Canada Supplement Digital 2012

7/28/2019 Canada Supplement Digital 2012

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July 2012 Inbound Logistics 1

Special Supplement

DrivinG Growth

northwarD

canaDa traDe

Increasing demand for U.S. goods in Canada represents

a positive sign for the economies of both countries.

But keeping cross-border shipments moving requires

building smart and savvy logistics partnerships.


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2 Inbound Logistics July 2012

economic recovery in the United States may not yet be complete, but signs oimprovement are present along the U.S./Canada border. The steady stream o goods

passing north and south across the nearly 4,000 miles o border that separate Canadaand the contiguous United States is evidence that the economies o the two countries are

moving in the right direction.While the U.S. economy remains stagnant, the

Canadian economy is expected to grow 2.25 percentin 2012, and 2.5 percent in 2013, according tothe Organization or Economic Cooperationand Development.

The Canadian economy is booming, says BobPoulos, vice president o sales at Chattanooga, Tenn.-based transportation solutions provider U.S. XpressEnterprises. Demand or southbound and, especially,northbound reight is increasing. Opportunities are

developing coast to coast.The unemployment numbers dont show it yet, butthe transportation industry in Canada is denitely up,agrees Mike Said, president o operations or Clarksville,Tenn.-based transportation provider ContinentalExpedited Services.

Canadas push toward economic recovery spellsgood news or the United States, too. The strength othe Canadian economy has led to an upswing in thenumber o U.S. companies attracted to Canada asa budding market. Canada is the United States big-gest trading partner in 2011, U.S.-Canadian trade

totaled $597 billion, accounting or 16.2 percent oall U.S. international trade so good news on one

side o the border is good news or the other side, too.The value o the Canadian dollar is one actor con-

tributing to the fow o goods north. The value o goodsin U.S. surace trade with Canada increased 13.7 per-cent year-over-year in February 2012, according to theBureau o Transportation Statistics.

Goods shipped north are cheaper or Canadianconsumers, says Derek Leathers, president and chieoperating ocer o Omaha-based global transporta-tion provider Werner Enterprises. Changes in the

exchange rate have aected the import/export dynamicsubstantially, and are promoting the fow o importsinto Canada.

Businesses in Canada are reaping the benets. Weopened a new warehouse in January 2012, and itsalmost ull, says Andrew Kirkpatrick, director o salesand marketing at Sherway Group, an asset-based, ull-service, customized logistics and supply chain solutionsprovider based in Mississauga, Ontario. Companies arelooking to seize opportunities and improve eciencies,which translates to an upswing in business demand onboth the U.S. and Canadian sides o the border.

Ten to 15 years ago, the bulk o U.S.-Canada tradefowed north to south. But as the dollar depreciated


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CANADA TRADE

DRIVING GROWTH NORTHWARD

over the past several years, manuacturing in Canada and export-ing goods into the United States decreased as well. Today,the trend has reversed, and south-to-north shipments haveincreased substantially.

Simultaneously, a jump in Canadian consumer goods priceshas translated to yet another spike in cross-border sales. Theprice gapwhich accounts or some products costing as muchas 40 percent more in Canada than in the United States, accord-ing to the Canadian Senate Finance Committeehas occurreddespite the strength o the Canadian dollar.

While U.S.-based businesses are beneting rom the currentprice spike, Canadian citizens are not as pleased. Pressure rom

Canadian consumers recently pushed the Canadian SenateFinance Committee to launch an investigation in an attempt tounderstand the reasons behind the price increases.

Supply management is one reason cited. I the committee isgoing to look at actors that contribute to the dier-ences in pricing between Canada and the UnitedStates, it would be remiss in not addressing supplymanagement in some way, says Diane Brisebois,president o the Retail Council o Canada.

Rising DemanD

The volume o northbound shipments placesgreater demand on cross-border carriers. U.S.-based shippers are more requently asking orsolutions in Canada, says Poulos. While thatsgood news, it also means we are pushing hard.

An auto industry rebound is another catalyst inthe improving economic landscape. The Canadianauto industry is closely linked to the United States,due to the Automotive Products Trade Agreementand the North American Free Trade Agreement.Roughly 540 U.S. companies make automo-tive parts or original equipment manuacturers

(OEMs) and their suppliers in Canada. As U.S.demand or automobiles has increased aster thanexpected, OEMs in Canada have seen a corre-sponding uptick.

