Canadian supply chain logistics vulnerability

June 2021
Kevin Jiang
Colin Scarffe

Summary

• Industries in Canada are dependent on road and water transportation.
• Road transportation is heavily used in all types of industries, but especially in auto manufacturing, both on the import and export side.
• Reliance on water transportation is widespread for sourcing imports with nearly every industry importing over one-fifth of its imports with this method, but the extent of using water for exports is more limited to certain industries.
• Air transportation is used intensively for transporting high-value goods such as diamonds, while rail and other transportation modes are not extensively used for most industries.
• Although Canada has hundreds of border crossings, the vast majority of trade passes through only a small proportion of those crossings.
• Road crossings are the most vulnerable for most industries (i.e. they use few road ports). However, if road crossing is excluded from the analysis, industries are found to be far less vulnerable to ports (i.e. they used a broader range of ports).
• Industries with high logistics vulnerability also tend to be concentrated on one trade partner. For example, the auto-sector is very dependent on the United States and also dependent on the Ambassador bridge. The coal industry is dependent on China and the port of Vancouver.

Introduction

The 2020 global pandemic prompted policy makers and businesses around the world to rethink many aspects of global value chains (GVCs). One aspect is how vulnerable are GVCs to disruptions in foreign production and demand. The COVID-19 pandemic exemplified how economies could shut down in an instant causing international disruptions. For example, Canadian imports of bicycles from China decreased nearly 50% in the first quarter of 2020 as China was forced to put strict stringency measures on its populace to try and slow the spread of COVID-19. Similarly, the stringency conditions imposed on many economies caused many downstream demand shocks and was part of the reason why oil prices briefly became negative in April 2020.

One reason for the existence of GVCs is that it allows firms to source materials at the lowest cost and sell to the customers beyond their domestic market, thus capturing the advantages of scale economies regardless of the size of their local market. (Chatterjee & Tsai, 2002) To bring costs down even further, firms are relying less on inventories—which are costly to hold—and more on purchases directly from production, or so called just-in-time supplies. (Suranga et al., 2015) (Suraj et al., 2016) A well-known Canadian example is the auto-manufacturing industry. The sector sources parts from over 700 suppliers to produce more than 2 million vehicles annually. (Industry Canada, 2019) The industry takes advantage of being able to sell globally to produce as many vehicles as it does, relies on suppliers to provide the parts that it needs at a competitive price, and are themselves the suppliers of many just-in-time parts to auto-manufacturers around the world.

However, being part of a GVC and having just-in-time supplies only works if firms can depend on the logistics of transportation and ports that make this possible. To phrase another way, without dependable logistics, Canadian firms and the GVCs of which they are apart would have to hold more inventories which increases costs and makes Canadian firms less competitive internationally. The changes in competitiveness due to logistics matter; the World Bank estimates that an improvement in infrastructure from the median country to the country at the 25^th percentile is the equivalent to reducing the distance between two countries by 2,358 km by sea, and increases trade volumes by 68 percent. (Limao and Venables, 2001) This paper will build on the research from Boileau & Sydor (2021) by evaluating which Canadian industries are most vulnerable to a shock in the mode of transportation and/or a disruption at the port of clearance. The first half of this paper will focus on industry reliance on different modes of transportation. The second half will then add the port dimension and focus on the intersection of port of entry/exit and the mode of transportation.

In this study only merchandise trade will be considered. This is partly due to data constraints, and partly because most services, especially those that can be delivered digitally, are assumed to be minimally affected by transportation disruptions.^{Footnote 1} For both imports (upstream supply) and exports (downstream demand), this paper uses a customs-basis Canadian merchandise trade dataset from Statistics Canada for 2019 at the most detailed level of Harmonized System (HS) available, i.e. 10-digit codes for imports and 8-digit codes for exports. This dataset contains five dimensions that are useful for the study of GVCs: country of origin/destination, province of origin/destination, product, mode of transportation, and port of entry/exit; although, for our purposes we drop the country and province dimension.

Mode of transportation

Overview

We begin by investigating the degree to which Canadian industries rely on different modes of transportation in their respective GVCs. This includes both the shipment of inputs imported for Canadian industries to produce their products (upstream supply), as well as the shipment of each industry’s final products for export outside of Canada (downstream demand). To explore this, we disaggregated merchandise imports and exports by industry into 5 different modes of transportation: road, water, air, rail, and other. Identifying the share of Canadian trade of each mode enables us to determine which disruption would have the largest impact on each Canadian industry. We postulate that although industry supply and usage could have differences across countries, the type of product transported under each form of transportation usually shares similarities around the world. Thus, findings in this section could prove useful in informing global trade policy decisions.

Canadian industries rely heavily on road transportation for both imports and exports, totalling nearly 40% of transportation for overall Canadian merchandise trade.^{Footnote 2}This is largely due to the significant share of trade the U.S. represents for Canada, as well as the deeply integrated GVCs between the two countries. Water transportation trails in second place at 28%, as it is generally the preferred mode of transportation for trade with countries outside of North America due to its relatively low cost and capacity for transporting bulky goods compared to the other modes of transportation. Air and rail offer certain advantages over other transportation modes under specific scenarios and each accounted for roughly 12% of total Canadian merchandise trade. Lastly, transportation for the remaining 9% of merchandise trade is classified under “other”, which mainly consists of pipelines and power lines for shipping energy products such as crude oil, natural gas, and electricity.

Figure 1. Canadian merchandise trade by mode of transportation, 2019

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	Share (%)
Road	39
Water	28
Air	12
Rail	12
Other	9

Upstream supply

On the supply side, we focus on the degree to which Canadian industries import goods by different modes of transportation, including how industries source intermediate inputs.^{Footnote 3} For example, although Canada mainly exports crude oil through pipelines, its supply of goods for production requires companies to utilize many forms of transportation such as water and road for machinery, equipment, and other intermediate inputs used in oil production. Any form of transportation disruption may lead to companies adjusting their operations, potentially resulting in not only disrupting the oil industry supply chain but also putting additional pressure on GVCs of other industries.

