Ties That Bind: Sewing Up  U.S.-Canada Trade

Ties That Bind: Sewing Up  U.S.-Canada Trade<br />

A steady stream of goods passing north and south across the U.S.-Canada border stitches the two nations tightly together, complicated by factors such as customs regulations, security protocols, data exchange, and infrastructure projects.

Nearly 4,000 miles of border separate Canada and the contiguous United States, but a steady stream of goods passing north and south across that boundary stitches the two nations tightly together. In 2009, the United States shipped $204.7 billion worth of goods to its largest trading partner, Canada, according to the U.S. Census Bureau. Canada reciprocated with $224.9 billion worth of shipments to the United States.

Even in this closest of trade relationships, maintaining that steady flow across the border isn’t simple. That’s especially true in today’s security-conscious world.

Seventy percent of trade between the United States and Canada crosses the border by truck, according to the U.S. Commercial Service. For highway freight, the short drive through a port of entry may be the hardest part of the international trip. Security inspections and heavy traffic combine to produce long waits at popular crossings. New security requirements, such as electronic manifests for loads and passports for drivers, also complicate cross-border trade.

On the plus side, plans are in the works to upgrade facilities at some of the busiest land crossings. When complete, these plans could simplify cross-border moves. Upcoming improvements to rail infrastructure and new intermodal facilities near the St. Lawrence Seaway could also spell good news for international shippers.

Here’s a look at some recent cross-border trade developments.

The Border Thickens

The U.S.-Canada border hasn’t gotten longer, but common wisdom holds that since the Sept. 11 terrorist attacks, it has grown thicker, especially for southbound trade. One important new requirement in recent years demands that highway carriers entering the United States file an electronic truck manifest with U.S. Customs and Border Protection (CBP) using the Automated Commercial Environment (ACE) system. CBP introduced the truck e-Manifest in 2007.

The rule creates extra administrative steps for shippers, says Paul McKenty, logistics manager at Grace Canada in Ajax, Ontario. Grace Canada ships eight to 10 truckloads of construction products per day into the United States.

“We have to notify U.S. Customs that our goods are coming into the United States, and provide the truck and trailer numbers, the contents of the trailer, and the driver’s name,” McKenty says. “And the driver has to have a passport.”

The shipper also must specify which international port the truck will use and what time it will arrive. In addition, the truck must not leave the dock until CBP gives permission to ship.

The United States requires two kinds of electronic filings. While a trucking company reports the contents of its trailer, the shipper files an electronic declaration to CBP with details on its own load, using the Pre-Arrival Processing System (PAPS). The two declarations must match.

“U.S. Customs has implemented new programs to check whether the data we send them is the same data transmitted by the carrier,” says Christine Lemieux, director of international operations for Cascades, a paper and plastic products manufacturer in Kingsey Falls, Quebec. Any discrepancies can trigger delays.

Coordinating Customs declarations with e-Manifests becomes especially tricky for less-than-truckload (LTL) carriers, says Kevin Gavin, vice president of supply chain management at Integrated Export Systems (IES), a Midland Park, N.J.-based software developer. One manifest covers the whole trailer, but the Customs declarations come from multiple LTL shippers.

“All the documents have to match, or the whole truck could be delayed,” says Gavin.

Electronic filing was supposed to increase both safety and efficiency at the border. But entering the United States has become more difficult, says Lemieux.

Before the filing regulations were implemented, Cascades cleared many loads through CBP under a line release—a provision to streamline repetitive, high-volume shipments of certain commodities. “We just had to present our paperwork at the border,” Lemieux says. “Customs would scan the bar code, and the shipment was cleared to enter the United States. The driver could leave the plant with a load at any time.”

Today, Cascades transmits information about its loads in advance, and CBP must release the cargo before a truck arrives at the port of entry. It’s a delicate bit of coordination for some of the company’s plants, which are only one hour from the border. Using an electronic data interchange system helps, Lemieux says, “but it’s costly.”

Cascades, which manufactures boxes, tissue paper, packaging, plastics, and other products in North America and Europe, sends about 60,000 shipments from Canada to the United States each year. It operates its own fleet of trucks and also contracts with other carriers.

Crossing into Canada is simpler than crossing into the United States today, but that will change when Canada introduces the Advance Commercial Information Truck e-Manifest, an electronic filing system similar to the United States’ ACE e-Manifest for trucks. Canada will start testing the system in October 2010, then make it mandatory for importers starting in November 2011, says Gavin, whose company markets e-Manifest software to carriers.