The auto industry has always been a leading eco-nomic indicator, and, in 2012 to date, it representsa positive trend, says Poulos.

But the uneven pace o economic recovery inthe United States and Canada has led to challengesas well. The number o trucks hauling reight into Canada andreturning to the United States partially or totally empty is onthe rise. Part o the reason can be attributed to the imbalance

in hauling capacity between the countries, but most o it can betraced back to exchange rate issues.

The increased trade imbalance presents a big challenge, saysLeathers. The Canadian dollars strength created more demandor products going into Canada than in the other direction. U.S.exporters are aced with a higher rate structure, and oten haveto return empty trucks rom Canada, which makes the trip moreexpensive or them. Its all because o lower demand or goodscoming rom Canada.

Other actors complicate the Canadian shipping market.Two big issues are government restrictions on importing certaingoods, and the cost and availability o quality carriers to haul intoCanada, says Richard Patenude, director o client integrationand development or The Wheels Group, the shared-ser-

vices division o The Wheels Group o Companies, which alsoincludes Wheels Clipper, a 3PL based in Toronto and Chicago,and international reight orwarding division Wheels Synergex.

The ineciencies o shipping large volumes to and rom

Canada through carriers that lack a signicant Canadian pres-ence can add considerable expense, adds Jon Routledge, vicepresident o sales and marketing at New York-based integrated

parcel and reight delivery services company Purolator. Fuelprice fuctuation in the United States and Canada is another

Fords Windsor, Ontario, manufacturing plant represents one of many originalequipment manufacturers working to meet automotive industry demand.


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actor aecting cross-border transportation. Rising uel costs overthe past several years have aected day-to-day dynamics, and dra-matically infuenced businessand not in a positive way.

While Canada is oten viewed less as a oreign country andmore as the United States riendly neighbor to the north, ship-ping and logistics between the two countries has never beensimple. While the current economic outlook in Canada temptsU.S. exporters, companies that dont understand the system andhow to navigate it properly can end up paying exorbitant ees orengaging in cross-border business.

Big BOX, Big PROBLems

Logistics service providers can help U.S. companies under-stand the Canadian market and its dynamics beore diving in. Aew big-box store retailers that have penetrated the U.S. marketsee Canada as a place to grow their business, Poulos says. Theyare looking to expand their presence there signicantly, butdont understand the market. They dont ully grasp the dicul-ties o cross-border issues, such as clearing Customs.

Managing customs clearance is a critical component ocross-border shipping and one shippers nd increasingly com-plex. Enhanced border security since the terrorist attacks oSept. 11, 2001, is denitely a concern, says Amy Magnus, direc-

tor o customs aairs and compliance or A.N. Deringer Inc., aSt. Albans, Vt.-based 3PL. Keeping the fow o legitimate trademoving supports both the U.S. and Canadian economies.

Over the past decade, several requirements have been put inplace or advance delivery o shipment inormation. Oten, whencargo arrives at the border, a decision has already been made asto whether or not it will be inspected. The U.S. governmenthas visibility into what shipments are coming in at least one hourbeore they arrive, which has created eciencies, says Magnus.

But i data is inaccurate or incomplete, shipments can bedelayed, held by U.S. Customs and Border Protection (CBP) orother government agencies, or reused entry. It pays or shippers

to have all their data organized so shipments can be processedcorrectly the rst time, Magnus says.

While border delays are common today, the U.S. andCanadian governments are dedicated to improving them in theuture. On Dec. 7, 2011, President Barack Obama and PrimeMinister Stephen Harper unveiled the Beyond the Border ActionPlan and the Regulatory Cooperation Council Action Plan. Thetwo initiatives were designed to ensure that the vital economicpartnership that joins our two countries continues to be the cor-nerstone o economic competitiveness and security, accordingto Canadian Deense Minister Peter MacKay.

The Beyond the Border Plan states that the United Statesand Canada intend to pursue a perimeter approach to secu-rity, working together within, at, and away rom the borders o

our two countries to enhance our security and accelerate thelegitimate fow o people, goods, and services between our twocountries, according to a declaration by Obama and Harper.

We intend to do so in partnership, and in ways that support eco-nomic competitiveness, job creation, and prosperity.