In Boileau & Sydor (2021), the authors created upstream supply and downstream demand vulnerability indices by mapping detailed trade data to the supply and use industries.^{Footnote 4} Using a similar approach, we added a third dimension that shows the primary transportation method for Canadian industries in their imports of goods (figure 2). In 2019, Canada imported nearly 10,000 unique products at the HS-10 level. These products were used as inputs into 216 industries,^{Footnote 5} with road being the primary form of transportation for 147 industries, followed by water (60) and air (7). Rail and other were each the main form of transportation for 1 industry.

Figure 2. Upstream and downstream vulnerability by import transportation method

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	Supply vulnerability	Demand vulnerability	Output ($ thousands)	Main import mode
Animal food manufacturing	67	20	8,304,690	Road
Petroleum and coal product manufacturing (except petroleum refineries)	67	60	5,299,325	Other
Automobile and light-duty motor vehicle manufacturing	65	61	65,989,013	Road
Grain and oilseed milling	65	41	11,219,471	Road
Plastic product manufacturing	64	48	24,741,720	Road
Iron and steel mills and ferro-alloy manufacturing	64	47	10,952,517	Water
Meat product manufacturing	63	18	27,890,148	Road
Animal production (except aquaculture)	63	30	26,290,889	Road
Motor vehicle seating and interior trim manufacturing	63	47	6,133,063	Road
Heavy-duty truck manufacturing	63	59	2,900,018	Road
Petroleum refineries	62	42	50,773,313	Water
Non-ferrous metal (except aluminum) production and processing	62	45	35,628,154	Air
Converted paper product manufacturing	62	47	10,264,272	Road
Fruit and vegetable preserving and specialty food manufacturing	62	33	6,925,932	Road
Other chemical product manufacturing	62	43	5,271,873	Road
Dairy product manufacturing	61	17	14,660,757	Road
Basic chemical manufacturing	60	45	15,800,723	Road
Aerospace product and parts manufacturing	59	46	23,558,294	Air
Alumina and aluminum production and processing	59	54	11,991,003	Water
Other transportation equipment manufacturing	59	40	5,903,166	Road
Water transportation	59	36	5,031,175	Water
Pay and specialty television	59	30	4,234,168	Water
Paint, coating and adhesive manufacturing	59	42	3,035,551	Road
Motor vehicle steering and suspension components (except spring) manufacturing	59	54	2,257,822	Road
Railroad rolling stock manufacturing	59	26	2,157,278	Road
Other food manufacturing	58	38	10,518,617	Road
Bakeries and tortilla manufacturing	58	49	10,055,695	Road
Resin, synthetic rubber, and artificial and synthetic fibres and filaments manufacturing	58	55	9,871,637	Rail
Seafood product preparation and packaging	58	43	6,165,594	Road
Motor vehicle gasoline engine and engine parts manufacturing	58	64	5,585,508	Road

Previous research found that vulnerability to foreign demand and supply disruptions varies depending on the type of industry—manufacturing industries are generally more susceptible (upper right corner of figure 2) and services industries are less vulnerable (closer to the origin). To get a better idea of each industry’s reliance on different transportation modes, we first categorized Canadian industries into 6 types based on North American Industry Classification System (NAICS). We then calculated each industry type’s import concentration by method of transportation using the Herfindahl–Hirschman Index (HHI).^{Footnote 6} Manufacturing industries showed on average the highest import concentrated due to their high reliance on road transport; followed by agriculture; forestry, fishing and hunting; and services industries. However, table 1 shows that almost all industries in Canada relied heavily on road as well as water transportation for sourcing their inputs, resulting in their final import mode concentration being merely a few percentage points apart. This potentially suggests a similar level of overall vulnerability to unimodal transportation disruption. We will discuss industry vulnerability in more detail in the second section of this paper.

On top of road being the main form of transportation for the greatest number of industries, industries that primarily used this mode also had some of the highest import mode concentrations. In other words, those industries that had road as the main form of transporting imports were also mainly concentrated in just using one mode of transportation, which could make them especially vulnerable to land crossing closures. This was especially true in manufacturing as 58 out of 82 manufacturing industries mainly used road for sourcing inputs. Moreover, the extent of using road for transporting imports reached over 70% for several auto manufacturing industries. Table 2 below lists the top 10 industries that have the highest import concentration by mode of transportation. All 10 were in manufacturing, with 4 of the top 5 being in automotive manufacturing. 8 of these top 10 industries primarily rely on using road. Petroleum refineries and alumina and aluminum production and processing were the only two in this list that relied primarily on water transportation for its inputs. None of the industries that primarily used air, rail, or other appeared in the top 10.

Downstream demand

A similar exercise was carried out on the export side. One notable difference, however, is that we turn our focus to trade in total exports rather than in inputs. Consequently, export data was predominantly matched to non-services industries.^{Footnote 8} Figure 3 shows the primary transportation method for exports using the same industry aggregation.

Much like the import transportation methods, the export side is dominated by road and water, but the proportion of industries that mainly used other modes is higher. In 2019, over 5,500 products were exported at the HS-8 level and matched to 126 Canadian industries. Road was once again the primary from of transportation for the greatest number of industries at 88, followed by water (16), air (10), rail (9), and other (3).

