Canadian secondary wood manufacturers have been squeezed in recent years. While demand from construction has been booming, importers from China and elsewhere have crowded much of the marketplace. The rising Canadian dollar, the U.S. housing bubble, limited international trade, and even inter-provincial trade barriers have often forced Canadian producers to keep their target markets local. But much of that is now changing, and Canadian wood shops can only benefit from these bold new opportunities.
Perhaps the boldest of opportunities exists south of the border. Exports to the U.S. are most influenced by two factors: the Canadian dollar, and the U.S economy — especially construction and housing. A low Canadian dollar and booming U.S market once served as staples of Canada’s wood industry. This all dried up as the Canadian dollar rose in value, and the American housing bubble burst.
The result has been a depressed export market for many Canadian manufacturers. This is a situation ripe for change. After sparring with its U.S. counterpart near par for a number of years, the Canadian dollar is making its way back down to the 90-cent level. In addition, a long-developing recovery in U.S. housing is taking hold. This combination bodes well for Canadian businesses seeking new markets.
Export Development Canada (EDC) is the government-owned agency responsible for serving Canadian companies that want to do business overseas and especially in the U.S. The EDC engages in extensive study of the American economy to determine specific opportunities available for Canadian exporters. According to its most recent analysis, all major indicators are positive.
Ross Prusakowski is an economist with the EDC. He says, “Our projections are that the Canadian dollar will go down to 93 cents U.S. in 2014, go down even further to 92 and 91 cents in 2014 and 2015, and then stabilize at 92 and 93 cents over the long-term. Any way you look at it, we think this is positive news for Canadian exporters. Opportunities should be there.”
The U.S. housing market is also looking good, Prusakowski says: “It most definitely looks as though the worst is over. We’re looking at about a million U.S. housing starts a year right now. We see this number going up consistently. Within a few years, we’re looking at about 1.5 million housing starts a year. The indicators all look very positive.”
The EDC isn’t the only source for good news about the U.S construction sector. According to McGraw Hill Construction, total construction will surpass a trillion dollars by the end of 2014, with particularly strong growth in single-family housing and commercial building. Houzz conducted a survey of nearly 200,000 respondents. Seventy-four percent of U.S. homeowners say their local housing market has improved, and 42 percent of those are more likely to renovate than to buy a house immediately.
But it’s not just the dollar and housing that make the U.S. a strong export market at the moment. “Consumer confidence levels in the States are also looking very good,” says Prusakowski. “This affects buying in all sectors of the American economy, including manufacturing.”
It is also not just the situation in the U.S. that should make Canadian exporters optimistic. “The global economy is looking very good at the moment, too,” adds Prusakowski. “Much of what ails Europe is now in the past. Japan’s government is actively stimulating that country’s large economy. Canada’s trade agreement with Europe is a win-win. There’s not too much to complain about internationally.”
It would seem as though Canadian exporters are liking what they’re seeing, too. The EDC’s Trade Confidence Index (TCI) for the spring of 2014 experienced its third consecutive increase, reaching a level of 77.2: the highest level reached since 2011. Ninety-six percent of those surveyed expect exports to increase or remain the same within the next six months, and 87 percent expect U.S. orders to increase or remain the same, which is a four-percent increase from the fall of 2013.
However, not all Canadian businesses see the export situation as positive. CIBC recently conducted a poll of small-business owners. Thirty-six percent of respondents say they are worried about the impact that a falling loonie will have on their business. Sixty-five percent have no plans in place to deal with changes in currency. Most importantly for Canada’s wood industry, 53 percent of small-business manufacturers are most concerned with the falling Canadian dollar.
This last finding might seem counterintuitive, given the general assumption that the higher dollar has been hurting Canadian exports. This has been true for larger manufacturers, where cross-border sales might seem more natural, but smaller producers face their own set of challenges. If their target markets are local, then a lower Canadian dollar will simply make machinery more expensive, which is often the largest capital cost for wood shops across the country.
