Transport Committee on March 31st, 2022

[The Chair, Liberal, Peter Schiefke]

I call this meeting to order.

Welcome to the eleventh meeting of the House of Commons Standing Committee on Transport, Infrastructure and Communities.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, January 31, 2022, the committee is meeting to study the state of Canada's supply chain.

Today’s meeting is taking place in a hybrid format, pursuant to the House Order of Thursday, November 25, 2021. Members are attending in person in the room or remotely using the Zoom application.

Based on the Board of Internal Economy directive of March 10, 2022, all those attending the meeting in person must wear a mask, except members when seated in their seats during parliamentary proceedings.

I'd like to make a few comments for the benefit of our witnesses and members.

Please wait until I recognize you by name before speaking. For those participating by video conference, please click on the microphone icon to activate your mike and please mute yourself when you are not speaking. With respect to interpretation, for those on Zoom, you have the choice at the bottom of your screen of floor, English or French. For those in the room, you can use the earpiece, as you know, and select the desired channel.

I remind everyone that all comments should be addressed through the chair. For members in the room, if you wish to speak, please raise your hand as always. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as well as we can, and we appreciate your patience and understanding in this regard.

Colleagues, since the onset of the COVID-19 pandemic, Canada's economy has been impacted, as you know, by global supply chain disruptions. This has only been exacerbated by recent natural disasters, including forest fires and flooding in British Columbia. While Canada's supply chain does remain strong, these challenges have exposed some vulnerabilities and some areas to improve resiliency and efficiency. That is why the study we begin today is so important for Canadians.

On behalf of the committee members, I want to thank the first witnesses for this study who are appearing today. Witnesses include the Canadian Canola Growers Association, represented by Dave Carey, vice-president, government and industry relations; and Steve Pratte, manager, policy development. We also have the Canadian Produce Marketing Association with Guy Milette, chair of the board of directors; and Ron Lemaire, president. As well we have Supply Chain Canada, with Christian Alan Buhagiar, president and chief executive officer.

We will now begin the opening remarks with the Canadian Canola Growers Association for five minutes.

Go ahead, please. The floor is now yours.

[Dave Carey, Vice-President, Government and Industry Relations, Canadian Canola Growers Association]

Thank you, Mr. Chair, for inviting the Canadian Canola Growers Association to speak about your study in response to the state of Canada's supply chains. I'm joined today by my colleague, Steve Pratte, senior manager, transportation and biofuel policy. He will be sharing my opening comments to you.

CCGA is a national association governed by a farmer board of directors, and it represents Canada's 43,000 canola farmers.

Canada typically produces 20 million tonnes of canola a year and exports 90% of that canola in three forms: raw seed, canola oil and canola meal. These products are exported to more than 50 countries around the world and in 2021 were valued at $13.7 billion. Canada is the world's largest producer and exporter of canola. Our industry supports 207,000 Canadian jobs and contributes $29.9 billion to the Canadian economy annually.

Canola travels, on average, 1,500 kilometres from the farm to be in an export position. There is no alternative to rail for long-distance transport of our products across the continent.

Farmers strive to maximize both the quantity and the quality of their production each year. Once it is harvested, they sell their canola into the commercial system based on their specific marketing plan, with the overall goal of capturing the highest possible prices at any given time in our dynamic global commodity market.

Transportation of grain is one of several commercial elements that directly affect the price offered to farmers. When issues arise in the supply chain, the price farmers receive for their crop, their grain, can drop, at times even going below where global commodity levels are. In periods of prolonged rail disruptions, the worst-case scenario is that space in grain elevators becomes full and grain companies stop accepting or buying grain from farmers. This can occur even when a farmer has an existing contract for delivery, potentially straining their ability to have cash flow for their operations.

Today's grain supply chain is predicated on having the right grain in the right place at the right time. There are a lot of moving parts in this complex system.

I'll now turn it over to Steve, Mr. Chair.

[Steve Pratte, Manager, Policy Development, Canadian Canola Growers Association]

Thank you.

I'll address this specific question: What is the state of Canada's supply chain?