Figure 3. Upstream and downstream vulnerability by export transportation method

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	Supply vulnerability	Demand vulnerability	Output ($ thousands)	Main export mode
Motor vehicle gasoline engine and engine parts manufacturing	58	64	5,585,508	Road
Motor vehicle metal stamping	57	63	6,767,653	Road
Automobile and light-duty motor vehicle manufacturing	65	61	65,989,013	Rail
Oil sands extraction	49	60	43,940,544	Other
Petroleum and coal product manufacturing (except petroleum refineries)	67	60	5,299,325	Water
Other non-metallic mineral mining and quarrying (except diamond and potash)	39	60	1,391,143	Road
Heavy-duty truck manufacturing	63	59	2,900,018	Road
Hardware manufacturing	53	57	1,733,401	Road
Electric lighting equipment manufacturing	49	57	1,225,330	Road
Sugar and confectionery product manufacturing	56	56	4,336,415	Road
Oil and gas extraction (except oil sands)	50	55	44,309,659	Other
Resin, synthetic rubber, and artificial and synthetic fibres and filaments manufacturing	58	55	9,871,637	Rail
Rubber product manufacturing	58	55	5,082,774	Road
Alumina and aluminum production and processing	59	54	11,991,003	Rail
Other motor vehicle parts manufacturing	56	54	5,493,964	Road
Motor vehicle transmission and power train parts manufacturing	55	54	4,438,183	Road
Ventilation, heating, air-conditioning and commercial refrigeration equipment manufacturing	50	54	3,697,945	Road
Motor vehicle steering and suspension components (except spring) manufacturing	59	54	2,257,822	Road
Motor vehicle brake system manufacturing	54	54	673,370	Road
Steel product manufacturing from purchased steel	57	51	4,577,273	Road
Industrial machinery manufacturing	49	50	4,183,966	Road
Bakeries and tortilla manufacturing	58	49	10,055,695	Road
Plastic product manufacturing	64	48	24,741,720	Road
Other general-purpose machinery manufacturing	53	48	7,875,430	Road
Pesticide, fertilizer and other agricultural chemical manufacturing	53	48	5,799,206	Rail
Coating, engraving, cold and heat treating and allied activities	49	48	2,217,899	Road
Spring and wire product manufacturing	52	48	1,074,288	Road
Household appliance manufacturing	51	48	572,411	Road
Iron and steel mills and ferro-alloy manufacturing	64	47	10,952,517	Road
Converted paper product manufacturing	62	47	10,264,272	Road

As with imports, we classified these industries into 6 broad categories based on NAICS codes and then calculated each type of industry’s export concentration by method of transportation. In contrast to upstream supply, the demand side shows a wider range of export concentration by mode of transportation across different types of industries. This was mostly due to a heavy reliance on road for manufacturing industries—roughly two-thirds of total exports, leading to an HHI of nearly 0.5. Exports from agriculture, forestry, fishing and hunting; services; construction; and mining, quarrying, and oil and gas extraction industries had approximately the same levels of export concentration when compared to imports. Utilities industry was the only type that used more diverse forms of transportation for exporting goods than for importing.

Diving deeper into the industry level, the higher concentration on the export side is much more apparent. Each of the top 10 industries with the highest export mode concentration used its primary form of transportation for over 90% of its final goods exports. This contrasts with around 70% for imports, as indicated in the supply side analysis. Furthermore, this list is no longer dominated by road but rather with water accounting for 3 of the top 5 spots. At the top of the list are 4 mining industries: Iron ore; copper, nickel, lead and zinc ore; and coal mining industries almost exclusively exported their final products by water. By comparison, diamond mining industry favored air transportation over other methods due in part to the high value of its shipments.

Other major forms of transportation

The main form of transportation used in each industry for sourcing inputs and shipping final products is important, but so are other types of transportation that account for a sizable share of trade. To put this into perspective, heavy-duty truck manufacturing relies on road for 70% of its imports, but its second most used form of transportation – water– also accounts for nearly a quarter of its overall imports. Therefore, a disruption to water transportation could potentially severely impact this industry’s supply chain as well. To investigate this issue further, we applied a cut-off of 20% for both exports and imports to identify the number of industries that are potentially vulnerable to transportation disruptions under each mode of transport (tables 5 and 6).

On the supply side, water now overtakes road as the top form of transportation for sourcing inputs with 214 out of 216 industries in Canada relying on this form of transportation for more than 20% of their imports. Road follows closely in second place with 211 industries vulnerable to upstream disruptions, lacking 1 industry each in manufacturing, services, and utilities compared to water. Air came in third place with 27 industries, but it was only heavily used in manufacturing, services, and 1 mining industry. Finally, only a few industries were identified as vulnerable under other and rail, potentially suggesting a localized impact in the presence of disruptions to these two forms of transportation.^{Footnote 9}

In contrast to imports, the export side was dominated by road as over 100 industries heavily used this form of transportation for shipping their final products. This was generally due to the large share of goods that were sent directly across the border to the United States. Water and air transportation were in distant second and third places by being heavily used in 35 and 28 industries, respectively, primarily concentrated in manufacturing. Exports by rail was heavily used by 19 industries. Its increased importance compared to imports is again likely driven by Canada’s high export concentration to the United States. Finally, 3 industries -oil and gas extraction (except oil sands), oil sands extraction, and electrical power generation- heavily used other transportation modes for exports.

Logistics vulnerability

This section of our analysis will examine how vulnerable are Canadian industries to unexpected logistics disruptions. Assessing trade by mode of transportation provides insights into how Canada imports and exports goods; however, few events would lead to an entire mode of transportation needing to shut down for an extended period. Perhaps the best example of an entire mode shutting down was in the aftermath of September 11^th, where international and domestic flights were cancelled. However, domestic flights resumed the following day, and international flights resumed September 13^th. (Thomson, 2018) It is also difficult to imagine this happening for another form of transportation.^{Footnote 10} Rail blockades were set-up by protesters in early 2020 that shutdown parts of Canada’s rail transportation, but this more disrupted the domestic transportation of goods rather than the actual importation and exportation of goods. Given the rareness of entire modes shutting down, looking at mode of transportation may not be enough to label an industry vulnerable.

