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A Primer on Factors That Affect U.S.-Canada Transportation

U.S.-Canada Transportation

There are several forces in play with U.S.-Canada cross-border trade, including (1) how exchange rate fluctuations tend to push trade traffic from north to south or from south to north, and (2) how cross-border concerns and cabotage rules affect available capacity. Both can have implications for transportation rates.

Exchange rates between two currencies specify how much one currency is worth in terms of the other. The exchange rate between the U.S. Dollar (USD) and Canadian Dollar (CDN) has changed dramatically over the last 10 years.

As the exchange rate fluctuates in favor of a stronger CDN, a number of trade-related situations tend to occur. For instance, in 2001, $1.00CDN equaled $0.65USD. When the CDN dollar is valued above USD, the following often results:

  • Canadian companies find their dollar goes further in the U.S., so they buy more American-made goods. If the USD continues to be weak, U.S.-based companies with production facilities in Canada tend to move production to the U.S., where labor and manufacturing is cheaper (temporarily, at least). More U.S. goods are shipped into Canada.
  • The equipment used to haul cross-border freight is subject to cabotage rules, which govern the practice of picking up and delivering freight within a country’s borders. American carriers can’t pick up in Quebec and deliver in Saskatchewan; likewise, Canadians can’t do point-to-point freight deliveries within the states.
  • Truck rates for Canadian and U.S. carriers can fluctuate, based on the shifts that occur in imports or exports. Historically, the U.S. has had about three dollars of exports for every four dollars of imports from Canada. In 2009 and 2010, that ratio changed to about nine dollars of exports to every ten dollars of imports—fewer goods moving in both directions, but more balanced movements.

Most Canadian carriers indicate there is now a shortage of qualified drivers for U.S. routes. Canadian carriers and drivers may be reluctant to cross the border for security reasons (e.g., the potential for fines if non-compliant), lack of compen­sation for border delay, and other reasons; some owner operators even say they are getting out of the transborder business altogether. To encourage drivers to take the transborder routings, carriers offer incentives (e.g., bonuses and higher mileage payments) while those drivers are in the U.S. At the same time as U.S. manufacturers have a greater demand to take freight into Canada, fewer Canadian carriers have equipment and drivers available to accept their loads. With their equipment in greater demand, the carriers can charge higher transportation rates. Not surprisingly, Canadian carriers typically want Canadian dollars. When the value of CDN is higher than USD, transportation rates are paid at a higher rate.

Although shippers can’t stop the fluctuation of exchange rates, understanding how economic forces work can aid in projections for freight costs. Shippers can watch the forecasted value of the two currencies at independent sources like forecasts.org. Some shippers are also adding an “exchange rate surcharge” to cover fluctuations, which at least sets out a strategy for dealing with changing conditions.