In crop year 2021, the railway set a new benchmark in the movement of western Canadian grain, shipping over 61 million tonnes. All stakeholders benefited from the strong supply chain performance, and it showed what could be done when the grain handling and transportation system works effectively.

This 2021-22 crop year has been an illustration of great contrast and has given us yet another illustration as to how fragile our rail-based agricultural supply chain can actually be. There were two distinct sources of major disruptions: weather events and the recent railway labour issues.

Extreme weather events in 2021 severed the critical mainline railway artery twice in five months in the same general area in British Columbia. Since fully reopening on December 5, 2021, the railway system recovery has continued to be an ongoing struggle. This could have been a dire situation for the entire sector, but to some degree, the negative impacts on farmers have been mitigated by the 40% smaller crop harvested last year and a strong export program in the weeks before the railway disruptions.

This has had a major impact on the grain sector. Currently, 70% of western bulk grain is destined to go to the Port of Vancouver. This has been enabled by the significant investment by grain exporters in the port. The importance of this export outlet cannot be understated.

The most recent labour disruption at CP was just the latest issue to imperil the agricultural supply chain. Thankfully, this was resolved within days, but the knock-on effects will still be felt.

Looking forward, we clearly see further rising demand for our products, both domestically and internationally. As a country, we need to prioritize and coordinate an approach to critical infrastructure. There is work being done, but it needs to be expanded. It is complicated, as oftentimes the ownership of tunnels, bridges, railway lines and roads varies among participants in the supply chain.

I would point to the north shore grain terminals in the Port of Vancouver as just one example. There is one rail line that transits through a tunnel and over a lift-bridge to access the four grain terminals on the north shore. This route also serves other bulk commodity terminals. There's no backup routing to serve these terminals in the event of a disruption with the tunnel or the bridge. When critical supply chain infrastructure is imperilled, the entire system is affected.

We need to get back into the business of nation-building projects. Canadian farmers and the industry will need an effective rail-based transportation system, not just for the transportation of the current crop sizes but for those of the future, particularly as demand increases. Farmers will not be able to capitalize on opportunities from trade agreements without a reliable rail system that grain shippers and our global customers can have confidence in.

Thank you.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Carey and Mr. Pratte, for those opening remarks.

We'll now turn it over to the Canadian Produce Marketing Association.

I believe you will be splitting your time, Chair Milette and President Lemaire, so I'll turn the floor over to you.

[Ron Lemaire, President, Canadian Produce Marketing Association]

We will. Thank you, Mr. Chair.

Good afternoon, Chair and committee members.

The Canadian Produce Marketing Association represents over 840 companies growing, distributing and selling fresh fruit and vegetables in Canada. Ongoing supply chain disruptions continue to have a significant impact on our industry and the Canadian economy.

As noted, with me today is my board chair, Guy Milette, who will provide first-hand information relative to our sector's challenges.

It's important to note that many of the supply chain issues we face today existed before the pandemic and have been dramatically amplified and have further complicated business over the past two years. As we move into what could be another wave in Canada and other jurisdictions around the world, we need to ensure we have learned from the past and apply best practices for the future.

Compounded issues mean our members are facing death by a thousand cuts. This includes port congestion, delays and exploding costs in container shipping, continuing labour shortages from farm to retail, growing costs of inputs and shortages and inconsistent product delivery. My chair will touch on these challenges in a few moments, but I will say that all of them are impacting the fresh produce supply chain that deals in just-in-time delivery of highly perishable food. For our sector, delays at ports or other points along the supply chain can mean not only lost sales but also product spoilage and food waste.

There is no doubt that these ongoing supply chain disruptions are complex and interconnected, and so too are the solutions, requiring action across multiple federal ministries and departments, as well as collaboration with provincial, territorial and municipal partners. To ensure an effective whole-of-government approach, there is a need for a supply chain commissioner, mandated and empowered to bring necessary parties together to find short- and long-term solutions.

In the short term, we must start with the creation of a mechanism to prioritize the movement of perishable and essential goods. In the medium-to-long term, the revitalization of our port infrastructure, strengthening government oversight over port service standards and the expansion of programs to streamline the movement of essential and perishable goods must all be considered.

In addition, efforts under way in the U.S. to reform shipping legislation and ensure competitiveness and transparency in the shipping industry offer an important model for Canada to follow.