Similarly, considering the port of entry or exit by itself is not enough to classify an industry as vulnerable. If an industry is completely reliant on a single port of entry, the implications are quite different whether the port of entry is a marine port, an airport, a train crossing, a pipeline, or a roadway. A marine port likely has few, if any, substitutes available; an airport may have substitutes but without the required infrastructure in place to get the goods to where they need to go. A roadway may have close substitutes, but an industry may nonetheless feel the impacts of the delays—especially considering the importance of just-in-time supplies. For the rest of the analysis, the vulnerability will be analyzed with respect to the intersection of port of entry/exit and the mode of transportation; each port-mode combination will be considered a different crossing. The combination of crossing and mode of transport is what we term logistics.

To elaborate on the difference between port and crossing, Toronto-Pearson International Airport processes imports from all 5 modes of transportation. While it only directly imports and exports by air, it also serves as an important customs office for Canada. Goods may arrive in Canada at a location by any mode, but may use Toronto-Pearson as the clearance office. However, the mode of transport remains the mode in which they arrive or exit Canada. Thus, despite Toronto-Pearson being an airport, it becomes a port of entry for all 5 modes of transportation, and we define it as 5 different crossings.

Defining logistic vulnerability with respect to each port-mode combination (or crossing) might be a point of contention. For example, if the workers at Toronto-Pearson go on strike, the port will no longer process goods that arrive by any mode so the impact should not be limited to a single mode. However, we feel as though the implication on the different functions of the port are sufficiently distinct to warrant separating the modes. Goods that come by air to Toronto-Pearson will be the most affected and finding a substitute port may be the most difficult, whereas goods that use Toronto-Pearson simply as a customs office may be able to adjust more easily. We leave it to future work to examine ports in their totality without separating them into port-mode combinations.

After defining logistics vulnerability, the level of detail needs to be considered. While the final analysis will have the vulnerability at the industry level, the inputs and outputs will not be treated as a homogenous good. Assuming firms acts rationally and do not import products frivolously, each product is essential in the production process (or at least essential to their cost minimizing behaviour), thus a disruption to one product may disrupt the entire production process.^{Footnote 11} For example, a ventilator requires over 700 parts—if any part is missing, the ventilator cannot be produced. (Lam, 2020) Thus, the dependency of each product at the HS-10^{Footnote 12} level to a crossing is calculated, and then aggregated (based on share of value) to the industry level.^{Footnote 13} Implicitly, the assumptions being made are that each HS-10 product is homogeneous, and there is no substitutability across products. The calculations mean that two products each imported through a separate crossing would be just as dependent as two products going through the same crossing. The reasoning behind this calculation is that each product is still dependent on a single crossing. This means the product-crossing dependency will not be masked when aggregating to the industry level.

To clarify terms, upstream vulnerability will refer to the vulnerability of an industry’s imports, and downstream vulnerability will refer to an industry’s exports. For both upstream and downstream logistics vulnerability, the dependency is measured using a concentration index for each product, by mode, which passes through a given crossing. If a product is delivered using all 5 modes of transportation, then it will have 5 dependency scores; if it only uses a single mode of transportation, it will only have 1 dependency score. Similar to the previous section, the HHI will be used as the measure of concentration.^{Footnote 14} The reason for using a concentration index is that it considers the distribution of ports for each mode—as opposed to using a measure such as the maximum share which would only consider the most used crossing.^{Footnote 15} Using the HHI, or a concentration index in general, provides more flexibility and allows for a distinction between various combinations of concentration that might arise. Additionally, the HHI has an attractive additivity property—essentially the result of considering all crossings jointly gives the same result as considering crossings by each mode separately. Thus, the overall score is unchanged whether each product has a single dependency score or five. Lastly, like most indices, the results are ordinal and not cardinal, thus a normalization will be made by having the 5 indices for the most vulnerable industry sum to 100.

Results

Before examining the vulnerability indices, a few summary statistics are useful for categorizing Canadian trade.^{Footnote 16} Table 7 and 8 have for each crossing type: the share of exports/imports, the number of crossings available, the share of exports/imports that goes through the most used crossing, and the share of exports/imports that go through the top 10 most used crossings.

For both exports and imports, most crossings of exit and entry handle only a negligible amount of Canadian trade, while the vast majority of Canada’s trade uses only a few crossings. On the export side, the pipeline in Carway Alberta handles close to 70% of all pipeline/other exports and is the biggest crossing of exit in Canada, handling 11.6% of all merchandise exports. The road portion of the Ambassador Bridge in Windsor Ontario is the biggest port of entry and handles 14.4% of Canadian imports, it is also the largest road crossing of clearance for exports. The rail portion of the Ambassador Bridge is the busiest port of clearance for imports, while the rail crossing in Sarnia Ontario is the largest for rail exports. For air transportation, the Toronto-Pearson International Airport handles over half of Canada’s trade by air for both exports and imports.  Lastly, the port of Vancouver is the leading port of exit for water exports, and the port of Toronto is the most important port of entry for water imports.^{Footnote 17}

Figure 4. The location of major Canadian ports

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Location	Type of port
Vancouver	Marine
Vancouver	Air
Vancouver	Road
Carway	Other
Northgate	Other
North Portal	Rail
Winnipeg	Rail
Emerson	Rail
Emerson	Road
Fort Frances	Rail
Southern Ontario	Rail
Southern Ontario	Air
Southern Ontario	Road
Southern Ontario	Marine
Montreal	Other
Montreal	Air
Montreal	Marine
Saint-Bernard-de-Lacolle	Road
Saint John	Marine
Halifax	Marine
Argentia	Marine

Note: Each indicated port is at least 5% of the mode’s imports or exports.

