By Leo Ryan, AJOTExports play a critical role in Canada’s economy, accounting for more than two-fifths of GDP. The 60% appreciation of the Canadian dollar in relation to the US dollar in the past 18 months has especially hit the forest products sector, which has also been grappling with a difficult ocean shipping environment to meet demand. On the transportation front, Karen Shanahan, chief operating officer of Gillespie-Munro, Inc., a leading Canadian freight forwarding firm heavily involved in forest products, does not hide her frustration. “Frankly,” she declares, “it’s a nightmare. It’s very hard to book cargo, there’s lack of space and shortage of containers. Rates are changing all the time. Shipping lines are even canceling cargo you have booked. Charter markets remain through the ceiling. The problems have been compounded by the fall-out from the big carrier mergers of the past few years.” Forest products from eastern Canada, Shanahan said, are usually shipped abroad from the ports of Montreal or Halifax. “We sometimes use Norfolk, when lines have offered more space.” To put things in perspective, Canada is the world’s leading forest products exporting nation. According to the latest final statistics available, the coast-to-coast industry in 2005 generated total sales of C$84 billion, accounted for 60% of Canada’s merchandise trade surplus and 3% of total GDP. The biggest Canadian player, by far, is AbitibiBowater, the world’s top producer of newsprint (35% exported from North America to foreign markets). Owning or operating 29 pulp and paper mills and 35 wood products facilities in North America and offshore, this powerhouse has annual revenues in the neighborhood of US$8 billion. Its broad range of products are marketed in some 80 countries. “In recent years, such factors as a weak US dollar and continuing low price levels have contributed to an overall decline in sales and earnings – yet the industry remains strong,” affirms the Forest Products Association of Canada. Forest products constitute Canada’s third largest export to the United States and Europe, and the industry is spearheading efforts to make inroads into markets in the Asia-Pacific region. These efforts are being crowned with some success, as forest products are currently Canada’s largest export to India, China and Japan. There is growing penetration, too, of the Korean market. As the Association underlines, world trade in forest products is undergoing seismic shifts. “To remain the world’s foremost exporter of forest products and continue to grow, the Canadian industry must overcome many challenges going forward, including increased competition from low-cost overseas producers. With labor, energy and fiber costs that are often below Canadian levels, producers from Brazil, Russia, Indonesia, China and Eastern Europe have been very aggressive in expanding their presence in global markets.” The Association notes that Canadian producers must constantly find ways of competing with rivals who enjoy not only very low cost structures but also typically face much lower expectations for social and environmental performance. Another challenge facing Canadian exporters is the rising use of tariffs and other market protection mechanisms. The US-Canada softwood lumber dispute – now resolved - was a hot issue for many years, costing the Canadian industry more than C$5 billion in duties. However, paper producers pay C$80 million annually in duties in Asia and Latin America, while European and Japanese quotas cost Canadian plywood producers over $7 million a year in sales. According to preliminary statistics compiled by the Pulp and Paper Products Council of Montreal, North American shipments of newsprint to Europe increased nearly 60% to 643,000 metric tons in 2007, while overseas shipments to Asia declined by 15% to 587,000 tons. Canadian newsprint shipments to the United States fell by 13.2% to 3.7 million tons. On the other hand, Canadian newsprint shipments overseas climbed by 5.4% to 1.9 m