At this time, I would like to hand over the screen to my chair, Mr. Milette, to provide his perspective on the situation.

[Guy Milette, Chair of the Board of Directors, Canadian Produce Marketing Association]

Good afternoon, everyone.

Mr. Chair, members of the committee, and Mr. Lemaire, as president of the Canadian Produce Marketing Association, or CPMA, I am well aware of the scope of the problems affecting the supply chain.

As a Canadian wholesaler, importer and exporter operating out of Montreal, I face these challenges every day. While international shipping companies send many empty containers back to Asia and report record profits, the availability and cost of containers have become huge obstacles for Canadian importers and exporters.

Over the past two years, the cost of shipping goods by truck has also increased by 50‑80%, both at the border and domestically.

Here are some examples I can give to the committee members, based on my own experience at Courchesne Larose. Between May and December 2021, for a volume of at least 400 trucks per week, we experienced an increase of over $250,000 per week in transport costs. Since January, the increase in fuel prices alone has added more than $200,000 to these costs.

The just-in-time management and production method, which has taken more than 10 years to develop and implement in the industry, is being challenged by logistical problems, a labour shortage and numerous delays. This also explains why consumers are faced with frequent stock outs.

There are also significant delays in loading and unloading at seaports, making it difficult to manage our integrated supply chain. Naturally, these issues all have an impact on the average price of fresh fruit and vegetables, which has risen by at least 16% in the last year alone. It is important to understand that, despite our best efforts to avoid price increases, we cannot control many of the factors related to the various stages of the supply chain.

Most of these price fluctuations are reflected in the price that the consumer pays, as we have seen with the figures on food price inflation. I want to reiterate that these problems cannot be solved by a single department or in isolation.

The Canadian Produce Marketing Association thanks you for the opportunity to participate in the National Supply Chain Summit last January. It is imperative that such interdepartmental initiatives continue.

We thank you for the opportunity to speak to the committee today, and we look forward to answering your questions, which we hope will be many.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Milette and Mr. Lemaire.

Next we have President Buhagiar from Supply Chain Canada.

Mr. Buhagiar, I turn the floor over to you.

[Christian Buhagiar, President and Chief Executive Officer, Supply Chain Canada]

Thank you, Mr. Chair, and good afternoon.

On behalf of Supply Chain Canada and our almost 8,000 members, I want to start by thanking the committee for the opportunity to speak with you today.

The COVID-19 crisis has, over the last two years, demonstrated just how vulnerable our supply chains can be. Disruptions create real challenges in the everyday lives of Canadians. Supply chain issues do fuel inflation and resolving global supply chain issues would help with inflation, but the issues are complex and multi-faceted. Labour disruptions and challenges related to production, sourcing and transportation have all created challenges and disruptions, coupled with the challenge of increased demand in certain sectors.

I want to take a moment to recognize the hard work and innovative approach so many supply chain professionals have taken over the last few years. They rose to the challenge and they ensured that Canadians were supplied and supported through great effort. I saw the innovation. I personally saw the collaboration and the plain old elbow grease and hard work every day as I watched these folks.

However, disruptions have been real, and they will continue to present challenges moving forward. Supply chains, as my colleagues have said, are complex, multifactorial systems that have a significant downstream effect, which means that even when things are improving, the challenges are by no means over. We are pleased that the Government of Canada is creating a supply chain task force to make recommendations on short- and long-term actions. At Supply Chain Canada, we look forward to playing a role with the task force.

COVID-19 has revealed and exacerbated weaknesses that already existed in the system. This was noted earlier by my colleague. Challenges have included production, sourcing, labour and transportation issues that have led to many disruptions and shortages. It's vital that Canada become more self-reliant, have more internal capacity and have systems that can collaborate more easily to solve these challenges. Think, for instance, of a port authority that can more easily integrate with rail and shipping to quickly increase or decrease capacity as needed. That would certainly allow for a significant smoothing of the chain.

The COVID-19 pandemic saw changes in demand patterns from consumers, major congestion at various ports across Canada, and certainly, as noted, higher container rates. Today, approximately 12% of global ocean vessel capacity is unavailable due to delays. Prior to the pandemic, that was more normally at 2%.