Next, product and industry dimensions are added to the analysis. Table 9 (downstream) and table 10 (upstream) have for each crossing type: the number of observations (which is a port-mode-product combination); the average amount of each product that is exported by a given mode that passes through a crossing (e.g. for air exports, each airport that a product uses will on average process 6% of a product); the average maximum crossing for a given product (e.g. for air exports, the most used airport will on average process 18.3% of a product); the average HHI for each product (mode specific); the average vulnerability across industries; and the maximum vulnerability by industry.

These statistics support the notion that most Canadian crossings process a negligible amount of Canadian trade, and a few crossings handle most of the trade. The average crossing-share of exporting an HS-8 product is only 7%—this means that the effective number of crossings of an HS-8 product is 14.^{Footnote 18} Likewise for imports, the 2% average crossing share means that the average HS-10 product can be expected to be imported through 50 different crossings. Given the lower limit of zero, a positive skewness leads to the median number of crossing to be above the mean. In fact, the median number of crossings for an exported product is 23, and for imports the median is 76.

However, the statistics from the average and the median are misleading. On average, 43% of an exported product’s value, and 31% of an imported product’s value, passes through a single crossing. Akin to looking at the distribution by crossings, although most products will enter or exit through dozens of crossings, most of the value passes through only a couple. For example, the product HS-73181500—Bolts or screws, not elsewhere specified, iron or steel—is exported through 90 different crossings of exit, however, 90% of the value passes through just 6 of those crossings. Figure 5 and figure 6 have the total downstream and upstream logistics vulnerability.

Figure 5: Total downstream vulnerability by industry

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Industry	Vulnerability	Average
Coal mining	100	38
Tobacco manufacturing	99.1	38
Oil sands extraction	90.9	38
Gold and silver ore mining	89.6	38
Non-ferrous metal (except aluminum) production and processing	79.9	38
Motor vehicle transmission and power train parts manufacturing	79.6	38
Motor vehicle gasoline engine and engine parts manufacturing	79.1	38
Motor vehicle steering and suspension components (except spring) manufacturing	78.0	38
Copper, nickel, lead and zinc ore mining	77.5	38
Motor vehicle seating and interior trim manufacturing	76.1	38
Other metal ore mining	75.6	38
Greenhouse, nursery and floriculture production (except cannabis)	75.5	38
Motor vehicle metal stamping	70.1	38
Metalworking machinery manufacturing	69.7	38
Diamond mining	67.9	38
Forestry and logging	67.7	38
Motor vehicle brake system manufacturing	64.6	38
Fishing, hunting and trapping	64.4	38
Aquaculture	63.8	38
Wineries and distilleries	63.4	38
Meat product manufacturing	63.0	38
Crop production (except cannabis, greenhouse, nursery and floriculture production)	60.6	38
Seafood product preparation and packaging	60.6	38
Iron ore mining	59.6	38
Motor vehicle electrical and electronic equipment manufacturing	56.6	38
Heavy-duty truck manufacturing	56.5	38
Animal production (except aquaculture)	55.8	38
Steel product manufacturing from purchased steel	54.9	38
Hardware manufacturing	54.7	38
Pharmaceutical and medicine manufacturing	54.7	38

Figure 6: Total upstream vulnerability by industry

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Industry	Vulnerability	Average
Non-ferrous metal (except aluminum) production and processing	80.4	25.1
Seafood product preparation and packaging	64.1	25.1
Other miscellaneous manufacturing	59.6	25.1
Motor vehicle seating and interior trim manufacturing	54.3	25.1
Motor vehicle gasoline engine and engine parts manufacturing	53.3	25.1
Motor vehicle transmission and power train parts manufacturing	53.3	25.1
Resin, synthetic rubber, and artificial and synthetic fibres and filaments manufacturing	51.5	25.1
Automobile and light-duty motor vehicle manufacturing	50.4	25.1
Motor vehicle metal stamping	50.3	25.1
Motor vehicle steering and suspension components (except spring) manufacturing	50.1	25.1
Basic chemical manufacturing	48.9	25.1
Heavy-duty truck manufacturing	48.7	25.1
Iron and steel mills and ferro-alloy manufacturing	47.9	25.1
Pharmaceutical and medicine manufacturing	47.6	25.1
Petroleum and coal product manufacturing (except petroleum refineries)	44.2	25.1
Other electrical equipment and component manufacturing	44.2	25.1
Other transportation equipment manufacturing	44.0	25.1
Steel product manufacturing from purchased steel	44.0	25.1
Other provincial and territorial government services	43.3	25.1
Coal mining	41.8	25.1
Urban transit systems	41.3	25.1
Hardware manufacturing	41.2	25.1
Meat product manufacturing	40.3	25.1
Foundries	39.1	25.1
Forging and stamping	39.0	25.1
Motor vehicle body and trailer manufacturing	38.6	25.1
Postal service	37.8	25.1
Spring and wire product manufacturing	37.7	25.1
Electric power generation, transmission and distribution	37.5	25.1
Dry cleaning and laundry services	37.2	25.1

One of the most noticeable differences between these two graphs is that every mode of transportation tends to play an upstream role in most sectors, whereas downstream sectors tend to be much more unimodal. This is likely attributable to the fact that industries tend to be classified based on what is produced rather than what is consumed. For example, other (power lines & pipelines) make a much larger share of exports than imports, 16.8% vs. 2.5%. The red bars make up almost the entirety of three export sectors whereas the red is visible, but small, in most import sectors. This is because three sectors are defined on the production of electricity and oil & gas, and subsequently the downstream vulnerability of only three sectors have power line and pipeline (or other) vulnerability. However, almost all sectors use some amount of imported electricity or oil & gas, so almost all sectors have some amount of upstream “other” vulnerability. If industries were defined by their inputs rather than their outputs, than the above figures would be flipped—the upstream or import logistics would tend to be unimodal whereas the downstream logistics would be more distributed across modes for each industry.

