Fit for Manufacturing
- April 28, 2019
How job shops in Canada can remain comepetitve and grow in today's challenging market
For most job shops across Canada, growth still has momentum, orders are continuing to come in, and the overall outlook is generally positive. But there still remains a level of uncertainty that is keeping their purse strings tight, as well as a myriad of reasons — such as the severe lack of skilled labour, the threat of higher interest rates, higher borrowing costs, and the cost of energy—that all play into potential growth and overall competitiveness on the global market.
To top it all off, there’s still the looming steel and aluminum tariffs taxing manufacturers for absolutely zero economic benefit, and the new USMCA trade agreement is sitting idle as it’s yet to be ratified.
“From what I saw up until November 2018, we were really charging ahead, and I think that could be said for most job shops,” says Anjan (AJ) Tak, vice president of the Canadian Tooling and Machining Association (CTMA) and president of Robust Gear and Industries. “However, that level of optimism seems to have dropped, mainly due to ongoing negotiations with the U.S. for the USMCA agreement which has created a lot of economic uncertainty.”
Dennis Darby, president of Canadian Manufacturers and Exporters (CME) agrees. “At the end of 2018, there was a deceleration of growth. We expect economic growth to be about 1.6 per cent this year, which is weaker than last year. And there are a bunch of issues contributing to this. One is higher borrowing costs and, of course, there’s uncertainty around the new trade agreement and a global uncertainty caused by the tension between the U.S. and China.”
Darby says that the tax cuts that boosted consumer spending in the U.S. will begin to wear off in 2019. “But we expect that the U.S. economy will continue to outpace Canada, which is good as it is where most of our exports go.”
It’s obvious that the NAFTA agreement desperately needed to be updated, and its technical rules modernized and streamlined. It was 25 years old and woefully inadequate. And while the new agreement is a great step forward for businesses north and south of the border, nothing will be certain until it is ratified, and therein lies the problem.
“It’s unlikely the U.S. will ratify before the Canadian elections,” says Darby. “And Canada has already said that it won’t bring it forward until the U.S. has done its part. In the U.S., there’s a lot of what’s called ‘horse trading.’ Will they ratify it as is? Will Congress ask for amendments? And what will Mr. Trump do, as he’s known to be unpredictable.”
There’s also the issue of the steel and aluminum tariffs. “Manufacturing in Canada is heavily weighted towards everything from metal extraction, refining and fabrication. Whether it’s in parts or equipment or fabricating job shops, at the end of the day the steel and aluminum tariffs are still in place and continue to drag on the industry and economy. And we’re hearing that it’s beginning to filter its way through the supply chain in both Canada and the U.S,” says Darby.
Apparently, the U.S.’s original intention with these tariffs was to stop Asian steel from entering our markets, but as an unintended consequence, Canada, its biggest trading partner, also got hit. Darby says that at the time everyone expected that it was just a bargaining chip that the U.S. was using to get a better deal, but it survived and is still in place.
“Tariff is just a fancy word for tax. The U.S. government is boasting about how much of the tariffs they’re collecting. The Canadian government is collecting counter tariffs in the other direction, and it’s driving up costs for manufacturers in all sectors without any economic benefit,” says Darby. “So we’re encouraging the government to not ratify the USMCA until the U.S. drops these tariffs.”
In the meantime, to counter these added costs to Canadian manufacturers, the CME and the federal government have put Duties Relief and Drawback programs in place. The former relieves the payment for surtaxes on imported goods from the U.S., and the latter allows refunds for surtaxes already paid.
Darby says, “there are specific circumstances that companies can apply for relief, but again the onus is on the manufacturer and it’s a lot of paperwork. For small to medium companies it’s often a lot of effort for not a lot of return.”
Another large issue that’s dragging on the entire sector and affecting business competitiveness is the cost of doing business. The CME continues to call for a more competitive business tax regime. “We haven’t really looked at our overall tax system in years,” says Darby. “We need to have a thorough relook at our business sectors in terms of support for investing in machinery, equipment and technologies, and incentive programs that encourage exports. Canada is an export economy overall, so it makes sense to use a tax system that encourages those exports.”
Of course, the other elephant in the room is the extreme lack of skilled labour. In fact, 70 per cent of CME members say they are facing an immediate skilled labour shortage, which is expected to become even more severe in the next five years due to baby boomers retiring.
The CTMA and CME, as well as many job shops across the country, are actively trying to attract the next generation of workers to skilled trades through apprenticeship programs and
The big issue, though, is that our education system is behind. Rather than streaming students into university, it’s essential that the Canadian government start acknowledging that skilled trades for manufacturing are just as important, not to mention they’re in demand, high paying jobs.