Existing infrastructure is also a major concern. Canada must focus on increasing the capacity and scalability of our gateways and ports to ensure that our supply chains remain healthy and prepared for future impacts. The modernization and digitization, including the automation of some duties of existing infrastructure, will help to ensure that industry workers have the capability to move cargo more efficiently and responsibly. This is a major overhaul, but one that we believe is critical.

The infrastructure of our five major gateways is extremely stretched. Modernizing port infrastructure creates a heavy financial burden and oftentimes requires a drawn-out process, which generally deters the private sector from making the necessary improvements. It will be valuable for government to work with the private sector to ensure that infrastructure is upgraded and capable. Doing so will reduce dwell times, thereby smoothing the functioning of the entire chain and loosening bottlenecks. A smooth and reliable supply chain helps to ensure that cross-border trade between Canada and our partners is predictable. It is vital that governments and industry leaders work toward improving logistical systems across Canada to allow for a more interconnected and collaborative approach.

Supply chain solutions cannot be implemented through an isolated approach. My colleague Ron mentioned a whole-of-government approach. I believe that's necessary among all levels of government to properly address the difficulties faced by different sectors of the supply chain. The interconnectedness of supply chains in Canada is going to require an ambitious national strategy aimed at tackling the challenges of the various sectors.

Mr. Chair, thank you, and certainly, as my colleagues have noted, I'll also be pleased to answer any questions that members have.

[The Chair, Liberal, Peter Schiefke]

Thank you very much for your opening remarks, Mr. Buhagiar.

We will begin the rounds of questioning today with Member of Parliament Muys.

Mr. Muys, the floor is yours. You have six minutes.

[Dan Muys, Conservative, Flamborough—Glanbrook, ON]

Thank you, Mr. Chair.

Thank you to all of the witnesses for taking time out today to be with us and to provide your perspectives.

My first question is for our friends in the Canola Growers Association.

You outlined some of the concerns and challenges and indicated that last year's harvest was 40% smaller than usual. As we're going into the coming season, knowing it's such an important part of the western Canadian economy and we face these supply chain disruptions, how concerned are canola growers about the ability to ship their product at the end of the season?

[Dave Carey]

I can start. Thank you for the question, Mr. Chair.

I think there's certainly optimism going into the planting season, but there's also significant concern generally. These disruptions have a knock-on effect.

Steve alluded to the outage around the B.C. Fraser Canyon area. We're still feeling the repercussions from that. What it really comes down to is that, while Canada controls about 60% of the global trade of canola, it is a fierce global marketplace. Our concern is that delays can ultimately end up impacting Canada's reputation as a reliable supplier of canola or oilseeds, and that's when it becomes a major concern. We have markets that really depend on us.

Steve, would you like to add anything?

[Steve Pratte]

Just quickly, certainly in the farming community, we take it year by year. Last year was last year, and hopefully all people in the supply chain and all parties have learned from that. We're looking forward to the melting here and putting a new crop in the ground. Hopefully, we'll see all parties tightening things up for next year.

[Dan Muys, Conservative, Flamborough—Glanbrook, ON]

Thank you. You talked about the need to build capacity out for rising demand.

How do we make sure we do that quickly enough so that we don't lose that market share you just talked about, given we're in a competitive global marketplace and this is very much a Canadian Cinderella crop?

[Steve Pratte]

Certainly in the grains sector, we look to the west coast as being that dominant outflow to the world, and Vancouver specifically. Pretty much all of the real estate there is now accounted for and spoken for. What we see from the shippers of our product is optimizing the existing footprints they have at port. That means upgrading loaders, upgrading the discharging, tweaking the actual way that the railcars come in—things like that—and trying to get a bit of a boost out of the existing infrastructure. Because there's no real estate left for new builds, it's going to have to be putting more through in the future with the existing facilities we have.

[Dan Muys, Conservative, Flamborough—Glanbrook, ON]

Thank you.

I have a question for the Canadian Produce Marketing Association.

In November, you put out an urgent call to action, including a letter to the Prime Minister and 12 different cabinet ministers. The summary I saw had six different challenges, some of which were articulated today in terms of the cost of container shipping being exponential, in terms of port congestion for the fresh produce sector.