Beyond the Border may relieve some existing trade barriersand improve access to inormation or shippers and service pro-

viders. The plan could give both sides more reliabledata; make the rules about the timing and amount odata required more consistent; and involve govern-ment agencies in harmonizing the data they need sothe entire process will eventually be less burdensomeor all trade partners, Magnus says.

Electronic inormation exchange is one way toease bottlenecks at the border. For example, the Freeand Secure Trade (FAST) program is a joint initia-tive between CBP and the Canada Border Services

Agency that enhances border and trade security whilesimpliying cross-border commercial shipments and

minimizing delays. FAST allows properly credentialed trucksto move through an express lane, where pre-approved, low-risktravelers have the ability to bypass the traditional CBP inspec-tion process and use automated kiosks to expedite entry into the

United States. The program enables CBP to ocus its resourcesand security eorts on travelers o high or unknown risk.

an ace UP theiR sLeeve

Meanwhile, the Automated Commercial Environment (ACE)electronic maniest system is mandatory or cross-border shippers,creating a secure and streamlined environment or process-ing and releasing cargo at the land borders. These electronictruck maniests have helped improve eciency and elimi-nate redundancies.

Using RFID technology, ACE can identiy trucks and driversrom a distance, then retrieve maniest and entry data or CBP

ocers. In September 2012, vessel and rail ACE maniests willalso become mandatory.

i rl or uurr d

rlr o rud prr

o lp ll ll ro-

bordr pp pr.Bob Poulos, vice president, sales, U.S. Xpress Enterprises


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The e-maniests, which are electronically submitted by carri-ers, enable both CBP and the Canada Border Services Agencyto pre-screen the crew, conveyance, equipment, and shipmentinormation beore a truck arrives at the border, saysMagnus. It is an enormous project that has experi-enced bumps along the way, but it refects the way wellbe doing business in the uture.

ACE makes discrepancies easy to spot, but shipperswho dont organize their data could ace delays. Thiscould be especially challenging or less-than-truckload(LTL) carriers. One maniest covers an entire trailer,but the customs declarations come rom multipleLTL shippers.

New technology is making the customs process eas-

ier, notes Said. As long as data is organized, clearanceshouldnt be a problem.

cOnstant changes

New regulations and requirements aecting cross-border tradearise regularly, keeping all parties on their toes. For example,the U.S. Lacy Act, which was passed in 2008, prohibits import-ing illegally logged timber into the United States. Every newlaw requires new inormation gathering and data requirements,says Magnus. As more data is required, it becomes burdensomeon trade.

A.N. Deringer boosted internal sta training to help shippers

comply with new requirements and avoid delays. Legitimategoods need to fow reely. I they dont, serious economic

consequences can result, Magnus says. Assembly lines canslow down or shut down, and workers can be sent home. Delaysare costly or all parties.

The vast and varied requirements or crossing the bordercan be a particular disadvantage or smaller carriers that maynot have the proper technology systems in place. For large

companies, the technology investment is reasonable, but orsmall carriers those hurdles may be too dicult or expensiveto overcome, says Leathers. That can result in ewer carriersinterested in crossing the border. Anything that limits the sys-tems capacity has a net eect on the cost o shipments crossingthe border, and will ultimately aect the rate structure.

Maintaining compliance with changing rules can be anespecially daunting challenge when dealing with perish-able shipments.

Increased legislation and controls or consumables is an issue,Patenude says. The nes and penalties or ailing to meet those

requirements are increasing. The government is tightening theprocesses and making it harder to get around them. Signicant

L ood d o fo rl.

i do, rou oo

oqu rul. Dl r

ol or ll pr.Amy Magnus, director, customs affairs and compliance, A.N. Deringer

Third-party logistics provider Geodis Wilson enhanced its presencenear the U.S./Canada border by acquiring Minneapolis-baseddomestic transportation specialist One Source Logistics.


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CANADA TRADE


room or error exists, and the government is not making it easier.To help comply with new and existing regulations, and tight

security measures, shippers oten look to align themselves withexperienced logistics and supply chain providers.

Shippers should work with carriers that can overcome thesechallenges so their reight moves with ewer issues and delays,says Leathers. A qualied logistics provider can handle elec-tronic ling, has experience operating in Canada, and maintainsresources there. Most importantly, companies should work withfexible providers that can design solutions to t their needs, andwork with them collaboratively.