Oakville-based Robust Gear and Industries specializes in gear manufacturing for a variety of industries including: aerospace, automation, forestry, marine, medical equipment, military, mining, oil and gas, power generation, steel and metal processing, and water treatment, to name a few.
Tak says his company recently diversified into machining, adding five axis turning and milling machines, to position itself as a one-stop shop for customers. “Machining goes hand-in-hand with what we produce and seemed like the next logical step to better servicing our customers. These investments have created some definitive productivity improvements by reducing setups and cycle times and increasing throughput.”
But according to Tak, the biggest challenge for his company is skilled labour. Robust Gear has always worked with high schools and offered co-op programs. It currently has individuals enrolled in the Ontario Youth Apprenticeship Program, and it offers an online training program for new trainees to learn about machining, safety and shop floor practices. And he’s offering bonuses and incentive programs based on finishing the program.
“Sometimes, training on the shop floor is not always the only solution. While training an employee, trainers can become too focused on completing the task rather than explaining the entire scope of the operation,” says Tak.
Another issue regarding low enrollment in skilled trades, especially machining, is that the pay rates really haven’t gone up as they have for other trades, such as plumbing and electrical. And as more customers look for better pricing, shops are caught between a rock and a hard place with how much they can pay their staff. It’s created an almost too competitive industry. It’s a tough sell to get people interested in skilled trades like machining. Besides, if you have an opportunity to make $45 an hour or $35 an hour, which one will you choose?
The CME has launched its Women in Manufacturing Initiative to attract more women and young female students to skilled trades. In Canada, women account for only 28 per cent of the manufacturing workforce. And the CWB Group has initiated a “Women in Welding” campaign (read more about this on page 58).
Dennis Dussin, president of Alps Welding Ltd. and a member of the CME’s board of directors, attended the recent Women in Manufacturing Success Forum, hosted by the CME. “The event was really great and an opportunity for us. As an industry, we don’t employ enough women and yet we complain that we can’t find enough people,” he says. “Our engineering, project management and quality operations is probably about 50 per cent women now. But on the skilled trades side, it’s still all men. So that’s our next frontier to help solve the skilled labour problem—getting more women into the shop.”
Woodbridge, ON-based Alps Welding Ltd. is a custom fabricator that specializes in pressure vessels, heat exchangers, industrial equipment, process equipment and clean technology, such as water treatment, energy recovery and emissions control. It services oil and gas, chemical, mining, and power and energy industries. In business for 45 years, Alps has progressively moved into larger buildings over the decades and now operates out of a 90,000 sq ft facility, of which it only currently occupies about two thirds. All 65 employees are cross-trained on the various processes and products the company produces.
“Our workforce is primarily skilled metalworking tradespeople, like welders, fitters and grinders. Because we work on so many different things, everybody is trained to do different processes, such as build heat exchangers, stacks and vessels,” says Dussin.
For Alps, over the years, a major challenge has been commodity prices. Its primary industries are oil, gas and mining, which have business cycles that heavily depend on the price of commodities. “So if the oil price goes up, there’s lots of work. If it goes down, projects get deferred or cancelled. These are things we’re exposed to that are out of our control,” says Dussin. “The solution is to diversify. We are now in many different industries. So if one industry is going through a decline, others might be growing. But our other major challenge has also been a lack of skilled labour.”
Because Alps does high end custom fabrication, it’s a very labour intensive manufacturing process. “One thing we’ve done is we joined the CME. It’s an organization that’s really pushing to grow manufacturing and raise the profile of manufacturing in Canada,” says Dussin. “We’ve also hired a lot of new Canadians. We’ve been very open to hiring people that maybe don’t have a lot of Canadian experience, but they have good experience, training, and frankly, a good attitude and they want to learn the trade.”
Dussin feels the lack of skilled labour is becoming a bigger challenge and it’s getting worse. “Because [skilled labour] touches everything,” he says. “If you look at our processes, it’s hard to automate because we are doing custom work and it’s often one offs. But if you do look at automating some operations, it doesn’t actually resolve the need for skilled labour because you need even more skilled people to operate the automated process.”
The Canadian government has an important role to play in the future health of job shops and manufacturing in general across the country. That said, Dussin says shops need to be as forward thinking as possible. “We’re from a traditional industry, steeped in craftsmanship. We need to keep that craftsmanship, while looking forward. In five years, what will the workforce look like? What’s the customer environment going to be like? What is the technological landscape going to look like? We need to make the effort to get out of our own businesses and be aware of trends to make sure we’re ready for that.”
Tak believes that it is important to look to continuously improve. “We need to stay current through collaboration with our customers, colleagues, partners and vendors. Also, joining industry associations, such as the CTMA, are important to stay current with best-in-class manufacturing practices and upcoming changes to government regulation and the global economy.” SMT