Employee and supervisor in a manufacturing company

Kyle Meadus, Sovereign Insurance

“Unfortunately, a lot of the equipment that is heavily relied upon today is not manufactured in this country – it's manufactured in the US, Germany, and Japan”

Kyle Meadus, Sovereign Insurance

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Three key challenges facing manufacturers

Brokers, as the first port of call, must be aware of manufacturing clients’ needs as the sector continues to wrestle with pressures

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CANADA'S MANUFACTURING sector has not had an easy time in recent years, and it is still facing challenges that are also being experienced on a global scale. This is according to Kyle Meadus, manager, commercial underwriting at Sovereign Insurance. While it may have been “very easy for everyone to blame COVID” in the past, and the lingering impact of the pandemic and related disruptions will continue to pose a problem, Meadus flags three further issues that are hitting manufacturers where it hurts – their pockets.

Product scarcity, port congestion, and labour shortages are all driving up costs and posing difficulties for manufacturers. “The cost of doing business is greater than it was yesterday,” Meadus tells Insurance Business. “[There are issues with] port congestion; the supply chain has been complex and disruptive, and it will continue to be an issue for global manufacturers in getting their products across the world.” Canadian ports, like those in other countries, have had to contend with bottlenecks and backlogs. On the release of its 2022 report, the National Supply Chain Taskforce wrote to the minister of transport to call for imminent action to address “longstanding weaknesses” in the country’s transportation supply chain. Skilled labour shortages are also proving a major headache for manufacturers, in Canada and farther afield. “Manufacturers have a situation with skilled labourers, and once that product has been delivered and it’s ready to be manufactured out of raw materials, having the right technology and the right people to work – that has been an issue across the board, and will continue to be a problem,” Meadus says.

Having a giant neighbour in the US, which has a population of just under 335 million, can be a boon to Canadian manufacturers, and roughly 75 percent of Canadian manufactured products head across the border, according to Meadus. With exporting high on the agenda, currency fluctuations and how the Canadian dollar performs against its peers can have major ramifications for manufacturers. A weaker Canadian dollar can make product “more competitive in the global landscape,” according to Meadus, but there is a flipside that could be driving manufacturers to abandon initiatives. With manufacturers looking to harness the power of technology to keep pace with their global peers, and much equipment supplied from overseas, a weak loonie has the potential to bite.

“Unfortunately, a lot of the equipment that is heavily relied upon today is not manufactured in this country – it’s manufactured in the US, Germany, and Japan. “And a weaker dollar ultimately [means it] will cost those manufacturers more to obtain those products, forcing them to make different decisions on growth and [in some cases] ultimately postponing those projects completely.” With manufacturers already stretched, it is the role of the broker to make sure they have adequate cover in place to plug any risk gaps that could leave them counting further costs down the line, especially when these clients are facing pressures.

In the space of a year, Canadian manufacturers took a $7.2 billion hit from lost or turned down contracts and production delays caused by labour shortages, according to the Canadian Manufacturers & Exporters’ (CME) latest annual survey, with results published in October 2022. Sixty-two percent of those surveyed told the organization that they had been affected. Meanwhile, 43 percent had postponed or cancelled capital projects due to workforce difficulties, coming at a cost of $5.4 billion in lost investment, the CME said. [source] Overall, more than 80 percent of manufacturers said they had faced skills and labour shortages that year, up from 60 percent in 2020. The sector may be facing challenges, but it is still big business. Canadian manufacturing accounted for roughly $194 billion (or just over nine percent) of gross domestic product (GDP) as of January 2023, according to Statistics Canada. [source] As of 2021, manufacturers exported more than $354 billion each year, which represented 68 percent of all of Canada’s merchandise exports, according to the government of Canada website. [source] As the government has put it, “A vibrant manufacturing community encourages industrial clusters that develop skills, knowledge and technology. “Success breeds success: when Canada’s manufacturers grow and compete, they act as magnets for new investment and for new young people wanting to be part of this great industry, making the products of tomorrow.”

“Understanding a manufacturer truly starts at the broker level,” says Meadus. “It’s the broker’s job to really identify the coverage concerns, gaps in coverage, or the needs of the business, and then relay that to the insurer.” It is vital that the broker find a partner who “aligns with the business and the insurance needs,” Meadus says. “Once the insurer has been selected, the insurer will work with risk engineering, along with the broker and the insured, to really understand the business, minimize risks, and see if the products align with what the customer truly wants,” he says. Sovereign Insurance itself is rolling out a new product this year that is tailored to the manufacturing sector.

“It's important for brokers to identify insurance companies that have industry-specific wordings and comprehensive, customizable coverages for their client, and at Sovereign we want to be a product leader,” says Meadus. While devising a great product to suit business needs is one piece of the puzzle, there is more to finding the right insurance partner. This is particularly the case in this sector, according to Meadus, and this is something that Sovereign Insurance has committed to keeping top of mind when it comes to offering services. “In the manufacturer space, the product is only one thing,” he says. “Ultimately, the value-adds of risk engineering and claim services all go a long way when selecting the right insurer.”

Canadian manufacturers facing workforce challenge

The Sovereign General Insurance Company (Sovereign Insurance) is your partner in resilience. We work with our dedicated partners to provide advice, education, ongoing support, and breakthrough risk solutions to address the ever-evolving, unique needs of Canadian businesses. We’re passionate about building a stronger Canada through resilient businesses and the communities they serve. Canadian-owned and -operated since 1953, Sovereign is a wholly owned subsidiary of The Co-operators General Insurance Company, a leading Canadian provider of multi-line insurance products with assets of $9 billion. Sovereign operates in six offices across Canada and is proud to carry an AM Best A (Excellent) rating. To learn more, visit www.sovereigninsurance.ca.

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Published 23 May 2023

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Source: CME annual labour survey, results published 2022

Value of one year of manufacturers’ economic losses due to shortages

$13 billion

Percentage of manufacturers that have lost or turned down contracts and faced production delays due to labour shortages

62%

Cost of labour shortages in lost sales and penalties

$7.2 billion

Percentage of companies that have postponed or cancelled capital projects due to labour shortages

43%

Value of investment lost due to workforce issues

$4.2 billion

Scale of Canada’s manufacturing sector

As of 2021, the manufacturing sector accounted for:

full-time, well-paying jobs

1.7 million

worth of exports, or 68% of all Canada’s exports

$354 billion

of Canada’s GDP, rising to $194 billion as of January 2023

$174 billion

Source: Government of Canada