U.S. and Canada: Partners in Trade
Canada’s world-class infrastructure and easy access to North American markets offer U.S. companies strategic logistics opportunities for goods distribution. Beauty, eh?
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Canada boasts one of the world’s most modern and highly developed transportation infrastructures. Among G7 countries, Canada’s infrastructure was ranked number-one by the World Economic Forum’s Global Competitiveness Report. Many companies around the world, including those in the United States, leverage Canada’s infrastructure to gain a business logistics advantage.
U.S. companies have long had a presence in the economy of our neighbor to the north, but the characteristics of that relationship continue to change with the times. “Traditionally, Canada and the United States operated as separate entities, viewing east-west distribution from within their own countries,” says Jack Ampuja, managing partner, Logistics Solutions International, Buffalo, N.Y.
“But now there is more North American rationalization, and a lot more optimization between the two countries, especially after the North American Free Trade Agreement (NAFTA) went into effect in the mid 1990s,” he says.
After NAFTA, companies such as Gillette quickly moved to consolidate operations between the two countries. The north-south flow of goods has increased significantly as Canadian manufacturing companies now make considerably more products for U.S. markets.
“Many U.S. companies rely on Canadian distribution centers to handle their products, partly as a result of the manufacturing cycle over the last two decades, when U.S. companies had Canadian affiliates that manufactured and distributed in Canada,” adds John Chipperfield, vice president and founding partner of Mississauga, Ont.-based Rodair International Ltd., and past chair of the Canadian Institute of Traffic and Transportation.
“Canada grew from east to west, and now a major north-south shift is occurring,” says Ian Cameron, manager of field services for the City of Toronto, Economic Development Office. “For example, Toronto, Calgary, and Vancouver deal far more with American markets than other Canadian cities because of their proximity to major North American markets.”
Trade between the United States and Canada represents $590 billion annually, and 87 percent of Canadian exports are bound for U.S. markets, according to the Ontario Ministry of Transportation.
“Canada is a country with a population that lives and dies by exports,” Ampuja says. “Manufacturing represents about 30 percent of the Canadian economy. By comparison, manufacturing accounts for only about 20 percent of the U.S. economy. So, Canadians have to make export work in order to survive.”
“There are usually more goods going south than coming north because of Canada’s excellent infrastructure, good manufacturing base, and the advantage of a cheaper dollar,” says Jack Bradley, president of Bolton, Ont.-based MSM & Associates Consulting Inc., a logistics, transportation, and distribution management company.
Seamless Border Crossings
Because of the high volume of exports, Canadian companies have had to develop ways to make border transactions as seamless as possible, in order to attract more business. “Canadian companies that want to play in the U.S. market have to make the entire customer service process seamless,” Bradley says.
Canada’s logistics industry continues to ensure border crossings are as seamless as possible, while minimizing delays, by developing and implementing innovative technologies, procedures, and equipment.
Security at border crossings is also a major concern. Several programs have been designed to educate companies on how to secure border crossings.
“C-TPAT (Customs Trade Partnership against Terrorism) is one of several initiatives that bring supply chain participants together to help secure the movement of goods across the border,” says Charlie Meilach, director of transportation for Metro Canada Logistics, a 3PL provider with operations in the Greater Toronto Area (GTA) region. Canada has instituted programs that mirror U.S. regulations such as C-TPAT, ensuring goods flow smoothly in both directions.
“Security is a serious problem and it creates serious complications if it slows down the movement of goods across the border,” says Meilach.
But border crossings have improved now that risk management targeting is in place, and shippers are responsible for submitting advance manifest notices to the government before moving railcars and trucks.
“These procedures help minimize delay, and detain fewer containers and railcars at the border,” says Jim Phillips, CEO and president of the Canadian/American Border Trade Alliance (Can/Am BTA), headquartered in Lewiston, N.Y.
Another security initiative enabling smoother border crossings is the Mobile VACIS (Vehicle and Cargo Inspection System) unit. The truck-mounted gamma-ray imaging systems are currently set up at several Canadian border locations. These units inspect railcars entering the United States, and quickly and non-intrusively inspect the contents of trucks and trains.
“These initiatives have all been worked out cooperatively among the major railways, U.S. Customs and Border Protection, and the Canada Border Services Agency, and that is very positive for businesses,” Phillips says, noting that both automated manifest documentation and VACIS inspections have been instituted as a result of Sept. 11.
