of all, it would appear that despite having similar players, there aren't as many disruptions in the United States with respect to the supply chain as there are in Canada. Do you think there's a role for the federal government to try and make sure that relationships are moving in the right direction? The U.S. seems to have gotten it right. Are our ports of entry losing business because of our unreliability in the supply chain?
I'd ask if the freight forwarders could answer first, and then perhaps CAFTA could answer afterward.
4:50 p.m.
Executive Director, Canadian International Freight Forwarders Association
Thank you for the opportunity in that question.
Could the federal government do more? I would say yes. When it comes to rail, we found out yesterday that they broke apart in their mediation or conciliation or whatever stage they're at now. They're in a potential to go on strike on May 22. The next date they are meeting is May 13. Why, from May 1 to the May 13, is it taking so long to bring the parties together? That's putting them together, in essence, nine days before a potential walkout.
From a rail perspective, they start gearing down their operations in anticipation of this. It's not that May 22 is going to occur and all of a sudden everything is going to stop; it's going to start to slow down the week before that.
Could the government do more? Yes, we need to get the parties, the right parties, to the table to discuss what the issues are and to come to a satisfactory conclusion overall. That's our position on that particular matter.
4:50 p.m.
Acting President, Board of Directors, Canadian Agri-Food Trade Alliance
I agree with my colleague that the federal government absolutely has a role to play and could have an even stronger one.
There are many tools in the tool box of parliamentarians when it comes to segments of the economy in which we simply cannot have a strike. If we have both class I railways on strike, nothing moves, including commuters in some of Canada's biggest cities, and back-to-work legislation is something within the power of parliamentarians.
On the second point, absolutely. What happens if we don't get products to the Port of Vancouver on time? The vessels at the Port of Vancouver anchor and incur demurrage costs, which means they're not delivering on time. They're not going to push off to China or Indonesia until they're full. Those demurrage costs come back through the Canadian value chain for the people whom we represent, the agriculture people. Farmers end up paying that, which reduces the profitability for Canadians.
Increasingly, what we are being asked by markets around the world on behalf of our CAFTA members is, first, about growing conditions and potential drought in the Prairies, and second, whether we will be able to deliver on time. If the Japanese, who are one of our longest-standing trade relationships, are asking us if our product will be there on time or if they have to go elsewhere, it's not like losing a customer; we're losing a country.
4:50 p.m.
Conservative
4:50 p.m.
Acting President, Board of Directors, Canadian Agri-Food Trade Alliance
Yes. It's over the last four to five years. Previously there were other conversations about how they just wanted the raw product so they could add the value themselves. Now it's all about whether it will get there on time. They are watching what's happening in Canada when it comes to collective bargaining and the class I railways. They're concerned. Australia is a big competitor for a number of agriculture products, and they're a lot closer.
4:55 p.m.
Conservative
Kyle Seeback Conservative Dufferin—Caledon, ON
Are you hearing the same concerns from any other countries that you're hearing from Japan? Are you hearing that they're worried that we may not be able to deliver the goods we've promised on time because of instability in the supply chain?
4:55 p.m.
Acting President, Board of Directors, Canadian Agri-Food Trade Alliance
Japan is the example I used, but we hear that constantly. A number of members do outbound trade missions, both with government and solo, and the number one topic that is raised across all agriculture commodities is whether it will be there on time, and they can source from other countries.
Canada doesn't have a price advantage when it comes to agriculture products. We have quality, safety and some of the proteins that the world wants, but if it's not there on time, they will source it from elsewhere. That's a very hard thing to recover from reputationally, and it's very hard to quantify the economic impact of reputational damage.
4:55 p.m.
Conservative
Kyle Seeback Conservative Dufferin—Caledon, ON
If that reputational damage happens—and people were making that argument at the committee when we were studying the strike at the Port of Vancouver—how hard is it to recover from that damage that is caused if we can't deliver or we can't deliver on time? If that market's gone, how hard is it to get it back?
4:55 p.m.
Acting President, Board of Directors, Canadian Agri-Food Trade Alliance
It's much easier if you're dealing with North America or western Europe, but in Indonesia and that part of the world, the Indo-Pacific, it's not transactional; it's a relationship. It's about rebuilding a relationship. It's not just a transactional occurrence. These are relationships that take years to build, and as we all know, a reputation and a relationship can take years to build but a moment to erode.
4:55 p.m.
Conservative
Kyle Seeback Conservative Dufferin—Caledon, ON
I want to go back to the freight forwarders, because you didn't answer my second question, which was this: Are you seeing any freight or other things being diverted from Canadian ports of entry to American ports, and then coming up over land as a result of what we're hearing about people having concerns about the reliability of the Canadian supply chain?
4:55 p.m.
