Economic Development

U.S., Canada Maintain Significant, Historical Trade Relationship

October 27, 2011
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The U.S. and Canada enjoy a trade partnership unique in the world. The two nations share the world’s largest and most comprehensive trading relationship; each day, they trade about $1 billion in goods (split about equally in both directions).

International Borders

“There is a synergy between the two countries that goes back centuries, to their founding,” says John Costanzo, president of Purolator International, a subsidiary of Canada-based Purolator Inc. “We share a common history and culture, as well as an industrial heritage.”

In terms of two-way trade, the U.S. and Canada are each other’s largest trading partners. While each country imports more from China, neither exports much there.

“I would say China and the U.S. have a dependency on one another,” Costanzo says. “It is different with the U.S. and Canada. We have a great relationship.”

On the labor front, millions of jobs are related to trade between the U.S. and Canada. The state of New York, for example, has 400,000 jobs that depend on trade with Canada. Other states in the Great Lakes region, as well as their provincial counterparts in Canada, have similar numbers.

Canada’s importance to the U.S. is not just confined to the border states. Canada is the leading export market for 36 of the 50 states and is ranked in the top three for another 10 states, according to the U.S. Congressional Research Service (CRS). The Southeast U.S. states, Texas, and California have become large trading partners with Canada.

In 1989, the U.S.-Canada Free Trade Agreement (FTA) took effect. Five years later, the North American Free Trade Agreement (NAFTA) between the U.S., Canada, and Mexico replaced FTA. NAFTA expanded FTA’s commitment to reduce trade barriers and establish trade rules. Since the implementation of NAFTA, two-way merchandise trade between the U.S. and Canada has grown by 265 percent, according to CRS.

Because there is such a large volume of trade going in each direction on a daily basis, the U.S. and Canada work hard to harmonize regulations and cross-border rules, Costanzo says.

The governments of the two countries have also harmonized security procedures for border crossings. “If you’re compliant with U.S. procedures, you’re more than likely compliant with Canadian procedures,” Costanzo says.

 

Fulfilling from the U.S.

Manufacturing is still the No. 1 industry sector for both the U.S. and Canada, and many industries (automotive, for example) operate facilities on both sides of the border. U.S. companies that are considering a move into Canada have a multitude of factors to consider, Costanzo says, including different tax structures, regulatory environments, and waiver issues among the different Canadian provinces.

“As closely aligned as we are from an economic and cultural perspective, Canada is different from the U.S.,” Costanzo stresses.

While not uncommon for a U.S. company to set up shop in Canada, a more prevailing trend during the past decade is for companies to ship product to Canada from distribution centers and warehouses in the U.S. A weak U.S. dollar, compared with the Canadian dollar, fuels this trend. It means costs of labor, facilities, and inventory holding are lower if a company ships from the U.S., Costanzo says.

“To hold inventory in two places is pretty high in this economy,” he notes. “It might make sense for companies to change distribution and supply chain strategies so they can fulfill orders to Canada from a U.S. distribution center.

“The ratio of companies closing DCs in Canada and moving inventory to the U.S. is significantly higher than the opposite,” Costanzo adds.

In doing so, transit time would still be the same. Travel time is the same from California to British Columbia as it is from Toronto to British Columbia. Companies are also fulfilling orders bound for Eastern Canada from distribution centers in New York and New Jersey.

 

Canadian ports connect to U.S.

U.S. companies can also take advantage of Canadian ports to transport cargo into or out of the country.

Nearly one-quarter of business at the Port of Halifax, Nova Scotia, is U.S.-based.

“An American company can take advantage of our wide range of shipping lines that connect us to 150 countries,” says Michele Peveril, senior manager, strategic relations for the Halifax Port Authority. “We can quickly connect (through CN Rail) into major markets and where production lines are located.”

The Port of Halifax features the deepest container berths on the Eastern Seaboard.

Dwell times are short at the port, as is the time it takes to transfer cargo to and from rail, Peveril says. “Containers are not waiting on a congested pier for a long period of time,” she maintains.