Information technology also is helping to improve the flow of goods, although the implementation process for most companies involved is “painfully slow,” says Jim Eckler, CEO and president of Toronto-based Progistix-Solutions Inc., a logistics services provider and subsidiary of Canada Post Corporation. “Technology systems are progressing, but some organizations have yet to make the investment.”
“Information technology has improved significantly, and more companies are trading internationally with complete enterprise systems, automatically creating solutions for all the necessary documentation and routing,” Eckler says. “With the help of these systems, “trans-border moves are becoming as easy as domestic moves.”
In addition, “the advanced technology abilities of the larger third-party logistics providers separate the small players from the big,” Bradley says.
Despite these advances, border crossing challenges still exist. Delays are causing some U.S.-based companies to establish buffer inventories in Canada. And security concerns remain.
“Increased security at the border only aggravates an already complex system,” notes Eckler.
Trade at All-Time High
Despite the challenges that persist, trans-border economic activity stands at an all-time high. “I don’t think there is any company out there locating in one country vs. another solely because it’s difficult to cross the border,” says Phillips at Can/Am Border Trade Alliance. “Being in close proximity to your customers helps you understand them better.”
Companies managing a lot of cross-border activities have to be continually aware of dollar exchange rates. “It works to Canada’s advantage to keep its dollar down because of the degree to which it relies on export,” says Ampuja at Logistics Solutions. “Companies should develop flexible systems that let them react appropriately when the dollar-to-dollar ratio shifts.”
International trade utilizing Canada as an access point to the United States is increasing. About 500,000 containers enter Canada as international exports, which are then transported to the United States for final destination, says Phillips.
“A large logistics component moves through Canada to the United States, instead of going directly to the United States,” Phillips says. Although the economic advantages of this kind of move are not as great as they were in the mid 1960s, when the Canadian dollar was lower, benefits still exist.
Canada’s infrastructure includes three major ports—Halifax, Montreal, and Vancouver—the Trans-Canada Highway, and easy access to major north-south U.S. interstate highways. Among the border crossings between the two countries, the Detroit-Windsor and Port Huron-Sarnia crossings have historically been the busiest. Several of the country’s major airports have undergone recent renovations and expansions. Canada’s railways—the CN Railway and the Canadian Pacific Railway—are world-renowned for on-time efficiency.
Here’s an infrastructure snapshot of Canada, by mode. (See sidebar, below, for a more detailed view of Canada’s transportation infrastructure.)
Motor Freight. The Queen Elizabeth Way (QEW) is the primary truck route linking the Niagara bridge crossings to the Greater Toronto Area and the rest of southern Ontario, according to The Ontario Ministry of Transportation. On an average work day, 15,000 trucks travel the QEW, carrying more than $400 million in goods.
More than 20 million vehicles annually pass through Windsor, representing 33 percent of U.S.-Canada truck trade, totaling more than $140 billion. The Windsor region is the hub of Canada’s automotive industry because of its proximity to Detroit.
Rail/Intermodal. “Canadian railroads are very competitive and reliable,” notes Phillips. CP and CN have extensively increased cross-border volumes north and south in addition to east and west. “CN now offers additional service through the United States and down to Mexico. It prides itself on operating at a more than 95-percent on-time efficiency rate,” he says.
Intermodal traffic is also on the increase, for two reasons: trucking and railroad companies are working cooperatively, and new truck bodies with roll-on, roll-off logistics capabilities eliminate the need for a crane.
Canadian Pacific Railway operates 14,000 miles of track from Montreal to the Port of Vancouver and into major U.S. cities such as Chicago, New York, Philadelphia, and Minneapolis, says Dan Markham, manager of marketing communications for Calgary-based CP Logistics Solutions.
“CP can offer seamless service from Laredo, Texas, to the Port of Vancouver, Calgary, or Montreal,” Markham says, adding that CP has capabilities to work throughout the NAFTA loop.
CN Railway operates 17,500 route miles in Canada. “CN has a significant freight presence throughout North America,” says Mark Hallman, a CN spokesperson. “The range of its network runs from Halifax to Vancouver and from Montreal to Chicago, New Orleans, Omaha, and Memphis. Its rails run into the ports of Halifax, Montreal, Vancouver, Prince Rupert, New Orleans, and Mobile, and interchange with major Class 1 U.S. railways.”
Canada’s population—approximately 32 million in 2003, according to Statistics Canada—represents about 11 percent of the U.S. population, which was nearly 293 million as of April 2004, according to the U.S. Census Bureau. Most of the Canadian population is located within a narrow band, about 100 miles above the U.S. border. That puts metropolitan Canadian cities with the most active trans-border economies within easy access to North American markets.
