Human beings have become quite skilled at trading over long distances.
If you’re wondering why I keep writing about Canada-EU trade, it’s because social media is being flooded with some quite inaccurate criticisms of how Canada-EU trade works. Some of those criticisms are also quite suspect, given that they appear designed to demoralize Canadians and convince us that we can never reduce our reliance on the United States.
One of the points I’m seeing repeated the most is that Canada-EU trade is impractical because the EU is far away. The idea is that with the U.S. next door and the EU across the Atlantic Ocean, Canada should only focus on the U.S.
However, this criticism is deeply flawed.
While it may seem intuitive that shipping over the ocean is cost-prohibitive, that is not the case. Consider that countries like Saudi Arabia and China export vast quantities (oil in Saudi Arabia’s case and consumer goods in China’s case) on oil tankers and cargo ships, while making a profit doing so. This means that – even with shipping costs factored in – their products were cheaper than local alternatives in their export markets, and that it was more profitable to pay the shipping costs and export rather than produce for domestic consumption.
The same is true when Canada sells resources to Asia or Europe. When a Canadian pork producer sells pork to Japan for example, it means Japanese buyers felt Canadian pork was the best choice, even with shipping costs included, and that Canadian pork sellers could make more money shipping it over the ocean (the Pacific in this case), rather than trying to sell to the US or Canada’s domestic market.
Transporting goods over the ocean is quite cheap
While shipping goods across the ocean feels like it should be expensive, it is important to consider the immense amount of cargo that large container ships can carry. And with crews averaging around 25 people on a vessel carrying up to 24,000 twenty-foot equivalent units, that’s roughly 1000 containers per person, whereas a truck generally carries one container per person, and cargo trains carry somewhere around 200-400. For example, the average CN Rail train carried 272 containers in June of this year, down from 329 in June of last year. The container-to-crew ratio for cargo ships is by far the best.
Shipping over the ocean thus benefits from economies of scale, as you can read here.
Of course, cargo ships, cargo trains, and trucks are all part of an integrated logistics system. You need cargo ships to haul massive amounts of containers across the ocean, trains to distribute those containers to inland cargo hubs, and trucks to carry those containers to their final destination (or second final destination if you include delivery trucks and smaller logistics trucks.
The point is that the process of shipping over the ocean does not impede trade. The only real issue is the time it takes, but with more advanced logistics programs and artificial intelligence, predicting consumer behaviour and demand means things can arrive ‘just in time’ with relative ease.
Further, since an increasing amount of trade is in digital services, more Canada-EU trade can occur without any physical movement of goods. Remember, Canada has a large services trade deficit with the United States (most of our online platforms and online services are owned by US firms, something the Trump Administration has no problem with despite lamenting their energy trade deficit with Canada), and we could shift some of that to Europe by deeping ties with the European tech sector.
The key takeaway is that distance is simply not an impediment to more trade with the European Union, or with Asia, for that matter. Human beings have become pretty good at shipping things over long distances, and Canada can absolutely increase our trade with far-flung partners to boost our prosperity and reduce our overdependence on the U.S.
Spencer Fernando
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