This article was produced in partnership with Sovereign Insurance.
Desmond Devoy, of Insurance Business Canada, sat down with Tyler Pretto, property and casualty commercial underwriting specialist (Ontario region) with Sovereign Insurance, to talk about how the manufacturing industry in North America is rapidly changing and Sovereign’s exciting new manufacturing industry-specific product suite, designed to address both existing and emerging risks to Canadian businesses.
Nothing has stayed static after the pandemic, and the North American manufacturing sector is no exception, as manufacturers look to get ahead of competition challenges by grabbing on to opportunities arising from global changes.
Geopolitical tensions and pandemic disruption have led some business leaders and commentators to interrogate the nature of global interconnectivity, and as Tyler Pretto (pictured), Sovereign Insurance property and casualty commercial underwriting specialist (Ontario region), pointed out, some stakeholders have gone so far as to question whether “globalization has ended and it’s localization now.”
Given their role in global imports and exports, manufacturers are on the front line of what could prove a pivotal shift. As they thrash it out in a competitive North American landscape and get to grips with an onshoring boom, brokers and underwriters need to stay on top of their evolving needs.
Manufacturing is big business in Canada. The sector accounts for 1.7 million full time jobs across the country and contributes about 10% of Canada’s GDP ($174 billion) annually, according to KPMG. Canadian manufacturers export more than $354 billion worth of goods each year.
Manufacturing may be an integral part of the economy, but The Institute for Supply Management reported in October that economic activity in the sector had contracted for the 11th consecutive month following a 28 month stretch of growth.
Manufacturers currently exist in a “squeezing, ultra-competitive” environment, according to Pretto.
Around 80% of Canadian manufacturing exports are snapped up by the US, which boasts its own strong manufacturing sector contributing US$2.55 trillion to annual GDP, though its employee count, at 11.3 million, has dipped on average 1.1% over the past five years, according to IBIS World. As such, the strength of the Canadian dollar, which stood at US$0.73 as of mid-October, plays a critical part in profitable trade between the two countries.
“Our dollar needs to be positioned in a spot where it benefits both the imports and the exports, because you don’t want to drive the dollar down too much or you’re going to lose buying power, but you also have to have it high enough to show strength in your dollar,” Pretto said.
Despite stiff competition and an economic balancing act, changing global factors have offered up opportunities, and Canadian manufacturers are upbeat on growth prospects. About 72% of Canadian manufacturers expect their earnings to increase between 2.5% and 9.9% over the next three years, with headcounts anticipated to rise by up to 10%, according to a recent KPMG survey.
A shifting economic landscape in China, traditionally seen as the manufacturing centre of the world, presents a growth chance for North American manufacturing businesses.
China exported US$3,593,523 million worth of total merchandise worldwide in 2022, according to WTO figures. The Asian powerhouse has further benefited from drop shipping, which sees importers look to cut costs by up to 10% by cutting out wholesaler middlemen, a practice that has caused some insurers in North America headaches as they have sought to trace back liability for faulty goods.
However, wages in China have been on the rise and transportation costs have also increased, making the region a potentially less cost-effective manufacturing spot than it has been historically.
This means that manufacturing opportunities are coming back to North America from Asia.
“On the manufacturing side, companies are trying to save money by bringing things on shore because of the cost,” said Pretto.
This is a global trend.
Corporate earnings call and investor conference mentions of nearshoring, onshoring, and reshoring hit record highs in 2022, Senteio data analysis of 9,000 companies globally, as reported by the Financial Times, has shown.
Business leaders warn that three-decade era of globalisation is ending
— Sentieo (an AlphaSense Company) (@Sentieo) May 23, 2022
"Mentions of nearshoring, onshoring and reshoring on corporate earning calls and investor conferences are at their highest level..."https://t.co/x2q6ZBZ20L @edgecliffe @antoinegara @brookeamasters pic.twitter.com/FQ1nqUcPkz
A post-pandemic onshoring boom has also been partially driven by frustrations surrounding disrupted supply lines during the pandemic years, when ports were clogged with goods that could not be unloaded fast enough.
“There’s a lot of businesses coming back towards North America, back onshore from the Asian marketplace,” Pretto said. “There is a tremendous opportunity for Canada to capitalize on the opening of these supply chains shifting towards North America with the opportunities created within the USMCA (United States, Mexico, Canada Agreement).”
Recognizing the continued evolution of the sector and its changing needs as it positions itself for growth amid global changes, Sovereign Insurance has developed a fresh way to protect its clients in this field.
Earlier this year, the company unveiled new wordings and a new product suite – Sovereign Secure® Manufacturing – tailored to the manufacturing space.
The Sovereign Secure Manufacturing product offerings recognize the key exposures and hazards inherent in the sector. It includes broad, industry-based coverage, in addition to product offerings that feature coverages tailored to the unique risks of key industry segments, including food and beverage, equipment, and metals.
“We’re really proud of our competitive new wordings and are confident that Sovereign will be the market of choice for manufacturing operations,” said Pretto. “Not only is this coverage comprehensive, clients are also getting great value from their policies because the protection is specifically tailored to the unique risks and needs of the manufacturing sector.”
Coverage highlights include:
The coverage is aimed at mid-to-large sized manufacturers, and specializes in several key areas:
To find out more about Sovereign’s Secure Manufacturing coverage, click here.
