Commentary: The Great Quickening, Shorter Supply Chains?

Aaron Henry is the Senior Director of Natural Resources and Sustainable Growth at the Canadian Chamber of Commerce. ‘The Great Quickening’ is a new, regular column on CBRN focused on how COVID-19 will accelerate social, economic, and technological drivers of change. Based loosely on a strategic foresight approach, this column explores how certain trends are being accelerated in the post-COVID world to provide Canada’s business community with insight.

After worshipping at the altar of ‘Disruption’ during the 2010s, the decade marked its close by flipping the global economy upside down into a global depression. Leave it to a virus to show us a thing or two about real ‘disruption.’ A race has started among thought-leaders, politicians, and academics to diagnose and name the new post-COVID-19 world in which we now find ourselves. In some cases well established economic forces and trends have not been so much derailed by the pandemic, but have been accelerated. Take, for instance, the looming recession in globalization.  

For the last 40 years economic policy has been led by globalization and sought to shrink our world. Just-in-time production and the push towards open markets led to a production process that depended on very long supply chains, often with component parts being produced all over the world with integration taking place at the ‘last mile’ of production. This trend was already getting shaky. Trade wars were ramping up and a more multipolar world was taking shape. The pandemic may have just dumped kerosene on this trend.

Geopolitics and Technology Converge

From a more fractious OPEC, to our frustrated efforts to get our hands on functioning PPE, companies and states alike may find themselves under pressure to become more resilient and to shorten supply chains. One part of this strategy may be to repatriate production to build more of our goods and parts on our own soil. While this certainly could make the supply of goods more resilient, it carries high costs. For one, if manufacturing were to return to Canada this would negate the significant cost-savings that came from offshoring large segments of supply chains. Returning those facilities will either require significantly increasing the price to consumers or automating production to cut costs.

This has already been the experience in the US which saw a significant increase in its manufacturing sector, but the sector’s resurgence was robot-led. While automation has been an ongoing process for decades, advanced applications of artificial intelligence and the growing sophistication of 3D printing will allow greater convergence between geopolitics and technology. The risk, of course, is that the uptake of these technologies to shorten supply chains will be a fetter on what may already be a long process of absorbing labour displaced by COVID-19 measures.

However, these same processes could create significant opportunities for Canada. First, we can achieve significant climate benefits by reshoring production here. Canada’s whopping 82% non-emitting power supply could be a significant draw for energy-intensive manufacturing processes, especially as highly automated production may add energy intensity to the production process. Second, even in a world where production becomes more localized and supply chains significantly shorter, the raw materials to feed production will still be in high demand. This creates significant economic opportunities for Canada’s resource sector in both fulfilling the demands of localized domestic production, but also supporting the localization of production in new domestic markets. This seems to be the impetus at the heart of Canada’s Minerals and Metals plan, but there are likely more opportunities to think through how Canada’s resource sector can be leveraged in a world of shorter supply chains. 

Regardless, the significant challenge for policy-makers is how to navigate what may be a decade long shift towards reshoring production and shorter supply chains. Demands for greater resiliency and security could see the world teeter into full-blown protectionism, which historically slows economic recovery by raising costs and makes global relations more fractious and combative.

– Aaron Henry