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Reaching Across The Border
Monday, 29 June 2009 00:00

Truck traffic across the Canadian border is lighter these days, but the list of security rules that crossborder truckers and their shipper customers must obey has grown longer.

The latest U.S. regulation added to that lengthy list, the Western Hemisphere Travel Initiative, took effect on June 1. All travelers, including truck drivers, must have a valid passport, a special frequent traveler card or a special driver’s license to enter the United States. Previously, American and Canadian citizens could cross the border with only a driver’s license and birth certificate.

Before June 1, businesses were concerned that drivers would be caught unprepared for the change, leading to backups at border chokepoints. U.S. Customs officials, however, say the WHTI hasn’t caused slowdowns at the border because of high industry compliance with the rule.

That’s a relief to businesses on both sides of a border that handles more than $1 billion in commerce each day. In recent years, Canadians have become more concerned about what they call the “thickening” of the border because of stringent U.S. security regulations.

From the end of the 2001 recession through mid-2008, trade with Canada grew sharply, reaching US$596.9 billion last year, a 31.4 percent increase over the US$409.7 billion reported for 2000.

At the same time, the U.S. rolled out anew security regime that some say throttled what would have been greater growth in trade and strained cross-border supply chains.

The good news for companies in both countries is the congestion that turned some border checkpoints into chokepoints as recently as last year is gone. The bad news is that much of the freight they shipped last year is gone, too.

“When the economy was going gangbusters, there were plenty of delays at the border, and our members might have built that into their transit time” expectations, said David Church, director of transportation and recycling for the Forest Products Association of Canada in Ottawa. “Now that’s far less of an issue. There are no delays at the Detroit-Windsor border any more.”

The recession landed a major hit on two sectors that rely heavily on cross-border supply chains: the housing and automotive industries. There’s been a big drop in exports of lumber and solid wood, and paper used for newsprint, Church said. “Our member CEOs said this is the worst recession they’ve seen in 40 years.”

That’s reflected in the plunging value of goods shipped across the U.S.-Canada border. The value of trans-border goods shipped by truck has inched up month to month this year, rising 9.4 percent to US$21 billion after hitting a low of US$18.1 billion in January.

But the monthly figures are far below those reported for the winter and spring of 2008. In March, the yearover-year figure was 34.2 percent lower, the biggest gap yet, according to the U.S. Department of Transportation’s Bureau of Transportation Statistics.

The drop in trade hasn’t cooled the cost of cross-border trucking.

“There are pressures coming from a whole host of areas in both Canada and the United States that are making trucking—and the shipment of goods generally—more expensive,” Ron Lennox, vice president of the Canadian Trucking Alliance, said while testifying before an agricultural committee of Canada’s House of Commons in Ottawa this month.

The WHTI may not be slowing traffic, but it is adding costs, Lennox said. Canadian drivers must pay $87 for a passport or $50 for a Free and Secure Trade Program card.

And he noted the U.S. Animal and Plant Health Inspection Service’s annual fee on each truck entering the U.S. has more than doubled to $205.

Then there are indirect costs, such as tougher U.S. emissions standards for diesel truck engines. Canadian carriers doing business in the U.S. must comply with these standards, which add thousands of dollars to the cost of purchasing a truck. “Like all other costs, they must be factored in to the rate carriers charge their customers,” Lennox said. “They can’t simply be absorbed.”

Add to that mix a backlash over the “Buy American” provision of the American Recovery and
Reinvestment Act, and fears that Canada could retaliate with protectionist steps of its own. Shippers with operations and customers on both sides of the border want action.

“We really do need more effective regulatory cooperation between our two countries,” said Doug Conant, president and CEO of Campbell Soup, the world’s largest soup manufacturer.

“The North American economy is highly integrated, and whatever we do on one side of the border affects the other,” Conant told U.S. and Canadian business executives on June 9.

Speaking at the Canadian Embassy in Washington, Conant said the $8 billion company—which makes soup, salsa and sauces as well as bread, cookies and crackers—sent about 7,500 shipments across the Canadian border in 2008, including intra-company traffic.