Table 11 lists the sectors with the two highest vulnerability scores for each mode of transportation, as well as the part of the vulnerability score that comes from the specific crossing-type. Figures 7 and 8 compare the logistics vulnerability with the upstream supply and downstream demand vulnerability found in Boileau and Sydor.

Figure 7: Downstream vulnerability by crossing-type and demand

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Industry	Demand vulnerability	Downstream logistics	Mode	Size
Coal mining	35	99.9	Water	$ 4,166,947
Oil sands extraction	60	90.3	Other	$ 43,940,544
Gold and silver ore mining	39	88.6	Water	$ 8,011,061
Tobacco manufacturing	33	83.0	Road	$ 2,279,959
Motor vehicle transmission and power train parts manufacturing	54	79.2	Road	$ 4,438,183
Motor vehicle gasoline engine and engine parts manufacturing	64	78.5	Road	$ 5,585,508
Motor vehicle steering and suspension components (except spring) manufacturing	54	77.7	Road	$ 2,257,822
Copper, nickel, lead and zinc ore mining	46	77.4	Water	$ 9,241,948
Motor vehicle seating and interior trim manufacturing	47	75.6	Road	$ 6,133,063
Motor vehicle metal stamping	63	69.2	Road	$ 6,767,653
Diamond mining	44	67.8	Air	$ 1,870,923
Metalworking machinery manufacturing	47	67.6	Road	$ 4,275,760
Motor vehicle brake system manufacturing	54	64.5	Road	$ 673,370
Forestry and logging	37	60.9	Water	$ 10,558,914
Non-ferrous metal (except aluminum) production and processing	45	59.8	Air	$ 35,628,154
Iron ore mining	37	59.6	Water	$ 3,411,462
Wineries and distilleries	40	57.6	Road	$ 2,546,034
Heavy-duty truck manufacturing	59	56.3	Road	$ 2,900,018
Hardware manufacturing	57	53.7	Road	$ 1,733,401
Crop production (except cannabis, greenhouse, nursery and floriculture production)	29	50.2	Water	$ 37,433,400
Motor vehicle electrical and electronic equipment manufacturing	43	48.9	Road	$ 1,562,311
Petroleum and coal product manufacturing (except petroleum refineries)	60	47.6	Water	$ 5,299,325
Coating, engraving, cold and heat treating and allied activities	48	46.4	Road	$ 2,217,899
Animal production (except aquaculture)	30	46.4	Road	$ 26,290,889
Other motor vehicle parts manufacturing	54	46.1	Road	$ 5,493,964
Greenhouse, nursery and floriculture production (except cannabis)	41	45.8	Water	$ 3,841,707
Textile and textile product mills	34	42.8	Road	$ 3,668,507
Other metal ore mining	34	40.1	Water	$ 2,363,453
Clothing and leather and allied product manufacturing	34	39.3	Road	$ 3,035,961
Sugar and confectionery product manufacturing	56	39.1	Road	$ 4,336,415
Communications equipment manufacturing	34	38.1	Air	$ 3,488,307
Rubber product manufacturing	55	37.9	Road	$ 5,082,774
Forging and stamping	44	37.6	Road	$ 1,385,726
Petroleum refineries	42	36.6	Water	$ 50,773,313
Bakeries and tortilla manufacturing	49	36.1	Road	$ 10,055,695
Pharmaceutical and medicine manufacturing	45	35.5	Road	$ 13,118,459
Potash mining	42	35.0	Water	$ 4,047,517
Seafood product preparation and packaging	43	35.0	Road	$ 6,165,594
Aquaculture	38	33.9	Road	$ 1,402,184
Steel product manufacturing from purchased steel	51	33.8	Road	$ 4,577,273
Fishing, hunting and trapping	44	33.6	Road	$ 3,417,604
Spring and wire product manufacturing	48	33.6	Road	$ 1,074,288
Motor vehicle and parts dealers	18	33.6	Water	$   24,901,579
Stone mining and quarrying	38	33.4	Water	$ 1,734,042
Electric power generation, transmission and distribution	44	33.2	Other	$ 48,657,364
Automobile and light-duty motor vehicle manufacturing	61	33.0	Rail	$ 65,989,013

Figure 8: Upstream vulnerability by crossing-type and supply

Text version

Industry	Supply vulnerability	Upstream logistics	Mode	Size
Motor vehicle seating and interior trim manufacturing	63	50.1	Road	$ 6,133,063
Motor vehicle gasoline engine and engine parts manufacturing	58	49.2	Road	$ 5,585,508
Motor vehicle transmission and power train parts manufacturing	55	48.8	Road	$ 4,438,183
Automobile and light-duty motor vehicle manufacturing	65	47.8	Road	$ 65,989,013
Motor vehicle steering and suspension components (except spring) manufacturing	59	46.4	Road	$ 2,257,822
Heavy-duty truck manufacturing	63	45.7	Road	$ 2,900,018
Non-ferrous metal (except aluminum) production and processing	62	44.4	Air	$ 35,628,154
Other miscellaneous manufacturing	57	41.6	Air	$ 10,074,416
Motor vehicle metal stamping	57	39.9	Road	$ 6,767,653
Hardware manufacturing	53	36.0	Road	$ 1,733,401
Seafood product preparation and packaging	58	36.0	Road	$ 6,165,594
Other transportation equipment manufacturing	59	35.7	Road	$ 5,903,166
Urban transit systems	48	35.4	Road	$ 4,894,054
Iron and steel mills and ferro-alloy manufacturing	64	33.1	Water	$ 10,952,517
Meat product manufacturing	63	32.3	Road	$ 27,890,148
Other provincial and territorial government services	48	31.5	Air	$ 122,107,633
Other motor vehicle parts manufacturing	56	29.7	Road	$ 5,493,964
Petroleum refineries	62	29.6	Water	$ 50,773,313
Postal service	28	28.1	Road	$ 4,820,016
Motor vehicle brake system manufacturing	54	27.9	Road	$ 673,370
Petroleum and coal product manufacturing (except petroleum refineries)	67	27.8	Other	$ 5,299,325
Motor vehicle body and trailer manufacturing	58	27.0	Road	$ 3,406,352
Other transit and ground passenger transportation and scenic and sightseeing transportation	41	26.6	Road	$ 4,070,806
Spring and wire product manufacturing	52	26.6	Road	$ 1,074,288
Grain and oilseed milling	65	25.0	Road	$ 11,219,471
Steel product manufacturing from purchased steel	57	24.8	Road	$ 4,577,273
Resin, synthetic rubber, and artificial and synthetic fibres and filaments manufacturing	58	24.8	Rail	$ 9,871,637
Engine, turbine and power transmission equipment manufacturing	55	24.8	Road	$ 1,622,503
Alumina and aluminum production and processing	59	24.5	Water	$ 11,991,003
Investigation and security services	29	24.4	Road	$ 7,054,111

