“How dear to us thy broad domain, from East to Western sea,” from the second verse of Canada’s national anthem, pays tribute to a country that is second in size only to Russia but with a population of only 35 million, the same as the state of California.

While 80 percent of the population lives within 100 miles of the United States/Canada border – the longest unprotected border in the world – 60 percent of them live in the provinces of Quebec and Ontario and 26 percent of that population live in a small 12,000 square-mile area around the city of Toronto.

“While there’s a lot of density in that area we call ‘the golden horseshoe,’ if you look beyond, it’s insanely complicated and costly to distribute across Canada,” says Nick Pedneault, President & CEO of Congebec.

“Our cold chain relies on lots of small cities spread thousands of miles apart and is a very different model than that of the United States, which has hub cities across the country. What takes a day in the States can take six days of logistics in Canada.”

The pressure to connect the supply chain in Canada means collaborative shipping and alternative means of transportation and lots of intermodal. “It’s incredibly expensive to ship LTL, so we go out of our way to find cost-effective solutions for everybody to connect food production and be able to deliver the same quality of food across the country. As a 3PL, we have a significant role in making this happen.”

Retail Consolidation

“In Canada, the retail industry is very consolidated with five buying groups controlling 95 percent of the buying,” points out Eben James, CEO of Trenton Cold Storage, Inc. “They put tremendous pressure on each other and, in turn, on the people who supply them. All retailers in Canada have banners that price match. That combined with apps like Flipp cause consumers to price-match their whole grocery bill. As a consequence, everyone who sells to these buying groups has to sign a margin protection agreement and the retailer leans on the vendor to make up the pricematch difference.”

Wal-Mart, in particular, has increased its presence in the Canadian grocery industry since introducing their Supercentre model in 2006, notes Greg Laurin, President of Conestoga Cold Storage. “They have more than 300 Supercentres across Canada and continue to expand. Wal Mart views the addition of grocery aisles in its stores as an important consumer traffic generator and is currently investing in its distribution and cross-dock network to allow for growth of both fresh and frozen food products.”

Global Trade

“By the sheer nature of our country, we are a trading nation,” says Doug Harrison, President and CEO of VersaCold Logistics Services. “And all the regulations and complexities of international trade have been developing as Canada continues to negotiate global trade agreements.”

Harrison explains that Canada has just completed negotiations on TPP (Trans-Pacific Partnership) facilitating the export of food proteins, finished food products and grain products to the Pacific and Asia. And export trade on the eastern coast of Canada will be boosted by the country entering the CETA (Comprehensive Economic and Trade Agreement) free-trade agreement between Canada, the European Union, and its member states.

“One of the complexities that we’ve seen recently is that every developed nation is increasing its food safety regulations,” Harrison observes. “Many of our facilities are certified for the United States, Asia, and Europe, but for some permits into Asia, it can take two years to complete the administrative process. You have to make sure processes and training are in place to ensure the individual requirements of the different countries.”

“Of course, no update of the Canadian market would be complete without discussing the U.S. political landscape and the ongoing renegotiation of NAFTA (North American Free Trade Agreement),” says Laurin. “Many of our customers are keeping a close eye on the negotiation process and have kept plans for expansions in Canada on the back burner until there is more certainty around the trade deal.”

Talent Management

“Driver shortages and talent management are some of our greatest challenges,” Harrison notes. “Economic growth is quite strong so we have a very tight labor market and we’re always on the lookout for great talent.”

Harrison adds that Canada depends and thrives on immigration. “We have a relatively low birth rate and a pronounced aging of the baby boomer workforce so to be able to maintain our standards of living and workforce, we continue to open up to immigration.”

“Like many countries, we grapple with driver shortage issues and while our driver turnover rate might be only 15 to 30 percent, our average driver is 54 years old,” says Wendell Erb, President & CEO of The Erb Group of Companies, a temperature controlled transportation company with some cold storage niche warehousing. “We still struggle to replace them as we do our dispatchers and warehousemen.”