I had a virtual meeting with members of your association in January, and they described the story of a container of fruit in the Port of Vancouver where the fruit had rotted before it even had a chance to be shipped from the port.

Now, four months later, have you heard back from the Prime Minister and the ministers? Are we better off? Are we worse off? Where are things at?

[Ron Lemaire]

I can take that first. Thank you, Mr. Muys.

We are seeing change, slow but sure. We have heard back from the government and we participated in the round tables around the supply chain issues, trying to provide some input from agriculture. Ms. Koutrakis was one of the co-chairs in our session—it's good to see you again—as well as Francis Drouin.

The key that we're seeing, though, has to do with the foundational changes around the supply chain for us. It goes back to labour as one of those core components, and then on top of that, we're facing, as I mentioned, compounding issues. My colleague Christian cited this as a global challenge and talked about the 12% of shipping containers that are not available.

That's significant for us. It's one thing to look at our own ports, but it's another thing to look at how this entire system works like a symphony. It comes together, and all the pieces have to be working in harmony. When you see one piece of the entire system system falling apart—and it could be truck, rail, containers or the labour component therein—you start hearing the symphony's misbeats. That's where we are still. The symphony isn't sounding finely tuned. We have to get back to that tuning of the symphony. To do that, we need to look at some key tools.

I'm going to say that the reputation of Canada is at stake. We need to make sure that the global market knows we're open for business and that we are putting in place tools and tactics to address the issues within our own borders. We need to recognize some of the other levers that are happening globally and use those levers effectively.

I can hand it over to my chair, because I know he's living it.

[Guy Milette]

Yes, absolutely and it's been a constant challenge. The produce industry has this higher component that a lot of other food products do not have. It's the high perishability of the product. Unfortunately, the main shipping lines are not Canadian companies. They're international companies. They don't follow our rules. They follow their own rules, and they sent to most of their customers back several months ago a notice that they are not responsible for delays.

A container used to take 20 or 21 days when it comes from South America, and it's now over 40 to 42 days. If they respect the required temperature in the container they will not take any responsibility for the delay, but if you're shipping citrus and the shelf life is about six weeks, by the time the produce arrives here it's almost end of life. Nobody is responsible. The shipper is not responsible and the carrier is not responsible, so the Canadian importer has to take the beating on this. It's been costing hundreds of thousands of dollars for wasted product that arrives end of life.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Milette.

Thank you very much, Mr. Muys.

The next round of questioning goes to Mr. Rogers.

Mr. Rogers, you have six minutes. The floor is yours.

[Churence Rogers, Liberal, Bonavista—Burin—Trinity, NL]

Thank you, Mr. Chair.

I'd like to say welcome to all of our guests today as well.

Certainly this is a topic that has seen considerable discussion and concern, particularly since the pandemic disruptions and so on. When we talk about climate change, the emergencies and the damage done by storms and so on, and other factors beyond our control in some cases, the supply chain has been hammered the last couple of years.

Mr. Buhagiar, maybe you could comment on what you see as the most important structural challenges facing our supply chain.

[Christian Buhagiar]

Mr. Chair, through you to the member, I appreciate the question. I think it's an important, foundation-setting question.

I want to start with having the members understand that disruption in the supply chain is not new. It existed before, and supply chain professionals have worked through those disruptions. The challenge, of course, is that there are too many potential points of failure within the chain. If I'm going to answer the question and suggest where we feel there are points of relief, and what we talk to our members about.... They're not easy. We will always have those in the supply chain who are able to manage the disruptions, but the changes we need in order to be more resilient are more fundamental, and larger, and will require more significant investment.

Let me paint a picture of a couple of these.

Today, corporations have different visibility into their supply chain. Those that are more mature and have the resources may be able to see what we would call tier one, tier two or tier three suppliers. You can imagine that, in a chain, you have tier one, or those that supply you. Tier two supplies your suppliers. Downstream, you may have multiple levels, depending on how complex your corporation is. Many Canadian corporations—again, many of these challenges are not unique to Canada—only have the ability to see tier one and maybe tier two. They don't have the visibility, downstream, into their supply chains to understand exactly where things are coming from.