One takeaway from the graphs is that the majority of output falls below the median vulnerability for both imports and exports and there is a negative correlation between output and logistics vulnerability for both exports and imports.^{Footnote 19} This is good for the Canadian economy—the bigger the sector, the less likely it is to be vulnerable to a crossing shutdown. Another feature of both graphs is that there is a tight, statistically significant, correlation between logistics vulnerability and both demand and supply vulnerability. It seems reasonable that if Canada sources all its imports from a particular country for a given sector, than most of those imports would come through the same crossing. This is not an a priori feature of the indices as there is nothing that says all imports from a given country need to pass through a specific crossing. However, given that most of Canada‘s merchandise trade happens with the United States and most of the international trade happens North-South rather than East-West, this result seems to fit common Canada-U.S. trade narratives.

While it might seem like the supply or demand concentration causes the logistics concentration, the causality can also work in reverse. An example of the logistics concentration causing downstream demand concentration is the oil sands extraction industry. One of the major difficulties with Canada’s oil sands is that it is difficult to get the oil from Alberta to the coast of British Columbia.^{Footnote 20} As a result, the oil sands rely on sending their oil to the United States and this is part of the reason for why Western Canadian Select oil trades at a discount compared to West Texas Intermediate. While supply or demand concentration may cause the logistics concentration in many cases, there are exceptions where the logistics concentration causes the country concentration.

One feature that appears in tables 9 to 11, and figures 5 to 8 is that downstream logistics vulnerability is generally higher than upstream logistics vulnerability. Given that the dependency is calculated at the product level and not the industry level, the classification discussed earlier doesn’t explain why downstream exports tend to have higher vulnerability scores than upstream imports. It is instead due to a characteristic in Canadian trade that exports are more concentrated geographically than imports. The ex-ante expectation would be for imports to be more concentrated, since they have a more detailed level of classification; however, the average weighted geographic HHI by product is 0.72 for exports, and only 0.57 for imports.^{Footnote 21} Given that exports tend to go more to the same country than imports, it makes sense that exports tend to pass through less ports. This is another case where the direction of causality matters: is it the logistics causing exports to be more geographically concentrated than imports, or is it the disparity in geographic concentration between imports and exports that causes the disparity in logistics vulnerability? To the best of our knowledge, the reason for this is unclear (and likely worthy of a separate paper), so this study will leave this as an open ended explanation: the logistics vulnerability is correlated with the geographic concentration of trade.

The way the vulnerability scores have been presented thus far may not be the most appropriate way of assessing an industry’s vulnerability. The problem is that the type of crossing likely has a substantial impact when assessing the severity of the vulnerability to a crossing shut down. As previously mentioned, a road crossing is the most likely to have available substitutes while the other modes seem less flexible. This is not to say that a shutdown to the Ambassador Bridge would not cause major issues—it certainly would as other crossings of clearance would not be able to absorb the close to 30% of the total road trade that the bridge handles, but there would be some close-by substitutes that could take on some of the lost capacity. However, if the marine port of Vancouver, Toronto-Pearson airport, or the pipeline in Carway Alberta shut down, finding available substitutes seem less likely.

Ideally, there would be a way to quantify the substitutability of each crossing—including road crossings—and factor that into the vulnerability scores; however, this step is beyond the scope of this paper. As an alternative, figures 9 and 10 below contain the same information as figure 7 and 8 but using only the non-road modes of transportation.

Figure 9: Vulnerability by downstream by non-road crossing and demand

Text version

Industry	Demand vulnerability	Downstream logistics	Mode	Size
Coal mining	35	99.9	Water	$ 4,166,947
Oil sands extraction	60	90.3	Other	$ 43,940,544
Gold and silver ore mining	39	88.6	Water	$ 8,011,061
Copper, nickel, lead and zinc ore mining	46	77.4	Water	$ 9,241,948
Diamond mining	44	67.8	Air	$ 1,870,923
Forestry and logging	37	60.9	Water	$ 10,558,914
Non-ferrous metal (except aluminum) production and processing	45	59.8	Air	$ 35,628,154
Iron ore mining	37	59.6	Water	$ 3,411,462
Crop production (except cannabis, greenhouse, nursery and floriculture production)	29	50.2	Water	$ 37,433,400
Petroleum and coal product manufacturing (except petroleum refineries)	60	47.6	Water	$ 5,299,325
Greenhouse, nursery and floriculture production (except cannabis)	41	45.8	Water	$ 3,841,707
Other metal ore mining	34	40.1	Water	$ 2,363,453
Communications equipment manufacturing	34	38.1	Air	$ 3,488,307
Petroleum refineries	42	36.6	Water	$ 50,773,313
Potash mining	42	35.0	Water	$ 4,047,517
Motor vehicle and parts dealers	18	33.6	Water	$ 24,901,579
Stone mining and quarrying	38	33.4	Water	$ 1,734,042
Electric power generation, transmission and distribution	44	33.2	Other	$ 48,657,364
Automobile and light-duty motor vehicle manufacturing	61	33.0	Rail	$ 65,989,013
Meat product manufacturing	18	32.1	Water	$ 27,890,148
Resin, synthetic rubber, and artificial and synthetic fibres and filaments manufacturing	55	27.4	Rail	$ 9,871,637
Aerospace product and parts manufacturing	46	27.0	Air	$ 23,558,294
Railroad rolling stock manufacturing	26	26.5	Water	$ 2,157,278
Other miscellaneous manufacturing	32	25.5	Air	$ 10,074,416
Oil and gas extraction (except oil sands)	55	24.7	Other	$ 44,309,659
Other electronic product manufacturing	40	24.4	Air	$ 6,344,603
Pulp, paper and paperboard mills	44	24.2	Water	$ 16,841,087
Semiconductor and other electronic component manufacturing	40	23.7	Air	$ 3,957,123
Grain and oilseed milling	41	21.8	Water	$ 11,219,471
Seafood product preparation and packaging	43	20.6	Water	$ 6,165,594