DRiveRs in DemanD

As the United States struggles to keep up with Canadian

demand, a shortage o available truck drivers in North Americapresents another challenge. Despite a high national unemploy-ment rate, drivers have become increasingly dicult to nd.Major trucking rms recorded a 90-percent driver turnover rateduring the rst quarter o 2012, compared to 75 percent in 2011,according to USA Today.

A lack o drivers is orcing carriers to raise shipping rates,which are expected to increase up to ve percent in 2012. Thedriver shortage could worsen as the ederal government enorcesstrict limits on the hours drivers can spend behind the wheel.

In addition, requirements enacted in 2009 mean drivers whowant to cross the U.S./Canada border must shell out roughly

$100 or a passport. Though not a huge hurdle, logistics compa-nies say its just one more impediment they encounter.

It is challenging to nd drivers who want to go into Canada,says Poulos. Passport requirements are a deterrent. And a per-ception exists among drivers that i you go to Canada, you getstuck there.

U.S. Xpress is addressing this issue by partnering with aCanadian company that can help get its trucks back to theUnited States more quickly. Meanwhile, some Canadian trans-portation providers have made eorts to acilitate cross-bordershipments by establishing a U.S. presence.

Geodis Wilson Americas, based in Iselin, N.J., expanded itsNorth American network through acquisition. Part o the Geodis

Group, a global logistics provider with some 30,000 employeesin a network spanning 120 countries, Geodis Wilson enhancedits position in the U.S. market by acquiring Minneapolis-baseddomestic transportation specialist One Source Logistics.

The acquisition is a strategic t or Geodis Wilson, saysJohn Gallahan, regional vice president, Geodis Wilson Americas.One Source Logistics signicantly strengthens our capabilities.It accelerates the growth o our domestic product oerings andcross-border trucking services throughout North America.

One Source Logistics oers specialized domestic transporta-tion services with a ocus on truckload and LTL shipments. Thecompany currently supports transportation, logistics, and dis-

tribution services networks throughout the United States. Thenew access One Source Logistics provides to a broader local

Tennessee-based transportation provider U.S. Xpress Enterprisespartnered with a Canadian trucking company to facilitate itscross-border shipments.


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CANADA TRADE


distribution network improvesGeodis Wilsons inland andnal-mile delivery services.

One Source excels at solv-ing complex domestic issueswith Mexico and Canada,says Gallahan. It has theability to bring clarity, struc-ture, and orm to supplychain management.

a vast teRRitORy

Another challenge uniqueto Canada is the countrysgeography. The majority othe Canadian populationlives within 100 miles o theU.S. border. Yet in terms oterritory, Canada is the sec-ond-largest country in theworld ater Russia. While theimmense population basenear the border is easy toreach in terms o distance, thevast area beyond also needsto be served. Thats anotherreason working with smallerCanadian carriers can be ben-ecialand oten necessary.

The act that the UnitedStates and Canada are joinedby a huge land mass, with aheavy population base nearthe border, means many com-mercial businesses can suc-

cessully serve Canada romthe United States withoutbuilding a physical locationthere, says Routledge. Theygenerally need help rom carriers, however. A good logistics part-ner can make cross-border transportation seamless.

One potential avenue to growth in U.S./Canada cross-bordertrade is e-commerce. The Canadian market is about ve yearsbehind the United States in terms o the e-commerce adop-tion cycle, Routledge notes. Major U.S. e-tailers can look toCanada or more opportunity, as long as they are prepared tomeet the challenges.

Some major U.S.-based e-commerce retailers have givenCanada a try, only to become rustrated and eventually back out.

As one example, U.S.-basedshoe retailer Zappos recentlypulled out o Canada as aresult o problems with cus-toms and other issues.

Product selection oncanada.zappos.com is limiteddue to distribution agreementswith the brands we sell in theUnited States, the companysWeb site states. In addition,we have struggled with general

uncertainty and unpredict-ability o delivering ordersto our Canadian customers,given customs and other logis-tics constraints.

The challenge was the wayZappos was navigating the bor-der, explains Routledge. Parto achieving success in Canadais understanding the consumerexperience you are tryingto deliver. Retailers have toaccount or how they will phys-ically move products. Its notor everyone. But i a companychooses the right partner, itschances o success improve.

