by Andrew Brooks
Innovation support, skilled labour top the list of challenges for mouldmakers
The mouldmaking industry in Canada is strongly linked to other sectors of the economy, the automotive sector being a prime example. So strong are the automotive links that industry assessments and forecasts often simply repeat auto-sector analyses as a way of gauging the industry’s prospects.
“The industry is pretty strong right now,” says Jonathon Azzopardi, president of Laval Corp. and chairman of CAMM, the Canadian Association of Mouldmakers. “The US recovery has been good, consumer sentiment in the US is good, and historically mouldmakers in Canada normally do very well when consumer sentiment is good.” Consumer confidence is a primary driver of the automotive industry, which by Azzopardi’s estimate is the source of about 70 per cent of the work Canada’s mouldmakers do.
Azzopardi notes that the current US-Canada exchange rate is also in Canada’s favour. “A rate of about 20 per cent is good to keep Canada and the US competitive, but right now we’re close to 35 per cent. In other words, the rate is actually in our favour over that 20 per cent level playing field by about 15 per cent.” Azzopardi believes the rate will persist for a couple of years.
“Do I think the economy is still vulnerable? Absolutely. Global competition is greater, and we have leaders making decisions that could impact the economy years down the road. The trade discussions could change things overnight. So for sure it’s still delicate.”
One policy that the new Trump administration in the US has been talking about as a response to what it sees as the anti-US bias of continental trade agreements is the implementation of a “Border Added Tax” (BAT—also referred to as a reciprocal tax) on goods imported into the US. While technically a tax, most industry analysts say it should really be considered a tariff—one that could have a huge impact on the Canadian economy generally, and in particular the automotive sector.
“Adding a BAT—on top of proposed changes to US corporate taxes—may be good for the US, but the long-term ramifications to the industry could be bad,” Azzopardi says.
As the US, Canada and Mexico position themselves for possible renegotiation of trade deals, Azzopardi feels Canada is in a prime position as the only one of the three partners that has approached “free trade” honestly and fairly.
“An article I read recently said Canadian companies are the only ones that can honestly say they employ more Americans and Mexicans than Canadians. We grew in the US and Mexico more than in our own nation. We not only fulfilled the spirit of free trade but went above and beyond. If you look at it that way, Canada should come out of any agreement not with less but with more; we’ve proven we can use free trade to grow their two economies.”
Azzopardi is critical of a continuing negative trend in the federal government’s Scientific Research and Experimental Development (SR&ED) Program, which offers a tax incentive to Canadian businesses to undertake research and development.
Innovation is an especially challenging process for mouldmakers, involving a lot of trial and error. “We may go down a path and three months in we find it’s not going to work, so we have to back out of two or three months’ worth of work,” Azzopardi says. “It’s not that eureka moment. There’s a lot of trial and error, rebuilding and redesigning, and the process is very costly.” So the tax support is critical, Azzopardi says.
“Traditional research companies can access different programs, but SR&ED is probably the main program for business. And it’s being cut way back. Ten years ago we had a $4.8 billion SR&ED budget, and today it’s around $2.8 billion.”
Azzopardi says that sends a signal to companies looking to invest in Canada that this country isn’t interested in innovation.
“If they continue to carve that away they’re going to have problems. I’m not saying we can get back to $4.8 billion in one fiscal year, but we need to see the numbers start to climb.” At press time, Azzopardi says, CAMM and other industry bodies were preparing for SR&ED reforms that Ottawa says are coming.
More Hands On Deck
Canada’s mouldmakers face one challenge that seems to be endemic to any manufacturing industry: the shortage of skilled labour, exacerbated by a wave of retirements. While the shortage is universal, Azzopardi believes there are regional differences: mouldmakers in southwestern Ontario haven’t been as hard hit as others, specifically in the GTA.
One possible positive indicator is the continued rise in the profile of manufacturing as a career choice.
“Manufacturing and skilled trades in general have gotten a good shot in the arm,” Azzopardi says. “College numbers are up, and we’re having high schools looking at some of the decisions they made in the past, where they put funding into other areas and de-emphasized trades.”
To illustrate, Azzopardi notes that a new high school in his community has been bombarded with suggestions about emphasizing the trades curriculum. And he recalls that when he was asked to deliver the keynote at an awards ceremony for his old high school, many parents sought him out afterward to tell him they came from the same blue-collar roots. It was the first time they’d seen someone they could identify with at the podium.
But the fact that the labour situation remains grim is borne out by Ian Fitzpatrick, vice president and general manager of Zip Mold, based in Markham, ON, just north of Toronto. The company makes thin wall injection moulds for food packaging, primarily dairy products.
The irony of the skills shortage is that the company—and the industry—could be in a much stronger growth mode if there were available candidates with the right skills. That would also help Zip Mold to bounce back from the effects of the 2008-2009 recession, coupled with a ‘perfect storm’ of other troubles.
“In the downturn ten years ago, manufacturing here in southern Ontario was devastated, and our industry was decimated,” Fitzpatrick says. “It’s almost like a well-kept secret, what really went on within our industry when things went bad.”
At around the same time, a rise in the price of oil (it reached historic highs by the middle of 2008 before crashing and then recovering) drove up the price of plastics, a major element in a lot of Zip Mold’s own products. The higher plastics costs drove many customers to switch from injection moulding to thermoforming, which is less complex and not as highly toleranced.
To make matters worse, Zip Mold lost one of its two main lines of business, supplying moulds for thin-wall horticultural products. Its Canadian customers were bought out by a US firm, which shut them down and took the work south of the border. Zip Mold went from a two-shift, 40-person shop doing a 55-hour week, to 15 people on a 40-hour week “almost overnight,” as Fitzpatrick says.
The lack of trained replacements is especially frustrating because potential demand is increasing as the gradual economic recovery continues. While Zip Mold has been able to keep on top of the technology curve—recently acquiring an Okuma five axis CNC hard milling centre plus a Kellenberger grinder—the lack of labour remains the primary challenge.
“For ten years nobody’s been training people. A lot of the highly skilled labour that came from Europe in the 60s and 70s retired around 2007. When they saw the economy turn down they packed up and left—and it happened so quickly that their skills and knowledge weren’t passed along.”
Now facing another wave of retirements, Zip Mold—like other companies—is trying to hang on to skilled workers as long as they can by offering flexible hours and other benefits, while continuing to hunt for trained hires to fill the gaps. What Fitzpatrick sees in the industry doesn’t reassure him.
“One of my steel suppliers told me there’s a Chinese company setting up a mould shop here, and because of the labour situation they’re actually bringing their own labour from China. If you’d said even ten years ago that Chinese companies would be setting up here and having to bring people over from China, it would have been funny. But it’s happening.” SMT