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A recent column by Kentucky Senator Rand Paul in The Wall Street Journal made the point that expansion of global trade since the end of World War Two has been one of the main contributing factors to income growth in the U.S. It can also be argued that it has been the primary driver of the economic rise of emerging markets.
China, a poverty-stricken country immersed in a bitter civil war in 1945, is now an economic powerhouse with a burgeoning middle class, thanks to trade. The methods Beijing used to get there are controversial to say the least, but they have worked.
India, Mexico, and South Korea are other examples of nations that have grown their economies at an above-average pace thanks to trade.
In his column, Sen. Paul quoted Ronald Reagan as saying, “Free trade serves the cause of economic progress, and it serves the cause of world peace.” President-elect Donald Trump, take note.
Canada has always been a trading nation. Our 2022 trade to GDP ratio was 66.56%. Any threat to our ability to export would mean serious trouble for our standard of living.
Unfortunately, that’s a concern the world is facing right now. The risks to international trade are greater than at any time in more than a half-century and come from a variety of sources. They include these threats:
U.S. presidential election. On Tuesday, Americans elected former president Donald Trump over Joe Biden’s vice president Kamala Harris. While both Harris and Trump espoused protectionist policies, Donald Trump appears to be the greater threat. So Canadian diplomats will have their hands full. He has repeatedly said that “tariff” is one of the most beautiful words in the language and has promised to impose a minimum 10% fee on all products imported into the U.S. (60% on Chinese imports). Canada might be protected by the USMCA Treaty, which was negotiated to replace NAFTA during Mr. Trump’s first term. But don’t bet on it.
Conflicts. The prolonged war in Gaza has prompted the Iranian-backed Houthi rebels in Yemen to attack merchant ships in the Red Sea, claiming they are doing so in support of Hamas. A few ships have been sunk, others damaged, and transport in a critical sea lane disrupted. Efforts by the U.S. and Britain to destroy Houthi launching sites have had limited success. As a result, some companies have ordered their merchant ships to avoid the area, diverting them around the Cape of Good Hope – a costly and time-consuming detour.
If the conflict in the Middle East expands further, shipping in the Persian Gulf and beyond could also be affected.
Sanctions. So many countries and individuals are under sanctions that it’s almost impossible to keep up. Russia, Iran, and North Korea are the three major countries affected.
This messy international trade picture is a nightmare for exporters, importers, and shippers. One company that works to find solutions is Canadian-based Descartes Systems Group Inc. (TSX: DSG).
The company, which is based in Waterloo, Ontario, operates a global logistics network designed to help shippers, carriers, and logistics service providers navigate a complex trade landscape.
“Supply chains and logistics operations continue to struggle to manage a myriad of factors, including military conflicts, disruptions to trade routes, government sanctions, economic impact on shipping demand and material changes to taxes and tariffs,” said Edward J. Ryan, Descartes’ CEO, when the company released its latest quarterly report.
“We continue to make investments to help isolate our customers from this complexity with a broader set of solutions to manage the complete lifecycle of shipments in a secure and efficient manner.”
The on-going trade problems have provided a big boost to the company’s business. Revenue for the second quarter of fiscal 2025 (to July 31) was $163.4 million, up 14% from $143.4 million in the same quarter last year. Note that the company reports in U.S. dollars.
Net income was $34.7 million, up 23% from $28.1 million the second quarter of the 2024 fiscal year. Earnings per share on a diluted basis were $0.40, up 25% from $0.32 last year.
For the first half of the 2025 fiscal year, Descartes reported revenue of $314.8 million, up 12% from $280 million in the same period a year ago. Net income was $69.3 million, up 21% from $57.5 million. Earnings per share on a diluted basis were $0.80, up 21% from $0.66 a year ago.
The company’s wide range of services include routing, customs and regulatory compliance, ecommerce shipping and fulfillment solutions, transportation management, global trade intelligence, and more.
All this may seem dull on paper, but international trade couldn’t function without services of this type.
The company’s success is attracting attention from major institutional investors. At the end of last year, Scotiabank increased its holdings in Descartes by acquiring an additional 243,319 shares for its investment portfolio a price of US$84.06 per share. BNS now owns 679,574 shares, with a market value of about US$71 million.
Descartes is a long-standing recommendation in my Internet Wealth Builder newsletter (dating back to October 2017). The shares recently hit an all-time high of C$150.80 before pulling back a little. World trade is likely to become even more complicated as a result of the U.S. election. Without companies like Descartes, the whole system would be in danger of collapsing, which puts Descartes on track for growth. Investors with a higher tolerance for market risk might look at Descartes for their equity portfolios. As always, consult with your advisor before investing to ensure the stock aligns with your financial objectives and risk tolerance.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on X at X.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2024 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
Image: iStock.com/Yolanda VanNiekerk
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