“Some of the ingredients that go into our products cross the border twice,” Conant said. “A tomato from the U.S. makes its way into a box of our V8 soups, gets mixed with both Canadian and U.S. ingredients at our Toronto facility, and then is shipped to retailers throughout America.”

Although it has unique products for the U.S. and Canadian markets, “the ingredients and food we make cross the border almost every day,” he said.

Conant called for a new bilateral commission on border infrastructure modeled on the Boundary Waters Commission established in 1909. At the North American Competitiveness Council, “We have tots of ideas for moving certain customs processes away from ports of entry that will help ease traffic congestion, and we look forward to working with the Obama administration to see if we can help make them happen,” he said.

A host of programs to expedite freight across the border securely are in place or on the drawing board. Programs such as the U.S. Customs-Trade Partnership Against Terrorism have cost shippers and carriers tens of thousands of dollars and changed the way they do business.

But it’s not clear to carriers and shippers whether such programs have cut down or added to bottlenecks at the border. Companies that expected their shipments to move more quickly under C-TPAT say any benefits are incremental.

“For some of our members, it has forced them to look at their operations and what they need to do to be more secure,” Church said. “But whether there has been a huge benefit in terms of speeding inspections at the border, I’m not so sure that’s been the case. Then again, nobody has said they have had increased delays either. I think they see it as a necessary evil, the cost to do business in the U.S.”

“The carrot to get people to join was the idea that if the supply chain is more secure, shipments can move more quickly across the border, but it hasn’t really lived up to the promise,” said Jane DiMarchi, director of government relations for the North American Millers Association, which represents the U.S. and Canadian wheat, corn, oat and rye milling industry.

C-TPAT membership affected less-than-truckload carrier Averitt Express in unexpected ways. “It’s changing our internal processes as a truck line,” said Beth Billingsley, compliance manager.
For example, Averitt drivers don’t cross the border without bolt cutters. That’s because the company is moving away from throwaway door seals to bolt seals. C-TPAT is “a recommendation, not a requirement, but we want to be sure we’re in compliance.”

Cross-border trucking with Canada accounts for 7 to 8 percent of Averitt’s business, a significant amount for a carrier with a primary service area in 13 Southeastern states. Averitt handles close to 1,800 shipments a month in and out of Canada working with Canadian Freightways and Epic Express, which have major hubs in Winnipeg, Manitoba and Toronto.

Ernie Valdez, Averitt’s director of international services, said the exchange rate dictates cross-border business levels. “You’re going to see a lot more southbound activity the stronger the U.S. dollar is,” Valdez said.

Averitt, which has counted on the automotive industry for part of its cross-border business, will feel the effect of downsizing among the Big Three automakers. But Valdez said its Canadian business is relatively strong.

“Some of it is flat, but we’ve seen growth this year versus last year. We’ve made a strong marketing awareness push to our customers with good service, and we’re taking market share,” he said.

Some of the big U.S. carriers and their Canadian counterparts and partners are expanding cross-border business, perhaps at the expense of smaller trucking companies.

Con-way Truckload moved 1,000 shipments across the border in May, an increase of 54 percent from the same period a year ago and 75 percent year to date.

The Con-way subsidiary said adopting new technology to stay on top of changing regulations is key to building and keeping cross-border business. Con-way is working with Descartes Systems Group to help prepare for Canada’s Advanced Commercial Information truck e-manifest system, which will be rolled out in 2010.

ACI e-Manifest will require truckers to send advance electronic notification of cargo shipments to the anadian Border Services Agency an hour before the freight is to arrive at the border, mirroring a similar rogram already in place in the U.S.

“Our customers expect us to support new customs filing regulations and simplify the shipment process for hem,” said Melissa Mathew, manager of customs compliance for Con-way Freight.

Con-way Chief Marketing Officer Tom Nightingale said since the company began filing U.S. Customs anifests electronically in 2003, the time spent waiting to cross the border has been cut to five minutes.

“Using ACI will continue to improve service for cross-border shipments and is going to help us expand hat business,” Nightingale said.

Journal of Commerce, 6/29/2009