Given all those security requirements, shippers and their service providers must coordinate their processes much more closely than they used to. Gone are the days when shippers might not even let drivers see the goods they were hauling.

“It’s now a dance that needs to be choreographed among parties that may not have communicated well in the past,” Gavin says.

Expect Delays Ahead

Security measures may also force shippers to cope with long waits. Backups at the border are significantly shorter than they were in the early days of ACE, says Amy Magnus, district manager for Champlain, N.Y., Detroit and Port Huron, Mich., at A.N. Deringer, a third-party logistics provider (3PL) and customs broker based in St. Albans, Vt. But any small discrepancy between a filing and the physical reality—say, a truck that turns up at the Highgate Springs, Vt., border crossing rather than 20 miles away at Champlain, N.Y.—can stall a shipment.

“We don’t always know the delay’s impact on an importer,” Magnus says. “But if the load is fresh baby lettuce coming from Canada, any delay is serious.”

One strategy for minimizing security-related delays is to enroll in the U.S. government’s Customs-Trade Partnership Against Terrorism (C-TPAT) program. C-TPAT shippers adhere to a strict set of supply chain security standards. In exchange, they are supposed to undergo fewer screenings than non-certified shippers.

But C-TPAT isn’t a panacea. Maintaining the certification is cost- and labor-intensive, Lemieux says. And membership doesn’t guarantee that loads will speed across the border. If a truck carries a commodity that CBP considers a problem, agents will unload the trailer to inspect the cargo. This has happened to Cascades many times.

“We have to pay for the unloading,” says Lemieux. “It’s expensive, and it makes our clients unhappy because we’re not keeping to our schedule.”


To offset the cost of complying with border regulations and participating in voluntary programs such as C-TPAT, many carriers today impose surcharges on loads that cross the border, says John Coombs, Canadian logistics manager for Odyssey Logistics and Technology and vice president of Odyssey Canada. “The added cost for a truckload shipment can range from $35 to $75,” he says. The extra cost for an LTL shipment might be $10 to $20.

Even when a shipper and carrier have all their filings in order, a truck can easily lose time sitting in a long line waiting to clear Customs, especially at high-volume crossings such as the Ambassador Bridge between Detroit and Windsor, Ontario.

Qualifying for the Free and Secure Trade (FAST) program, which lets properly credentialed trucks move through an express lane, doesn’t always help. “Even if there is a FAST lane, it could take a truck up to one hour just to get into it,” says Coombs.

Windsor and Detroit need better highway approaches to the border crossing, and ports of entry in general need more Customs officers, says McKenty. “Somehow, the authorities have to get trucks through faster, and they’ve got to make it more convenient to get to Customs,” he says.

Improvements may be on the way. In April 2010, the Canadian government offered to lend the government of Michigan $550 million to cover the state’s share of a proposed project to build a second span between Windsor and Detroit.

“Border crossings are a big deal for Canada because it is so dependent on the U.S. market for exports,” says John Taylor, associate professor of supply chain management and director of supply chain programs at Wayne State University in Detroit. That’s why Canada was willing to front the money to Michigan.

“The Canadian government wants to make sure it can integrate trade and services across the U.S.-Canada border,” he adds. “It sees a new bridge as an important factor there.”

The partnership that plans to build the Detroit River International Crossing includes the governments of Canada and Ontario, the U.S. Federal Highway Administration, and the Michigan Department of Transportation (MDOT).

But despite Canada’s offer, the bridge project is not a done deal. Manuel Maroun, the billionaire owner of the Ambassador Bridge, hopes to build a second span of his own, and he is fighting hard against potential competition. The day after Canada made its offer, Maroun’s lawyers announced that they would sue to block the loan.

Along with a new bridge over the Detroit River, shippers and their service providers also would like to see better approaches to some of the busier ports of entry. One improvement recently completed on the U.S. side is Michigan’s Ambassador Bridge Gateway Project.

Thanks to this new highway connector, vehicles approaching or leaving the Ambassador Bridge no longer must negotiate Detroit’s surface streets. In the past, the state was prohibited from directly linking the privately owned bridge to the interstate system. But that federal law was changed a few years ago, says Larry Karnes, an MDOT freight policy specialist. The new project links the bridge directly to Interstate 75.

A little farther north, much-needed improvements are also in store for the approaches to the Blue Water Bridge, linking Fort Huron, Mich., and Sarnia, Ontario. “Officials had no idea the traffic crossing these bridges would ever approach today’s volume,” Coombs says. “Now they recognize it is an issue, and they’re starting to work on improving it.”