There is no typical profile of a Canadian secondary wood manufacturer. The industry is made up of a diverse group of business owners with various backgrounds and different business goals. However, if there is one trait that has perhaps remained persistent, it’s that many companies in this sector want to do business the same way they were doing it 10 years ago, 20 years ago — maybe even longer. It might be one explanation for the industry’s stagnation.
Yet it’s certainly not the only explanation. In many cases, businesses in Canada’s wood industry are left to fend for themselves. While the primary sector is well backed by industry associations and government lobbyists, the secondary side is often fragmented, leaderless, lacking in organization and genuine business networking. Without leadership and organization, the industry’s chances for growth are hampered even with all the opportunities the world is presenting.
But make no mistake. It’s not a wasteland out there for manufacturers in our sector. Success does come to those willing to analyze the market, think big, and take some risks. Canadel, a Louisville, Que.-based furniture manufacturer, targeted and succeeded in the U.S. when everyone else was falling by the wayside. Eastwood Wood Specialties of St. Catharines, Ont., once flourished in the States when market conditions were ripe. Aya Kitchens in Mississauga, Ont., is currently directing its sights south of the border in search of past success in that market.
In fact, Aya Kitchens makes for a very interesting case study in how to select and approach target markets. When the U.S. market dried up, the company didn’t decide to simply stay in its local region. According to Aya’s president, Dave Marcus, they decided to sell across Canada to become a truly national player. Recent developments may make this kind of approach a more feasible one for more Canadian businesses.
Leah Littlepage, Director, Canada-U.S. & Transportation Policy with the Canadian Chamber of Commerce, explains: “Many observers were impressed at the success of trade talks Canada has had with Europe, which produced CETA, a comprehensive trade agreement that is now awaiting final ratification. Some of the Canadian negotiators were from the provinces. When they came home, they started asking themselves a pretty good question: Why can’t we do within Canada what we just did overseas with Europe?”Continued
Specifically, Littlepage is referring to complex set of regulative barriers that hampers the movement of goods, services and labour across Canadian provincial borders. Some estimate these barriers cost the Canadian economy $50 billion a year. Given that the provinces have jurisdiction over so many areas, ranging from health and safety to labour and transportation, it shouldn’t surprise anyone that differences have evolved over the years.
As a result, the challenge — which can be a formidable one — is to resolve these differences between the provinces. “Part of the problem is that the provinces often set up these regulative barriers in order to favour industries in their own province,” says Littlepage. “However, there seems to be a general acknowledgement now that more opportunities exist for everyone if cross-provincial commerce is stimulated rather than stifled.”
One of those opportunities lies in the movement of labour. “In unskilled jobs or labour categories with little or no regulation, people have always been able to work where they want,” says Littlepage. “The barriers have arisen with regard to more regulated occupations. Trades and apprenticeships are an example. Right now, this tends to be controlled provincially. Down the road, there might be a more harmonized regimen.”
The issue of cross-border commerce has yet another twist that is unravelling currently. Some Canadian businesses ship goods south of the border to their destinations, while others do so across inter-provincial borders to other Canadian destinations. But some prefer transporting goods through the U.S. in order to reach other Canadian destinations. They’re called in-transit shipments. Geography and the close proximity of the two nations often make this kind of logistical setup more advantageous to business.
However, after 9/11, these kinds of shipments became extremely rare as U.S. Customs and Border Protection classified them as international loads requiring full documentation and advanced manifest submission. This situation is changing. One of the outcomes of the Beyond the Border Action Plan recently agreed upon between Canada and the U.S. is an ongoing negotiation to reinstate in-transit shipments. Both countries’ border services are working out the technical details.
Whether it’s shipping goods through the States, to the States, to other provinces, or around the world, there is no shortage of markets awaiting goods produced by Canadian wood-industry manufacturers. Sometimes all that’s needed is the opening up of these new opportunities, and the willingness to jump in and take advantage.