Recently, with the Russian invasion of Ukraine, we surveyed our members and asked them if they felt they had the necessary visibility to adjust to that geopolitical situation. Only 14% thought they had the requisite visibility. A number of them didn't realize they had suppliers in Russia or Ukraine, because these were tier two, tier three or tier four. Visibility—the transparency of the supply chain—is critically important as we go forward. Fixing that will not be easy.

The other change is automation. We've gotten very good at automation at certain points in the supply chain. For example, warehouses with robotic automation do a great job. Go to anybody's distribution centre and you'll see incredible automation, but go to one of our ports and you won't see that same level of automation. You'll see things that are manual and things that are paper. Again, the ability to automate cannot just be a solution in one aspect of the supply chain. It's great if a warehouse is fully automated, but if things haven't been able to get there because there is no automation, then, again, the system breaks down.

Visibility, transparency, automation, and certainly infrastructure investments—and you can count those as some of them—are all things we feel will be fundamental. As I suggested, they're not going to be easy, fast or cheap to resolve, and it will take a mindset change for many within the supply chain. However, they're going to be necessary if we're truly going to be resilient going forward.

[Churence Rogers, Liberal, Bonavista—Burin—Trinity, NL]

Thank you.

That was a great answer, by the way. I enjoyed the presentation you gave and the comments to the questions.

Mr. Lemaire, you mentioned challenges prior to the pandemic. Can you elaborate on some possible solutions? How do we get our supply chain working more efficiently, or get it right?

[Ron Lemaire]

I want to build on the automation discussion. I think there is opportunity on automation, but I do want to go back to the component around labour.

We need to look at an effective immigration policy that will enable us to bring in the right labour. It could be truck drivers. It could be other skilled labour that can work within the operations' warehouses. We have a 26% gap in our warehouse structure right now through the supply chain. With absenteeism if another wave comes through, we will see an increase on that impact.

As we look at automation, it can do a lot for us, but in the end, people drive our business, and we need to look at how we are getting more truck drivers into the system on a domestic level. We don't use a lot of rail, but when rail is impacted, as we saw recently with the potential strike, everyone moves to trucks. All of a sudden the trucking industry tightens up even more.

We need to look to ensure how we can work with the provinces to drive licensing, insurance and some other opportunities to improve access for new truck drivers, to find them—around the world, if possible, and domestically—and to try to drive that change in those pieces.

I hate to say it, but we need to segment down the issues and look at them individually, and then reconnect them to make sure we deal with the entire problem and that it's not just siloed.

[The Chair, Liberal, Peter Schiefke]

Thank you very much, Mr. Lemaire.

Mr. Barsalou‑Duval, you have the floor for six minutes.

[Xavier Barsalou-Duval, Bloc, Pierre-Boucher—Les Patriotes—Verchères, QC]

Thank you, Mr. Chair.

My first question is for Mr. Pratte or Mr. Carey.

Some time ago, a strike at CN made quite a stir and led to a propane shortage in Quebec. I assume that if it affected our farmers in Quebec, it affected people in western Canada as well.

On the one hand, do you think that such a situation could happen again, given the difficulties we are currently seeing everywhere in terms of supply?

On the other hand, are there ways to guard against this, whether by anticipating, for example, certain shortages or supply problems, or by adapting our methods accordingly?

[Dave Carey]

I can begin and then let Steve speak to the details of that particular one.

Steve can correct me if I'm wrong, but we've had almost a labour issue a year with one of the national railroads, if we go back about 10 years. That does not include blockades, natural disasters or the severing of lines, so yes, it's a considerable concern. I believe there's the potential later this year for a potential CN disruption, but I will defer to Steve for the details.

It is concerning, and I think we need vision, leadership and strategy. Some of that comes down to the ministerial supply chain summit that happened earlier this year and that we participated in, committees like yours that are taking on this topic and making it a priority, and having a vision that is not tied to electoral cycles. We need five-, 10-, 20- and 50-year visions for our infrastructure in Canada.

For the actual details, maybe I will ask Steve to quickly comment on that particular CN issue, but it is concerning, absolutely.