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Canada’s tariff time bomb?


The government of Canada is under increasing pressure this week to reach an agreement with the United States on a revised North American Free Trade Agreement, which Mexico has already signed. The Trump administration set a Sept. 30 deadline for the Canadians, saying it will send the revised NAFTA agreement with Mexico to Congress for ratification, whether or not Canada has signed.

Many Canadians are eager for their government to reach a deal with the United States. However, the Toronto Star reported that “slow progress on key issues” has cast doubt on whether Canada and the United States can reach an agreement by the deadline. The issues include the elimination of a sales tax on online purchases, the Trump tariffs on steel and aluminum, and the threat of a new 25 percent tariff on automotive imports from Canada.

Canada’s boating industry and many U.S. boatbuilders and engine manufacturers have been following the trade negotiations closely, since U.S.-built boats imported into Canada account for a majority of that country’s new-boat sales.

Since July 1, boat exports to Canada have been subject to a 10 percent Canadian tariff, following the Trump administration’s earlier decision to levy tariffs on aluminum and steel imported from Canada.

“The government continues to try and come up with some solution,” Sara Anghel, president of the Canadian Marine Manufacturers Association, told Trade Only Today. “My gut feeling is that Canada will have to give up something. I don’t think there’s any room for wiggling at this point. Unfortunately, the boating industry is stuck in the middle.”

So are dozens of U.S. boatbuilders that export a high percentage of their annual production to Canada.

“At one point, 48 percent of our production went to Canada,” said Rob Parmentier, CEO of Larson-Marquis Group, based in Pulaski, Wis. “It’s 30 percent now, and it’s a mess.”

Parmentier said many Canadian dealers have asked his company to put their 2019 orders “on hold” to wait for the outcome of the NAFTA negotiations. With increasing demand from U.S. dealers, boatbuilders such as Parmentier cannot afford to tie up production slots that may or may not eventually become solid orders.

“What we’re experiencing now is really painful,” Parmentier said. “A lot of the dealers up there are saying hold my orders until the boat show season in January. Another had boats in the system before the tariffs came into effect, and we had to help pay the tariffs when the boats were shipped across the border.”

“This situation continues to be a serious concern,” said Rick Layzell, executive director of Boating Ontario, an association that represents the province’s marinas and dealers. “Most of the dealers had a good summer season, but you can’t sell from an empty shelf. Many of our dealers are in stall mode.”

Larger dealers in Ontario are ordering boats for the upcoming season, but Layzell says the smaller dealers are just ordering for the boat shows. “They’re not going to order anything else for now,” he says. “The problem is that many builders are sold out of production slots until February or March. Some pontoon brands are sold out entirely for 2019. You can’t just turn manufacturing up and get more boats.”

Layzell said some U.S. builders are now shipping boats, engines and trailers separately so the tariffs can be levied only on the boat, not the other components. “That means dealers at least don’t have to pay the whole thing,” Layzell said.

“This is the toughest thing I’ve dealt with in my business in 30 years,” said Dave Mayhew, owner of The Boat Warehouse, which has several locations in Ontario. It is the world’s largest Four Winns and Lowe dealer, and the world’s second-largest Glastron dealer.

“We’ve gone through bankruptcies, changes of ownership and tremendous swings in the exchange rate, but we’ve never faced anything like these tariffs,” he said. “We’re at a standstill.”

The tariffs are not only causing a “tremendous amount of uncertainty” for Canadian dealers, but are also a significant drain on cash flow. Mayhew said the uncertainty is one of the most painful parts of the tariff scenario.

“If we order a bunch of boats and the tariffs are lifted in the next few weeks or a month,” he said, “we have no guarantee that we’ll get repaid that 10 percent. If one of our competitors waits and orders boats, he has a 10 percent competitive advantage, and we’ll most likely have to sell the boats without a profit.”

The other issue that is hurting the dealers is cash flow. “There is no way to finance these tariffs so we end up paying for them from our cash reserves,” he said. “Ten to 12 percent is a significant amount of money. It would end up being $4,000 on a 19-foot sterndrive boat. You can’t add that to the cost of the boat.”

Because The Boat Warehouse is one of Canada’s largest stocking dealers, Mayhew said if he orders the typical number of boats, it could suck $2 million to $3 million for tariffs from the company’s cash reserves.

“I consider myself pretty aggressive when it comes to ordering, but I can’t put the company’s future at risk by putting us too far out there,” Mayhew said.

Typically during this time of year, Mayhew said he would be ordering “hundreds of units” from Four Winns, Lowe and Glastron. “We’re keeping the orders to a minimum until we know more,” he said. With uncertainty over the tariffs, he is only ordering boats to be displayed at the winter shows.

“The tariffs may be gone in a month, or they may be here to stay,” Mayhew said. “But not knowing makes it possible for our whole year to be in the garbage in terms of profit.”

The stockpiled 200 boats in inventory before the tariffs went into effect. “Do we sell that inventory now or hold it because it could be much more valuable if the tariffs aren’t lifted? That’s another question we’re faced with,” Mayhew said.

If NAFTA isn’t ratified, he said, Canadian dealers will face an additional 9.5 percent tariff added to the current 10 percent tariff.

“My life now revolves around these free-trade issues, and it has been the toughest thing we’ve ever had to manage,” Mayhew said. “I know every other dealer in Canada is facing the same issue, and a lot of the smaller ones could be pushed over the edge if there isn’t some resolution soon.”

An unnamed government official said Canada’s negotiators would work as “constructively as we can ahead of the 30th” to get an agreement. “But if we can’t get there on substance, that date will come and go,” he told the Toronto Star. “What that world looks like afterward, in many ways it’s up to the Americans to decide what they want to do.”

“We’re hopeful the governments will find some resolution this week,” Layzell added.



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