Oil sands buyers importing parts: Conference Board

Manufacturers are missing out on orders worth billions of dollars that are currently imported from overseas

Manufacturers are missing out on orders worth billions of dollars that are currently imported from overseas.

The oil sands support more than 400,000 jobs in Canada and 1.5% of the economy, but domestic manufacturers could be getting more of the business that’s going to companies overseas.

Every year, about $5 billion worth of goods come into the oil sands from overseas, and that number will grow to $140 billion over the next 20 years, said Michael Burt, director of industrial trends with the Conference Board of Canada, who presented a report examining the issue at the National Supply Chain Forum in Calgary.

“It’s primarily manufactured goods that we’re importing. Things like heating and ventilation equipment that are produced locally and could be sourced from companies here in Canada,” Burt said.

Steel products are coming in from offshore, along with transportation equipment, electronics and other field components.

A big part of the problem is weak linkages between Alberta and provinces further east, he said.

“There’s actually twice as many metal valve companies in Ontario than there are in Alberta and almost none of them are currently linked to the supply chain in Alberta, so how do we change that?”

Energy companies are pondering the same question, citing a shortage of skilled labour and tight manufacturing capacity in Alberta as major impediments to growth.

“It’s our preference to deal with Canadian-based suppliers whenever we can,” said Gary Hart, senior vice-president of supply chain and field logistics with Suncor Energy. “Our business is a commodity business though and there’s a lot of pressure on costs.”

Suncor spends about $12 billion per year, 90% falling to Canadian companies, mostly in Alberta, 5% in the US and 2% to 3% overseas. But the domestic market, at least in Alberta, is challenged, he said.

“We’ve seen significant price escalation and we’ve seen some quality issues…and when I think of what’s at the root of it…number one is labour constraints,” he said. “Our growth has taken us far past what the [Alberta] populace can handle.”

Yet manufacturers point to project management shortfalls caused by energy companies and their subcontractors.

“What [manufacturers] are trying to do is provide the products and services and technologies that are in demand in an environment, frankly, where specifications are changing on a fairly constant basis and in a way where some of the solutions they bring to the table are not taken into account,” said Jayson Myers, president and CEO of Ottawa-based Canadian Manufacturers & Exporters (CME), adding he’s left “scratching his head” at the inefficiencies.

“Why is it that we constantly face time delays? Why is it that we’re struggling to make an ROI that is competitive and why is it that we’re losing international investment in some of the major projects that this economy in Alberta and across the country depend on?”

Offshoring isn’t the answer
Myers called for better working relationships between energy project owners and manufacturers, beyond the current approach focused on getting the cheapest price.

“What woke me up was a discussion with one of the major oil companies that showed me their list of preferred suppliers and preferred supply chains. Did you know that for this global energy company, the Alberta supply chain is less efficient and less effective than how they rate their Nigerian supply chains? That’s the situation we face.”

There’s no doubt problems exist, but offshoring isn’t the solution, added Paul Zubick, senior vice-president and chief operating officer with Supreme Group, an Edmonton-based steel fabrication and construction company serving the energy sector.

“Every time we outsource products or services we dilute the need for local workforce development in the form of bringing new people into the trades.”

Plus, products from overseas can have dubious quality, he added. Fabricated metal products from domestic suppliers have an average rework rate in the field of 1%. Offshore products are ranging from 8% to 22%, throwing work schedules and budgets into turmoil.

Domestic fabricators provide pre-assembled products that don’t have to fit into a shipping container, to save time and labour in the field, said Zubick.

At the end of the day, innovation will prevail, concluded Burt. The Conference Board report identified common pain points for energy companies: enhancing the extraction process; environmental remediation; and reducing project development and operational costs.

He said suppliers with solutions to those challenges will have a stronger chance of winning contracts and building the domestic energy supply chain.

Lisa Wichmann is the editorial director of Canadian Manufacturing Online, part of the Business Information Group. E-mail

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This article appears in the Nov./Dec. 2013 issue of PLANT West