Reports have been hitting the news lately of the overburdened port of Vancouver, where goods coming from China are piling up awaiting their transfer to a train bound for Eastern Canada. The situation is undoubtedly annoying - but there are significant implications for the economy, too.
Consider that some 15 per cent of Canada's imports come from Asia, and most of those would pass through Vancouver. The total value of this stream is therefore on the order of $55 billion annually, or nearly $5 billion per month. The flow is not smooth, however - there is a disproportionate level of shipments in the second half of the year as retailers stock up for the holiday season.
Media reports and other commentary suggest that there is a backlog of approximately two weeks' worth of imports sitting in the port awaiting transfer to the rail system, prompting some importers even to re-route their goods all the way around to Halifax. In round figures, therefore, the import clog in Vancouver amounts to at least four per cent of the annual flow - or on the order of $2-$3 billion - and probably somewhat more than this because imports are higher in the second half of the year.
How can this affect the economy? First, the clog shows up in an unexpected rise in inventories in Canada's GDP figures. The recent GDP report for the third quarter showed that inventory accumulation added 1.2 per cent to GDP growth - up to one-third of which could be due to the clog. A second effect occurs on the other side of the equation - some of those goods would have been sold during the quarter, but they were not, simply because they were stuck in Vancouver instead of being available in stores.
A third potential effect could be a temporary softening in exports. If some of the goods stuck in Vancouver are components destined for incorporation in Canadian exports, companies with global supply chains might have to slow down their export shipments.
There is evidence that all three effects may have been present in the recently released GDP statistics for the third quarter. Taken together, these three effects are leading many analysts to downgrade their outlook for the Canadian economy. Before these figures were released, our growth projection for Canada for 2005 was 3.2 per cent. Although a mechanical interpretation of the inventory build-up would suggest revising that figure to as low as 2.5 per cent, adding some judgment in light of Vancouver's difficulties leads us to reduce the effect by almost half - growth in Canada in 2005 should be about 2.9 per cent.
The bottom line? The clog in the port of Vancouver is a reminder that a temporary disruption in the flow of trade can have a significant impact on economic statistics. Our analysis suggests that Canada's economic growth is probably stronger than the recent headline figures suggest - but that assumes that the Vancouver port problem does not get any worse.
(Stephen Poloz is senior vice-president and chief economist for Export Development Canada. He can be reached at spoloz@edc.ca)