In Fort Huron, MDOT has proposed $500 million worth of entry port plaza improvements, assuming it can come up with the money, Taylor says. The project includes a new facility to handle trucks that are chosen for secondary inspection, with parking for 100 trucks. The current inspection station has room for only 30.

Dollar for Dollar

Along with tighter security and improved access, another factor that is changing the game for cross-border truck transportation is the strength of Canada’s currency. Back when the Canadian dollar was worth roughly 65 cents (US), companies south of the border were eager to source goods in Canada. That spurred a steady stream of loaded southbound trailers.

“That traffic flow has completely changed, because the Canadian dollar basically is worth $1 (US) today,” says Coombs. More Canadian companies are sourcing from the United States, and they’re competing for equipment to bring their product north.

“What used to be a headhaul from Canada to the United States is now a backhaul, and what used to be a backhaul is a headhaul,” he adds.

For Grace Canada, this reversal has forced new cost calculations for shipping raw materials from U.S. suppliers to Canadian factories, and for shipping finished products to U.S. customers. “We used to get low rates for products moving from the United States into Canada,” McKenty says. “Now those transportation rates are going up, and we get lower rates the opposite way around.”

Today, a run from Toronto to Chicago can cost as little as $800. “But coming back, the rate could be as high as $1,300 or $1,400,” Coombs says. To get better prices on the northbound trip, Odyssey tries to create continuous moves.

Although most freight moving between Canada and the United States travels by truck, rail also is an important cross-border mode. International shippers could gain new transportation options as the Detroit-Windsor border adds rail and intermodal capacity in coming years.

Rail Improvements

In June 2010, the Windsor Port Authority, the Canadian Pacific Railway, and the Borealis Infrastructure Trust established the Continental Rail Gateway consortium. The new effort, which follows the previous Detroit River Tunnel Partnership (DRTP), is exploring a high-clearance replacement rail tunnel between Detroit and Windsor.

The DRTP enlarged one of the tubes several years ago, providing enough vertical clearance to accommodate double-stacked international containers. But the railroad can’t stack those containers with larger domestic boxes, or double-stack the domestic boxes.

“They also can’t accommodate some of the other higher-cube cars, such as modern auto racks,” Karnes says.

Another rail-focused project in the region is the proposed $650-million Detroit Intermodal Freight Terminal. Designed to replace individual terminals operated by CP, CSX, Canadian National (CN), and Norfolk Southern, the new facility would be built on the Detroit-Dearborn border on a 300-acre site formerly operated by Philadelphia-based freight service operator Consolidated Rail Corporation.

Traffic running through the new terminal would include international containers carried by CN from Halifax and from U.S. and Canadian West Coast ports, and by CP from Montreal and Vancouver.

More seaway Containers

Two other intermodal terminal projects could create more international traffic on the St. Lawrence Seaway. One initiative is the Erie Inland Port, a planned collection of facilities in and near Erie, Pa., to support rail-truck transfers, distribution centers, and water transportation.

In anticipation of this new infrastructure, Great Lakes Feeder Lines, based in Burlington, Ontario, has purchased a new ship, Arctic Sea. Along with breakbulk cargo, this vessel can accommodate containers, says Terry Johnson, administrator of the St. Lawrence Seaway Development Corporation (SLSDC), part of the U.S. Department of Transportation. The SLSDC manages the Seaway in cooperation with the Canadian St. Lawrence Seaway Management Corporation.

“As soon as we make all the arrangements with CBP and the Coast Guard, we plan to initiate a service between Erie and Montreal that will include a container service,” Johnson says.

The service is expected to carry roughly equal volumes of inbound and outbound containers—both cargo originating in Europe and bound there.

Although Erie already handles international passengers and breakbulk cargo, the Arctic Sea service will mark the first time it functions as an international container port, Johnson explains.

At the other end of the Seaway system, a collection of partners are laying plans to build the Melford International Terminal on the Strait of Canso in Nova Scotia. The development of this facility is designed to handle containerships too large to dock at U.S. East Coast ports.

The Erie and Melford projects could eventually boost container traffic on the Seaway and the Great Lakes. “The majority of freight will move by rail and truck,” Johnson says. “But the Seaway is there, and the Strait of Canso features a Seaway-sized lock, so it will be interesting to see whether it can be cost efficient to move those boxes via marine transportation.”

If many containers start plying the waters between Melford and Montreal at one end, and calling on ports such as Erie and North Baltimore, Ohio, on the other, it will add yet another set of stitches to the many that already closely bind Canada and the United States at the border.

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