Its critical or manuac-turers and retailers to engagetrusted partners to help withall the challenges cross-bordershipping presents, says Poulos.

FLeX with DemanD

Flexibility is crucial aswell, because o constantlychanging regulations and

requirements. We always keep in mind that shippers are in achanging marketplace, so its important that we be adaptableand fexible to meet their needs, says Kirkpatrick, who notesthat Sherway Groups expertise with retailers such as Walmartand grocery store chains adds signicant value.

Others see inormation technology investments as key to theuture o smooth and successul U.S./Canada cross-border trade.

Weve invested heavily in systems and technology to make it eas-

ier or our employees to manage inormation, says Kirkpatrick.Accurate data is critical. We have invested in warehouse and

Bol BrdThe Ambassador Bridge is the busiest international

border crossing in North America in terms of trade volume;

more than 25 percent of all merchandise trade between

the United States and Canada crosses the bridge.

More than 150,000 jobs in the region and $13 billion

in annual production depend on the Windsor-Detroit

international border crossing, according to a 2004

Border Transportation Partnership study. In April 2010,

the Canadian government offered to lend Michigan

$550 million to help pay the states share of a proposedproject to build a second bridge between Windsor and

Detroit. The offer demonstrated how dependent Canada is

on the United States for exports.

The Ambassador Bridge is owned by Grosse Pointe

billionaire Manuel Moroun through the Detroit International

Bridge Company in the United States and the Canadian

Transit Company in Canada. The bridge holds a monopoly

on commercial truck trafc, which has been part of the

issue. Moroun would like to build a second bridge of his

own, and hes putting up a serious ght to maintain his

monopoly. The day after Canada made its offer, Morouns

lawyers announced that they would sue to block the loan.

The proposal has been stymied ever since.


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CANADA TRADE


transportation management systems, and we are now makingsure they are all integrated. Shippers can use Web-based tools toeasily track shipments, and gain visibility into the entire transpor-tation stream.

LOOking aheaD

Canadian demand or U.S. products doesnt appear to beslowing. Yet given the challenges o cross-border trade, rus-trations are likely to grow, i not worsen. Looking ahead, newinrastructure projects may help alleviate some headaches.

Currently, 70 percent o trade between the United Statesand Canada crosses the border by truck, according to theU.S. Commercial Service. Improving bottlenecks may helptrucks move more quickly. Plans are currently in place toupgrade acilities at some o the busiest land crossings betweenthe two countries.

Choosing dierent mode options can help ease some o thepressure, especially as prices rise due to higher uel costs and

driver shortages, says Patenude. Shiting some reight to rail, andusing intermodal resources, helps avoid problems, slowdowns,and costs.

A long-rumored second bridge connecting Detroit and

Windsor, Ontario, could help alleviate costly delays at the border(see sidebar, page 204). The Ambassador Bridge has long been asource o signicant bottlenecks.

A second bridge would denitely help reduce congestion, saysLeathers. But its also a great redundancy in case o an unore-seen problem with the current inrastructure.

The proposed new span would be a cable stay bridge that couldaccommodate the bulk o cross-border trac, with the originalspan used or overfow trac.

More inrastructure capacity between the two countries isessential, says Leathers. Trucks must be able to get through theborder crossings aster so carriers can keep up with demand andensure goods are fowing.

Meanwhile, one project recently completed on the U.S. side othe border is helping improve some con-gestion. A new highway connector leadingto the Ambassador Bridge means vehiclesno longer have to negotiate Detroits sur-ace streets. A ederal law that prohibitedMichigan rom directly linking the pri-vately owned bridge to the interstate systemwas changed a ew years ago. Today, thebridge links directly to Interstate 75, vastly

improving trac fows.While U.S. and Canadian cross-bordertrade presents challenges, transporta-tion and logistics providers continue toinnovate with new products and servicesthat meet demand. By managing border-clearance issues, maintaining a networkthat services all areas o Canada, under-standing the dierences between the twocountries, and providing seamless ser-vice without compromising the consumeror business experience, smart and savvy

transportation and logistics service provid-ers will continue to thrive. n

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dd d ur ood r fo.Derek Leathers, president and COO, Werner Enterprises


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