Shippers looking for improvement in Canada’s beleaguered trade and economy might need to wait another year, or even two, as the country struggles to find positive direction amid weak demand from the U.S., weaker still from Europe and a Chinese outlook that, well, can best be described as murky.
The key for Canadian importers and exporters, financial analysts say, is to diversify, and embrace those emerging markets known by the rock-solid acronym BRIC — Brazil, Russia, India and China — and other up-and-comers. In essence, Canada must look outside North America, because the United States is increasingly looking in.
“There is a growing economic patriotism in the United States,” said Birgit Matthiesen, who has dealt with Congress, the administration and U.S. corporations for 25 years, first as a commercial officer with the Canadian Embassy in Washington and now as Washington representative of Canadian Manufacturers and Exporters, Canada’s largest trade association. “It can have a trickle-down effect within the supply chain, so that U.S. companies and their partners feel the need (or are required) to buy American.”
Canada is in comparatively good economic shape, though high household debt is causing some concern, so the main problems for the trade on which it depends heavily are external.
Related: Canada, in a Rout.
Perrin Beatty, president of the Canadian Chamber of Commerce, cites Europe and its debt and banking crisis as “the great imponderable” for world and Canadian trade. Others sees slow improvement in the U.S. economy, but very slow. Few profess to know whether China is slowing to a more sustainable level, slowing a lot or picking up.
With the U.S., the main issue is the economy. Despite the economic closeness brought by the North American Free Trade Agreement, despite integration of manufacturing, labor markets, goods exchange and natural resources, and despite still being by far each other’s largest buyer and seller of goods, trade between the U.S. and Canada weakens steadily when U.S. demand slows.
A year ago, the U.S. accounted for 68 percent of Canada’s total global trade, down from 81 percent a decade ago. A year ago, Canada was sending 73 percent of its exports to the U.S., down from well more than 80 percent a decade ago. China now is Canada’s second-largest single market. Europe, with which Canada is negotiating a free trade and investment agreement, is Canada’s second-largest market as a bloc.
Beyond the sluggish U.S. economy, Canadian exports to its southern neighbor face several stifling factors: the high Canadian dollar, flirting on either side of parity with the U.S. dollar; sluggish improvement in Canadian manufacturing productivity and competitiveness; and a steady thickening of the U.S.-Canada border because of security inspections and requirements.
Related: Trade Winds Shift at Canadian Ports.
A recent bright spot, and one expected to continue, has been increased Canadian business investment in productivity-improving plant and equipment, mostly purchased from the United States. And trade along the 5,500-mile border should pick up, although more so starting in 2013, because of two far-reaching security and border trade programs implemented in December by President Obama and Prime Minister Stephen Harper.
Canadian ports, manufacturers and economists are applauding the Beyond the Border security and trade plan, and a less-developed Regulation Cooperation initiative to harmonize the U.S. Customs-Trade Partnership Against Terrorism and Canada’s Partners in Protection programs, although the bureaucratic and political inertia that will likely come in this U.S. election year have many holding their collective breath.
Still, Carol Osmond, vice president of the Canadian Association of Importers and Exporters, is among several trade interests who have found enthusiasm within U.S. Customs and Border Protection to keep the momentum going.
The security agreement calls for development by June 30 of a common set of data elements for all transportation modes to be used by carriers and shippers serving both countries in advanced reporting of cargo, conveyances, suppliers and consignees. Shippers, carriers and drivers no longer will have to make two applications, nor provide two differing sets of data information. The two customs agencies also will develop an Integrated Cargo Security Strategy by June 30, followed by pilot programs starting in September, under which cross-border trade will undergo a single customs inspection by either country to speed up clearance and passage of foreign cargo transshipped from one to the other.
For port-to-rail shipments, the Canadian pilot will occur in Prince Rupert, the remote northern British Columbia port, all of whose Chinese and other Asian imports Canadian National Railway carries across much of the continent to Chicago and Toronto. Rather than inspection in Prince Rupert by Canadian authorities and again in Chicago by U.S. Customs, one inspection at the port of North American entry will do.
Another pilot will be launched for port-to-trucking transloading at the Port of Montreal, ironically whose U.S.-bound containers (30 percent of the 1.2 million 20-foot equivalent container units handled in 2011) travels mostly to the Midwest by rail. Some goes by truck to the New England states.
C-TPAT and Canada’s Partners in Protection already closely mirror each other, and will be fully harmonized, with a single application, enrollment and approval sufficient for cross-border carriers, drivers and shippers. Both countries will develop single electronic windows for traders to deal not only with customs agencies but also with food safety and other departments and agencies whose requirements they must meet.
The Canadian Chamber’s Beatty, whose group and its U.S. counterpart were influential in pushing the agreements through the two governments, welcomed them as counterparts to what he sees as “thinly veiled protectionism” growing in the United States. He cited the Federal Maritime Commission’s inquiry into U.S. ports’ charges that cargo is being diverted to Canada, in part because of the U.S. Harbor Maintenance Tax (Story, page 27), President Obama’s intervention in the Keystone XL pipeline plan for Canadian oil to the Gulf Coast, the Buy American legislation in Congress and growing numbers of U.S. trade and transportation user fees.
There remains plenty of room for growth in Canada-U.S. trade, Beatty said, but Canadian exporters are diversifying to China and other markets out “of necessity. “We can’t be the caboose on the back of just one train,” he said.
For Matthiesen, recent improvement in the U.S. economy is welcome, but she’s more interested in trends on a smaller scale. “We are more concerned now about the state level, the counties and municipalities, where purchases for highways and infrastructure projects, parks, courthouses and new schools are made and paid for by municipal bonds, which rely on an increasingly tightened tax base,” she said. “You have both less tax-based demand and less citizen demand.”
She is “quite heartened, quite impressed,” however, with the Beyond the Border and Regulation Cooperation initiatives, considering them “a good shot in the arm” for two-way trade.
Ruth Snowden, executive director of the Canadian International Freight Forwarders Association, sees stated intentions to work together on infrastructure improvements at border crossings — expanded customs plazas or new bridge lanes and access roads, new booths and the staffs to operate them — as key to speeding passage at often-congested crossings.
But with the U.S. already having cut back on Blue Water Bridge improvements in Port Huron, Mich., and having shelved its part of a planned new span at Buffalo, she will have to wait and see.
Contact Courtney Tower at email@example.com.