Understanding the Canadian Freight Market – Part 2 – Canada is America’s Top Trading Partner

In my last blog, I provided an overview of Canada’s economy and demographics. In this blog, I will outline the importance of trade to Canada, and the United States, and then touch on some of the key variables that facilitate the trading process.

Canada has been a major trading nation for many years. Well before NAFTA was signed in 1994, Canada and the United States were major trading partners. As pointed out in the last blog, Canada possesses many raw materials that are in high demand throughout the world. With such a small population, Canada is not able to consume many of the raw materials that it produces. As a result, 58% of Canada’s exports consist of pulp and paper products, energy supplies (i.e. oil, coal and gas), minerals, food products, fish, seafood and fertilizers. By contrast, 38% of Canada’s exports are manufactured goods, primarily machinery, automotive parts, aerospace and aviation products, equipment, chemicals, plastics and information technology. Ontario and Quebec contain the largest centers for manufactured goods. Western Canada is a key producer of coal, grain, oil, natural gas and potash.

Canada – U.S. Trade

NAFTA has just entered its 23rd year. It was designed to expedite the trading process between Canada, the United States and Mexico. There are $750 billion in goods and services traded annually between Canada and the U.S. Exports represent 30% of Canada’s GDP. The United States is Canada’s largest trading partner; it receives 73% of Canada’s exports and 63% of its imports. Canada receives 23% of U.S. exports and 17% of its imports. Canada is largest export market for 35 of the 50 US states.

To put the level of cross-border activity in context, America’s trade with Canada is twice the total volume of trade with the entire European Union. While there is much discussion about NAFTA from the leading contenders for the U.S. presidency, it is important to point out how extensive and important cross-border trade is to Canada, the United States and Mexico.

Exchange Rates

Canada and the United States are distinct countries that have separate currencies. The relative value of the two currencies varies on an ongoing basis based on a variety of variables including economic activity, interest rates and energy prices. Within the last 30 years, the Canadian currency has ranged from $0.61 US to $1.10 US; it is currently at $0.77 US. Currency fluctuations can occur in expected and unexpected ways (i.e. Brexit decision, drop in value of crude oil).

Changes in currency values have direct impacts on north/south trading volumes, north/south freight volumes and freight rates. As exchange rates change, certain commodities become more or less marketable in the other country. Currency fluctuations can have a major impact on the availability of head haul and back haul freight. In addition, these variations have an important bearing on such issues as whether or not to hire drivers in America versus Canada and on equipment purchases (i.e. buying US manufactured fleet equipment with a seventy-seven cent dollar).

Border Crossings

There were 5,791,021 truck border crossings in 2015. There are numerous border crossing points along the Canada/U.S. border with 74% of truck traffic taking place at the top 6. Eighty percent of truck traffic passes through Ontario and Quebec. It is very important for shippers and carriers to utilize the border crossings that correspond best with the geographic distribution of their freight. Some border crossings are more congested than others. Delays can occur unexpectedly and are often due to incomplete or missing paperwork.

The year 2020 is the target date for the scheduled completion of the Gordie Howe Bridge that is being built at the Detroit, MI/Windsor, ON gateway. This should help improve the flow of goods at this heavy volume crossing point.

Legal Differences

Various laws differ between countries and between provinces and states. Prime examples are truck weights and the locations where LCVs (long combination vehicles) may be used. The Hours of Service for truck drivers in the two countries are similar but not identical.

Many years ago Canada adopted the metric system. This becomes immediately apparent as truckers check the signs along Canada’s highways. This is also important for the products purchased in each country.

Canadians buy liters rather than quarts of milk and fill up with liters rather than gallons of gasoline. Canada’s products are labeled and packaged accordingly. Each country has distinct food and drug policies and separate governing bodies. Since Canada is officially a bilingual country, most consumer products are labeled in both English and French.

Customs Clearance Issues

The border clearance processes are a delicate balance between the requirement for efficient procedures to expedite commerce and the need for border security that was particularly enhanced by 9/11. A set of customs clearance/border security processes have been put in place over the past 20 years to address these issues. Shippers and carriers seeking to excel at cross-border trade need to embrace and effectively utilize these processes.

                                                                                                              Customs Clearance and Security Processes  

“Many companies fail to appreciate how complicated and multifaceted the legal and compliance requirements . . . are. There are many ‘traps’ and there can be costly consequences for the misinformed and unprepared.” (source: Ernst & Young 2013). 

Security is still the priority over productivity. Border clearance processes continue to evolve. The Beyond the Border initiative that was signed in 2011, as an example, is a work in progress. As part of this initiative, pre-clearance routines are being developed to facilitate clearances prior to reaching the border so goods can move more quickly when they reach the border. In addition, a 6 month in-transit pilot program has begun; selected Canadian carriers can now move domestic Canada traffic through specific US border points across the northern US states and then back into Canada.

To sum up, Canada and the US have been major trading partners for decades. There are a set of processes that have been put in place to facilitate trade. Shippers and carriers must be fully aware of these processes, along with infrastructure, legal and currency issues, to ensure success in cross-border trade. In the next blog I will take a look at road and rail transportation within Canada.

If you need assistance in serving the Canadian or cross-border market, contact me at dan@dantranscon.com. To stay up to date on Best Practices in Freight Management, follow me on Twitter @DanGoodwill, join the Freight Management Best Practices group on LinkedIn and subscribe to Dan’s Transportation Newspaper (http://paper.li/DanGoodwill/1342211466). To learn more about the Canadian freight market, come to the 2016 Surface Transportation Summit (www.surfacetransportationsummit.com ) on October 13.