Executive Director, Canadian International Freight Forwarders Association
I'm sorry for not addressing that point earlier, but yes, we are seeing examples of that. Our members are indicating that their clients are moving product south of the border. They are making some of those conditions or some of those arrangements at this point in time.
It occurred last year with Vancouver. It occurred with Montreal. It's occurring now. Now it's a more dire situation, because now we have both the ports and the railways, and there's great uncertainty that one or all could go out at the same time, so people are moving their product south of the border in order to ensure that it gets to market on time.
4:55 p.m.
Conservative
Kyle Seeback Conservative Dufferin—Caledon, ON
I have very little time, so just quickly, has the grain and rain problem been resolved at the Port of Vancouver—I don't think so—and how much trouble can that cause?
4:55 p.m.
Acting President, Board of Directors, Canadian Agri-Food Trade Alliance
It has not yet been resolved; however, Seattle is able to do it, and they have a very similar climate.
It does have an impact. Certainly we have times when we cannot move the product, particularly in a rainy place like Vancouver.
4:55 p.m.
Conservative
Kyle Seeback Conservative Dufferin—Caledon, ON
When it rains in Vancouver, we can't load grain, and that backs up the supply chain. That's been going on for a number of years, and the government hasn't fixed it.
4:55 p.m.
Acting President, Board of Directors, Canadian Agri-Food Trade Alliance
That is correct.
4:55 p.m.
Liberal
Wilson Miao Liberal Richmond Centre, BC
First I'd like to thank all the witnesses for being here today to share your important perspective on this study.
Through the chair, I'd like to direct my question to the Agri-Food Trade Alliance.
It's good to see both of you, Dave and Michael.
Could you please share with us the importance of trade diversification and how it impacts supply chain resilience?
4:55 p.m.
Executive Director, Canadian Agri-Food Trade Alliance
I can take that.
Roughly 60% of our agri-food exports go to the United States, so with that level of concentration on only one market, diversification is something that we're always pushing for.
We've been very supportive, for example, of the government's efforts to open up markets in the Indo-Pacific, where we have some of our bigger growing markets. We've been supporting the trade negotiations going on with those countries. We've been supporting the opening of the agri-food office in Manila.
When you diversify, that means the supply chain is not always going in the same place. That's a positive thing, because a blockage in one spot isn't always a blockage in other spots. However, there can be bottlenecks affect almost all of your markets, so the reality is that when you diversify your markets, you need to expand your supply chain so it can support different markets going in different directions.
4:55 p.m.
Liberal
Wilson Miao Liberal Richmond Centre, BC
Thank you.
I understand that time is also crucial for our farmers in Canada, especially in the prairie provinces with the weather and climate that we're currently experiencing. Although it is only May now, we are already seeing some of the impact of the wildfires and other upcoming climate events due to climate change.
Would you agree that building a climate-resilient supply chain is fundamental for farmers as well?
5 p.m.
Acting President, Board of Directors, Canadian Agri-Food Trade Alliance
It definitely is.
We have major choke points in our infrastructure system. There's one bridge that goes into the Port of Vancouver—one bridge. We saw different outages that happened around Abbotsford as well. If one part of our supply chain breaks down, it has massive reverberations. For example, if the railway does go on strike, one day of a strike is seven days to recover, but there's also a ramp-up and a ramping down. One day of a strike could lead to two weeks of lost productivity.
The agriculture sector felt it keenly with a lot of our exports going to China, and China blocked canola for a period of time, as well as pork and cattle products going into that market. Diversifying is key, and we need to invest in our resiliency.
We're looking at another drought in the Prairies this summer, which will really hurt growing conditions, but when we have that product, we have to be able to move it, and seven out of 10 tonnes of grain from the Prairies goes through the Port of Vancouver. We don't have a lot of ways to get our landlocked products to ports, and the bulk of agriculture products go through the Port of Vancouver.
5 p.m.
Liberal
Wilson Miao Liberal Richmond Centre, BC
Thank you.
Let's talk about the green shipping corridor program.
Would you agree that this initiative helps build the climate-resilient supply chain that Canada needs to secure its competitiveness across the world in the future?
5 p.m.
Acting President, Board of Directors, Canadian Agri-Food Trade Alliance
Absolutely. Canada is a country with wild swings in temperature, from minus 35° to plus 35°, so I would agree with your assertion that it will help. There's no silver bullet and there's no panacea, but we need to start looking at infrastructure as a nation-building process. We can't think in two to three years; we need to think 30 or 50 years down the road, because if the Americans, as alluded to earlier—regardless of party, regardless of dynamics in Congress or the Senate—need more capacity at Long Beach, they get more capacity at Long Beach.
I know that some of our times for permitting in Canada can be up to five times longer than in the United States, and that is who we benchmark against. They are our biggest customer, they're the world's biggest economy, and they're our closest neighbour, so absolutely it helps.