Impacts of US tariffs on Canada's transportation industry

President Trump’s proposed US tariffs have introduced considerable uncertainty for the Canadian transportation industry. The tariffs are likely to result in increased costs, supply chain disruptions and changes in freight demand. These and other outcomes will impact the operational efficiency and profitability of transportation businesses. They’ll have a significant impact on the procurement and delivery of major transportation projects in Canada, introducing new complexities, increasing costs and creating new risks.

To learn how Canadian business leaders were responding to the situation, KPMG undertook an in-depth survey of business leaders across Canada, with a sizeable contingent of transportation industry respondents.

Canadian business leaders expect tariffs to have a negative effect on the economic outlook. The majority (77 per cent) is bracing for a recession due to worsening US trade relations. Of those in transportation, 77 per cent felt their businesses would be impacted by US tariffs. Their top areas of concern include:

• Competitive edge: Losing customers to US competitors.
  50 percent are extremely concerned, 35 per cent are very concerned
• Logistics: Getting goods to and across the border, paying and collecting tariffs
  50 percent are extremely concerned, 31 per cent are very concerned 
• Price: Managing prices and margins with customers
  62 per cent are extremely concerned, 27 per cent are very concerned 
• Supply chain: Getting goods to manufacture and maintaining a robust and resilient supply chain
  46 per cent are extremely concerned, 42 per cent are very concerned

Despite the ongoing uncertainty around the administration on tariffs, transportation industry players need to adopt a proactive stance in the face of evolving trade dynamics. They need urgently to develop concrete strategies to mitigate risks and adopt resilience measures to support growth and remain competitive. Many have already begun to address risks and protect their operations from trade uncertainty:

• 65 per cent of transportation companies are undertaking a strategic review of operations
• 85 per cent acknowledge they need to build supply chain resilience

Despite concern across the industry about the potential negative effects of tariffs on operations and profitability, being proactive with mitigation preparation can help Canadian transportation organizations stay resilient and weather the uncertainty.

The following risk areas emerged in our survey and align with our observations and analyses from working closely with transportation industry clients. We’ve paired them with mitigating actions you can take in the nearest term to alleviate or eliminate risk.

Additional time spent at the border and longer wait times for custom clearance may drive up costs for transportation companies. Those delays may create further scheduling and shipping difficulties that require additional labour and storage outlays. Gas price fluctuations due to either the depreciating Canadian dollar or an increase in US crude oil prices could also increase operational costs.

Response:

• Review and optimize cost structures: Conduct a thorough review of existing cost structures—including human resources (HR), supply chain and operational expenses—to identify areas for optimization. Explore cost-cutting measures in the short-term as you build sustainable practices over the medium- and long-term that enhance profitability without compromising service quality.
• Proactively renegotiate ongoing contracts: Adjust contract terms for the new tariff landscape. This may involve revising pricing structures to account for increased costs or extending delivery deadlines in expectation of longer border crossing times and to avoid “late delivery” penalties. Communicate openly with partners about how tariffs impact your business relationship and work together to find mutually beneficial solutions.
  

46 per cent of transportation organizations are concerned about logistics issues arising from tariffs. These include difficulties and delays in moving tariffed goods across the Canada-US border, complexities around tariff payment procedures and shipping, scheduling and staffing issues.

Response:

• Adapt transportation routes using Artificial Intelligence (AI): Implement AI systems that analyze real-time data (border wait times, traffic patterns and weather conditions) and suggest optimized routes that minimize delays, reduce costs and improve operational efficiency.
• Train personnel in tariff application: Ensure all employees receive training on tariff compliance, customs procedures and implications of tariffs on pricing and logistics. A well-informed workforce is better equipped to adapt to changes and build and maintain organizational resilience.
  

Tariffs have a significant impact on the competitive landscape in transportation due to increased costs for domestic manufacturers who rely on imported materials. International competitors who don’t face the same tariffs will have a pricing advantage. Fifty per cent of transportation companies are therefore concerned they’ll lose customers among domestic manufacturers who will revise their procurement strategies to avoid tariffs.

Response:

• Explore market diversification beyond the US: Look to new international markets, particularly Europe, to avoid the complexity and penalties associated with tariffs. In addition to securing new customers, this strategy can also help build a more resilient supply chain.
• Advocate for policy transformation in support of interprovincial trade: Three quarters of survey respondents are looking to domestic sales opportunities, with three quarters indicating they could redirect between 6 and 50 per cent of their sales to other markets within Canada.
  • For 80 per cent of organizations, the elimination of interprovincial trade barriers is extremely or very important to those efforts:
    • For 42 per cent, it’s extremely important: “It would save our company”
    • For 38 per cent, it’s very important: “It opens up another market for us”
  • As a response, participate in advocacy efforts to influence trade policy changes and foster more favorable trade conditions that mitigate tariff impacts. Join industry groups, contribute to lobbying efforts and collaborate with other industry organizations to present a united front to policymakers. Voice your concerns and make your priorities known.

• Make use of government support programs: Most respondents (81 per cent) recognize a willingness on the part of regulators and governments to support businesses facing tariff challenges.
  • Explore and access government support programs, grants, subsidies and tax relief options that can alleviate financial burdens.
  • Engage with trade associations and local chambers of commerce for help navigating government support programs and applying for assistance.
  • Maintain close relationships with regulators and governments and work with them on relief measures.

Addressing the challenges posed by US tariffs requires a multifaceted approach that includes operations and logistics optimization, market diversification and technology investment. By proactively adapting to the changing landscape, transportation companies can mitigate risks and position themselves for success in a complex trade environment.

KPMG professionals have helped countless Canadian public and private organizations across industries build organizational resilience and respond to evolving economic and trade challenges. To discuss in more detail how US tariffs may impact your business or for help developing an adaptive tariff response strategy that keeps your organization strong, growing and competitive, contact us to speak to one of our advisors.