Here’s a look at some of Canada’s logistics hot spots:
Greater Toronto Area
The Greater Toronto Area, comprising more than 20 municipalities, is one of Canada’s busiest logistics centers, says Jeffrey Baines, senior economic development officer for the City of Brampton.
“Toronto attracts a lot of big American players because from here they can serve about 60 percent of the North American market population within a day’s drive,” adds Cameron.
“I’ve seen a large trend toward U.S. companies using the Canadian logistics infrastructure to serve their North American distribution segment,” agrees Rodair’s Chipperfield. The growth of his company bears this out. Rodair, which handles logistics operations for a range of manufacturers, including consumer products and automotive components, started with three people seven years ago and now employs 150 people worldwide.
At the Toronto Pearson International Airport, a new terminal opened in early April. “At one point, this was one of the largest public works projects in North America,” Cameron notes.
Toronto Pearson International is Canada’s busiest airport, handling 325,000 metric tons of air cargo in 2001, according to Toronto’s Economic Development Office. Air cargo traffic at the airport is expected to grow at an average annual rate of five percent through 2020.
“The advantage Calgary has over other Canadian cities is prime access to markets in the Pacific Northwest,” says Michael Brown, vice president of business at Calgary Economic Development. “It’s the access to market that’s attractive to U.S. companies wanting Canadian distribution and warehousing facilities.” Calgary offers more than 100 million square feet of warehousing and distribution center space.
The number of people employed in Calgary’s transportation industry has grown 120 percent in the last 10 years, making it the largest industry in Calgary.
“Logistics operations are crucial to Calgary’s economy,” Brown adds. “Cargo traffic in 2002 reached 82,000 metric tons, double the volume from 1992.”
From a trucking standpoint, Calgary sits on two prime routes—the east-west Trans-Canada Highway all the way from Vancouver to Halifax, and the Canada/Mexico corridor. The city can provide access to 40 million people within a 24-hour drive.
About 50 percent of the containers coming through the Port of Vancouver move through Alberta. Products made in Canada and bound to the United States from Alberta account for 10 million tons annually, representing 25 percent of the province’s outbound volume. Products inbound to Alberta from U.S. companies for warehousing and distribution throughout Canada represent two million tons annually, or 20 percent of all inbound to Alberta.
A recent newcomer to Calgary is Supply Chain Management Logistics (SCM), a company owned and operated by Tibbett & Britten Americas. The third-party logistics provider set up SCM exclusively to handle Wal-Mart’s Canadian warehousing and distribution operations. Wal-Mart operates 240 retail stores throughout Canada.
“SCM in Calgary employs 1,000 people at its one-million-square-foot warehousing facility,” Brown says.
SCM also operates Cornwall and Mississauga facilities that handle Wal-Mart’s Canadian logistics, says Don Borsk, president of SCM. “Each location handles different distribution regions,” he says. Most goods are received into SCM facilities by truck.
“Offshore shipments usually come into the Port of Vancouver,” Borsk says. “They then are shipped intermodally to our three Canadian DCs. We deal mostly with U.S. and Canadian vendors. Many of those larger manufacturing companies have their own distribution points within Canada, from which they ship their products to SCM facilities.”
Calgary International Airport is the fastest-growing air cargo airport in North America, and its new intermodal facility allows trucks to load directly onto planes. The airport also houses 400,000 square feet of space and provides value-added services such as pick-and-pack operations. Calgary International Airport is in the second phase of a 10-year plan to integrate all transportation modes, with connections to major ports, rails, and trucking routes.
“Calgary is positioning itself as a major inland port with air cargo,” says Brown. “Cargo developments make it easier for European and Asian companies to move their products into Calgary for shipment to Canadian and American markets.”
“Calgary is essentially an economic bridge linking the region to the rest of the world,” says Stephan Poirier, senior director of cargo and logistics development for Calgary International Airport. “Calgary offers benefits similar to U.S. foreign trade zones. In addition, it is the richest province in Canada with the lowest tax regime in the country and no provincial sales tax.
“Calgary is located at the crossroads of a major center of North American distribution, without the congested infrastructure of other cities,” Poirier says.
The Port of Vancouver handles between 60 million and 70 millionmetric ton of cargo, and trades with more than 90 economies, according to the Vancouver Port Authority (VPA). The port’s activities generate $1.6 billion in GDP and $3.5 billion in economic output. In 2002, the value of cargo moving through the port was $29 billion.
In 2003, the VPA began a terminal expansion to handle an additional 360,000 TEUs of containers for a total capacity of 1.97 million TEUs by 2005; it plans to accommodate four million TEUs of capacity by 2020.