The Port of Halifax serves customers in the Northeast and Midwest U.S. Earlier this year, American Feeder Lines Holding LLP opened a “marine highway” between the Port of Halifax; Portland, Maine; and Boston.

While historically connected to European ports, the Port of Halifax has spent the past decade diversifying its outreach. China is currently the port’s No. 1 trading partner—both in imports and exports—and ships use the Suez and Panama canals to transport product to and from Southeast Asia, including Bangladesh, Vietnam, and Indonesia.

When cargo is brought into the Port of Halifax, it is immediately inspected for radiation.

“Canadian and U.S. Customs work together to facilitate quick movement of containers and limit delays,” Peveril stresses. “The coordination has been most helpful.”

The port has two containerized cargo terminals, and it has invested in bulk terminals. It has the ability to expand its container volume before having to make a further capital investment, Peveril points out. The port has invested $350 million (Canadian) during the past five years to upgrade operations.

More investment is coming. The port is in the midst of a $35 million (Canadian) project to extend one of its berths so two ships of any size can berth simultaneously, including two of the world’s biggest vessels. The pier is currently capable of docking one post-Panamax ship and a smaller vessel at the same time, which limits operational flexibility, Peveril says.

The port is upgrading and expanding the break-bulk cargo handling services at Richmond Terminals. Once completed, the facility will have roll on/roll off handling and enhanced heavy-lift capabilities.

Macquarie Infrastructure Partners, the owner of Halterm Container Terminal Ltd., a tenant of the Port of Halifax, is investing in two additional Super post-Panamax cranes at the port. Beginning next year, the port will feature four container berths equipped with seven Super post-Panamax cranes.

 

The Asia-to-Midwest corridor

Prince Rupert, British Columbia, lies nearly 400 miles north of Vancouver and about 60 miles from the southern tip of the Alaskan panhandle. While that may seem to be an out-of-the-way location, it actually lies on the most direct land-sea route between Asia and the North American heartland.

“We have the shortest sailing time,” says Don Krusel, president and CEO of the Prince Rupert Port Authority. “We’re three days shorter sailing time than Los Angeles or Long Beach to any point in Asia.”

The shorter sailing time translates into cost savings for companies. It’s why many U.S. manufacturers are beginning to use the Prince Rupert for its cross-ocean cargo.

“Customers are finding that their goods are getting to their final destination seven days faster than they ever experienced,” Krusel says. “It’s quicker than [manufacturers] can get with an all-U.S. corridor.”

Prince Rupert includes the first container terminal built post-9/11, meaning it was constructed with all modern security measures. Every container coming off a vessel undergoes radiation screening.

Cargo enters the U.S. from Manitoba via CN Rail. Getting through Customs is an efficient process, Krusel says. At the border, rail cars go through an X-ray machine for an additional dose of security.

By comparison, less than 10 percent of cargo coming into U.S. ports goes through either radiation or X-ray screening.

Once in the U.S., cargo has a direct route into Chicago. Seventy percent of container traffic using Prince Rupert is either destined to or originates from Chicago or Memphis, Tenn.

“We have the fastest time and most secure entry into the U.S.,” Krusel stresses.

The current container terminal has a capacity of 750,000 TEUs per year. The Prince Rupert Port Authority is conducting an environmental review, with an eye toward expanding the capacity to more than 2 million TEUs per year. It hopes to break ground on the project late next year, with a projected operational date of 2014.

There are 1,200 acres of available greenfield land on tidewater that the Prince Rupert plans to develop, mostly for bulk commodities slated for export to Asian markets, Krusel says.

Also on the docket is the development of an integrated logistics park that will be connected to the container terminal by a private commercial road.

“Very few existing container ports are able to have a large logistics center connected to the container terminal by a private road,” Krusel notes. “This will enhance the logistics services of the port.”

Once the logistics park is operational, Krusel believes private-sector companies will begin to establish operations at Prince Rupert. wt

Recent Articles by Ken Krizner

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