COVID‑19 and value chains in Canada

Shortly after the pandemic began, the Bank of Canada regularly consulted companies that support supply chains. We wanted to learn how disruptions caused by the pandemic were affecting the value chains Canadian businesses rely on.

They told us that the pandemic had a negative effect on their operations, particularly when it came to:

• getting products
• transporting and storing goods

As supply chain disruptions continued, many companies saw their sales affected. They also reported a surge in prices for the things they needed to produce goods or offer services, known as inputs.

Overall, the networks that Canadian companies rely on had to adapt to shutdowns, shortages and delays. Companies also made various adjustments, such as limiting their product lines or finding different suppliers. And businesses increased their inventories to avoid shortages of key inputs. Several firms say they navigated significant challenges in part by working closely with larger firms in their network.

Shifting strategies

Supply chains are unlikely to return to their pre-pandemic form after all the events of the past years and the effects from other long-term trends.

The Bank’s consultations show that businesses will continue to adjust. Many companies say they will maintain some of the strategies they adopted in responding to the pandemic and the invasion of Ukraine. These strategies include:

• finding just-in-case or nearby suppliers
• holding more inventories

These measures will add to operating costs—but they will make companies better prepared for the next disruption.

We haven’t yet seen a lot of evidence of “reshoring” (that is, shifting production to a firms’ home country) or “friend-shoring” (that is, shifting production to politically friendly countries and allies). But firms are certainly thinking twice about where to expand production.

Many companies are also adopting digital technologies more quickly than planned. Most recognized that evolving technologies increased their efficiency and allowed them to connect more seamlessly to global value chains. These technologies include blockchain, artificial intelligence and cloud computing.

Here to stay in one form or another

As international trade accelerated in the 1990s, global value chains grew rapidly. But now they seem to be stalling.

This is mainly because the initial, massive impact of bringing China and other major emerging-market economies into the global economy has already been felt. Other factors have slowed the growth of global value chains in recent years, including:

• trade and geopolitical tensions
• a decline in global economic growth
• the COVID-19 pandemic and the invasion of Ukraine

Going forward, climate change will also shape the future of global value chains.

Global value chains may never again grow like they once did. But given their success, these networks are likely here to stay—in one form or another.