“We don’t spend anything on marketing to attract new customers but instead we take that budget we would typically spend on advertising and marketing and allocate it to employer branding and recruiting the talent we need,” Pedneault points out. “With all the training we provide and the trust we place in them to handle our customers’ inventory, we can’t afford turnover and we make sure our team members are well treated, happy, and productive.”

Regulatory Climate

James notes three regulatory issues impacting the Canadian cold chain. First is the TSSA (Technical Standards and Safety Authority) regulation that every building has to have an engineer present 24/7. “They just have to be there and they are expensive and the total annual cost of this will be $1.6 million, just for our company in Ontario.”

Second is a change to the Ontario Labor Relations Act that seeks to change the number of workers required to hold a vote to form a labor union from 4 out of 10 to 2 out of 10 and to eliminate secret ballots.

The third regulatory battle is against legislation aimed at raising the minimum wage in Ontario by 31 percent, with James calling the proposed legislation “a tremendous issue for our cost structure and our ability to recruit people. Even though we pay more than the proposed minimum wage, everyone will feel their worth should rise by 31 percent, regardless of what they’re earning.”

Laurin adds, “A proposed $15 minimum wage represents a 30 percent increase over the next 18 months and is causing major concern among small business owners. Ontario continues to be a major food manufacturing hub and such a significant change over a short amount of time is going to be challenging for many of our customers to absorb.”

“We pay well over minimum wage but we want to keep the same spread between minimum wage and what our employees are earning but that doesn’t mean our customers will want to pay the additional cost,” Pedneault asserts. “At the end of the day it will create cost pressure along the whole supply chain as employees will get much closer to what supervisors are asking for in wages. We want everybody to have good quality of life but the government has to understand the side effects of its actions.”

Food Waste

Food waste is a growing concern for Pedneault and many other Canadians in the cold chain industry. “Food waste is collateral damage of the trend towards consumers wanting more fresh food products,” Pedneault says. “Food processors want to be top of list for fill rates when shipping to retailers but that means more inventory and more food wasted at the end of the day.”

Pedneault suggests consumers need to be exposed to the waste so they understand that fresh comes at a price. “It’s like exposing a product’s carbon footprint so consumers can make educated decisions.

James says his company has created a large food waste program. “More than a million and a quarter pounds – 30 tractor trailer loads of product – were destined for the dump last year but instead we sent the food to food banks and fed people who otherwise would not have eaten.”

James said the charities assured brand owners that their products would not be cannibalized in the marketplace and that food banks and other charities would not distribute any more than one family could consume.

E-Commerce

“We are experiencing a growth of Internet commerce like in the States and other countries, but the challenges of our lack of population density create a question of economics on same-day or multi-hour deliveries,” Harrison notes. “But in major markets and cities, certainly there’s opportunity.”

“We’ve provided store-door delivery to retail since 1972, and distribution is a continuing evolution,” Erb contends. “At one time 50 percent of our distribution shipments were frozen and 50 percent chilled products like quarters of beef, but that’s all gone now. Today we’re hauling deli items, made to order meals, all with short shelf lives and all for ease of prep for the end consumer.”

Erb adds that in rural areas they can’t deliver as frequently, but in urban areas, they are delivering to the same store every day of the week for some of their shippers.

“The combination of food safety legislation, impending minimum wage changes, electronic driver logs, and stagnant and reduced rates for a couple of years means a tremendous shift in transportation costs in the next year – look out, it’s coming,” Erb warns.

“I think the real trends we’re seeing in the Canadian cold chain are the supply chain challenges of shorter lead times as consumers and customers push for more healthy product and more fresh product and the demand that puts on us to create temperature zones and expedited transportation between distribution centers,” Harrison explains. “The second big trend is our supply chain is increasingly global as manufacturing moves around the world. With our large land mass and small population, it means we need to be competitive internationally and supply chain costs and challenges are that much greater.”

Alexandra Walsh is a Senior Publishing Consultant with Association Vision and Managing Editor of COLD FACTS. This article was originally published in the November-December 2017 issue of COLD FACTS Magazine.