Vancouver International Airport Authority is Canada’s second-busiest airport. In 2003, it handled approximately 216 million metric tons of cargo.
Winnipeg’s transportation services and logistics industry exported more than $565 million in goods to foreign markets in 2002, according to Destination Winnipeg. About 100,000 metric tons of cargo move through the Winnipeg Airports Authority every year. Winnipeg International Airport is one of Canada’s primary airports for overnight, all-cargo activity.
The area’s central location near three major North American rail networks—CN, CP, and The Burlington Northern and Santa Fe—and major trucking routes, including the Trans-Canada Highway and access to the U.S. interstate highway system, make it an important intermodal center.
With access to the Port of Churchill, Winnipeg can handle Atlantic Ocean trade by providing cost-effective intermodal transport of goods throughout North America.
Language and cultural differences in Quebec cause some companies to change the way they operate.
“Because of the province’s tradition and bilingual commitment,” says Ampuja, “many companies have separate warehouses set up in Quebec, catering to the province with a completely different distribution program.”
For direct-store deliveries, companies need a Quebec presence using local trucking firms and bilingual drivers. “This sends a message that the company wants to work with local companies and with people who understand Quebec’s unique setup,” Ampuja says.
To Market, To Market
Canada offers unique and cost-effective transportation, logistics, and time-to-market strategies. For example, when a company in The Netherlands wanted to fly fresh flowers to the Chicago market, it worked with the City of Winnipeg.
“Winnipeg convinced the company it could get its flowers into Chicago faster, bypassing O’Hare’s heavy congestion, even though Winnipeg is 900 miles from Chicago,” Ampuja says.
The automotive industry offers another classic example of how free trade works, says Ampuja. “There’s a huge amount of movement in the Detroit area, with automotive components passing back and forth from country to country,” he says.
For instance, engine components might be manufactured in Canada, sent to U.S. companies for engine assembly, then shipped back to Canada to be installed in an automobile, which is shipped back to be sold in the United States.
Warehousing in Canada also provides benefits, especially to international paper producers. Metro Canada Logistics supplies 90 percent of the major international paper producers, and manages the supply of newsprint as well as boxed paper for big-box retailers.
“The majority of our business is in public and contract warehousing throughout the country. We operate seven million square feet of warehousing space in 30 facilities,” says Meilach.
To serve these customers, Metro Canada Logistics uses Canadian trucking and intermodal services. “We offer end-to-end service solutions for warehousing and final delivery to our customers’ customers,” says Meilach.
Xerox, Pitney Bowes, and Siemens turn to Toronto’s Progistix for warehousing and distribution services. “We support the distribution of spare parts for all their Canadian technicians,” notes Eckler.
The alternative—distributing through U.S. DCs—does not allow for fast enough deliveries. “We set up an infrastructure for these companies here in Canada so their customers can be up and running a lot faster,” he says.
A Tale of Two Cities
Another company taking advantage of the trade partnership between Canada and the United States is The U.S./Canada Group of Rich Products Corporation, which operates 14 plants across the United States and Canada.
The Buffalo-headquartered company originally set up its Fort Erie, Ontario, facility in the 1970s to establish a Canadian presence for its frozen bakery products, including raw-dough and fully finished thaw-and-serve products, as well as non-dairy toppings and bakery cake icing.
“We use the Fort Erie plant as the headquarters for our Canadian business, distributing from here and from our Mississauga-based third-party logistics provider, Conestoga Warehousing,” says Gary MacNew, vice president of customer service and logistics for Rich Products. “We view ourselves as a North American food manufacturer, not a warehousing company, so we outsource our logistics.”
Once NAFTA went into effect, the company rationalized its product line between Fort Erie and Buffalo. “The Buffalo facility now manufactures non-dairy products exclusively, while Fort Erie focuses on bakery products,” MacNew says. “We do a lot of cross-border shipments with our customs broker, PBB Global Logistics.”
Rich Products also is dealing with the many new security regulations affecting border crossings. For example, incoming food shipments to the United States now require a two-hour advance EDI notification to the U.S. Food and Drug Administration.
“The FDA checks the information against its database to determine the status of the importer,” explains MacNew. “We have had to make some changes in our processes because of our proximity to the border—both our plants are within sight of the Peace Bridge. We load trailers and hold them at our plants during this pre-notification period.”
A modern and efficient transportation infrastructure, easy access to North American markets, and support for unique logistics strategies combine to make Canada an attractive partner in trade.