Figure 10: Upstream vulnerability by non-road crossing and supply

Text version

Industry	Supply vulnerability	Upstream logistics	Mode	Size
Non-ferrous metal (except aluminum) production and processing	62	44.4	Air	$ 35,628,154
Other miscellaneous manufacturing	57	41.6	Air	$ 10,074,416
Iron and steel mills and ferro-alloy manufacturing	64	33.1	Water	$ 10,952,517
Other provincial and territorial government services	48	31.5	Air	$ 122,107,633
Petroleum refineries	62	29.6	Water	$ 50,773,313
Petroleum and coal product manufacturing (except petroleum refineries)	67	27.8	Other	$ 5,299,325
Resin, synthetic rubber, and artificial and synthetic fibres and filaments manufacturing	58	24.8	Rail	$ 9,871,637
Alumina and aluminum production and processing	59	24.5	Water	$ 11,991,003
Pharmaceutical and medicine manufacturing	50	23.7	Air	$ 13,118,459
Electric power generation, transmission and distribution	41	22.7	Water	$ 48,657,364
Foundries	55	21.1	Water	$ 2,456,284
Aerospace product and parts manufacturing	59	18.7	Air	$ 23,558,294
Hospitals	38	18.6	Air	$ 97,371,930
Other electrical equipment and component manufacturing	57	18.5	Air	$ 4,145,843
Seafood product preparation and packaging	58	17.4	Water	$ 6,165,594
Air transportation	51	17.4	Water	$ 23,310,421
Coal mining	47	16.9	Other	$ 4,166,947
Steel product manufacturing from purchased steel	57	16.7	Water	$ 4,577,273
Basic chemical manufacturing	60	16.6	Other	$ 15,800,723
Sugar and confectionery product manufacturing	56	14.5	Water	$ 4,336,415
Iron ore mining	51	13.9	Water	$ 3,411,462
Textile and textile product mills	51	13.8	Water	$ 3,668,507
Water transportation	59	13.5	Water	$ 5,031,175
Tobacco manufacturing	37	12.7	Water	$ 2,279,959
Rubber product manufacturing	58	12.7	Water	$ 5,082,774
Offices of dentists	42	12.4	Air	$ 15,776,154
Forging and stamping	52	12.2	Water	$ 1,385,726
Other federal government services (except defence)	43	11.1	Air	$ 55,003,599
Architectural and structural metals manufacturing	57	10.9	Water	$ 15,243,536
Other food manufacturing	58	10.8	Water	$ 10,518,617

Once road is eliminated, water becomes the dominant vulnerability concern. On the downstream side, water has the highest vulnerability score for 58 of the 126 industries (46%); on the upstream side, water has the highest vulnerability score for 174 of the 216 industries (81%). For both imports and exports, the vulnerability by crossing decreases significantly for most bubbles. With road included, only 23 of the 126 sectors had a total downstream score less than 20; once road is eliminated 87 of the sectors have a total score less than 20.^{Footnote 22} The import side is similar: with road included, 67 of the 216 sectors had a total upstream vulnerability by crossing less than 20; once road is excluded, that number increases to 198. Thus most sectors, both upstream and downstream, once road is eliminated are not vulnerable to another type of disruption.

Conclusion

This chapter has examined the reliance of Canadian industries on different modes of transportation and the vulnerability of Canadian industries to a shutdown of a border crossing. Overall, industries in Canada were found to be heavily dependent on road and water transportation for both the supply of their imports and exports of goods. Road was heavily used in all types of industries, but especially in auto manufacturing as they posted some of the highest import and export concentrations out of all the industries. Reliance on water transportation was widespread for sourcing inputs with nearly every industry importing over one-fifth of its inputs with this method, but the extent of using water for exports was more limited to certain industries like mining. Air transportation was not common but was used intensively for transporting high-value goods such as diamonds. Rail and other transportation modes were not extensively used for most industries, potentially indicating a more localized impact in the presence of a transportation disruption.

To further investigate Canadian the logistic vulnerability in Canadian GVCs, where and how the goods crossed the border was added to the analysis. It was found that although Canada has more than 400 crossings of exit, and over 600 crossings of entry, most trade passes through only a handful of those crossings. The majority of the output in the Canadian economy has both upstream and downstream logistics vulnerabilities below the median and a negative correlation exists between size of the industry and logistics vulnerability. Road crossings was the most vulnerable for the majority of industries and eliminating the road crossings led to most industries having low vulnerability. Lastly, there is an intimate link between the geographic diversification of trade and the logistics vulnerability—however, the direction of causality might work in both direction and the reason why exports are more concentrated than imports is left as an open ended question for future research.

References

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