Julie Gordon and Allison Lampert

(Reuters) – Global supply chain and shipping bottlenecks have encouraged Canadian companies to return to production. However, some Canadian businesses would need to bear higher costs and develop expertise in specific sectors to allow local manufacturing to grow.

While carefully knitted global supply chains helped sectors from fashion https://www.reuters.com/article/benetton-reshoring-idCNL8N2QQ3N0 to autos cut costs and boost margins in recent decades, COVID-19 has eroded those advantages and exposed weaknesses like shortages of semiconductor chips.

Canada is experiencing supply chain issues, rail and weather disruptions as well as pressures to source ethically locally for lower emissions. Executives say companies are choosing to produce or buy near home.

Toronto-based Progress Luv2Pak had been looking for Canadian and U.S. suppliers even before Canada’s floods and storms left two of its containers at Port of Vancouver.

“In some cases, the value of the goods in the container are less than the freight,” said Ben Hertzman, president of Luv2Pak, which supplies shopping bags and other packaging for retailers.

Luv2Pak now has half its seven-member purchasing team focusing on North American sourcing. This is an increase from the one-time role just months ago.

IHS Markit reports that Canadian manufacturing activity reached a seven month high in October. It is still too early to know if this was due to reshoring, but economists claim that businesses are making concrete efforts to purchase local products, which they did not do during previous crises.

Peter Hall, Chief Economist for Export Development Canada, stated that “this time there’s more than just talk about it. There’s actually some action.”

This is driving cautious optimism about reshoring Canada’s manufacturing sector. Statistics Canada data shows that it has been steadily declining since late 1990s.

Quebec’s Investment Arm recently launched the first ever “buy local” campaign targeting companies and supply chains.

Stephane Drouin from Investissement Quebec stated, “The number we get each week from companies is probably around ten times more than what it was just three months ago.”

Pierre Fitzgibbon from Quebec economy stated in an interview that he promotes North American-based supply for U.S. automakers, such as Tesla (NASDAQ): as Quebec targets electric vehicle batteries as a market where it is ready to compete global.

Artopex Montreal, a furniture company, sources most of its components from Canada. However, it is now making efforts to produce some parts in-house, Chief Executive Daniel Pelletier explained.

“It is a big problem not to be able have certainty about the delivery times.”

Bombardier, Montreal’s business jet manufacturer (OTC) already has aerostructure work from North American suppliers. It is now looking for reshoring opportunities.

Bombardier experienced fewer delays in production and better quality when it returned work from the U.S., Marie-Andree Charron, spokesperson for Bombardier, said.

However, policymakers caution that reshoring can be a two-way street and could harm business if American suppliers abandon Canadians in favor of U.S. sources.

Last week, Lawrence Schembri, Deputy Governor of Bank of Canada said that Canadian firms may move production offshore to Canada. “But other producers, for example the United States, may bring production from Canada back to the United States.”

A lack of skills could also be a problem, as Canada is not equipped to develop new industries such as semi-conductor chip manufacturing despite the global shortage.

Jerry Dias is the President of Unifor. He stated, “The auto sector is being held hostage Taiwan and Korea.”

Luv2Pak and other companies see the value of local sourcing given the uncertain imports.

“It would just be so nice to settle into some good supply lines that don’t have to come over an ocean,” Hertzman said.