Executive summary
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Despite the elimination of tariff barriers between Canada and the United States, the volume of trade between the two countries has been less than would be expected if there were no impediments. While considerable work has assessed the degree of integration between the Canadian and U.S. economies through trade, relatively little analysis has examined the underlying costs of cross-border trade.
The costs of crossing the border can be divided into formal tariff barriers, non-tariff barriers, and the cost of the transport itself. This paper focuses on the later. It investigates the cost of shipping goods by truck (the primary mode by which goods cross the border) between Canada and the U.S. during the 2004-to-2009 period.
Based on data from Statistics Canada's Trucking Commodity Origin and Destination Survey, trucking costs are higher for cross-border than domestic trade, a difference that stems from both higher fixed costs per shipment, especially for exports, and higher line-haul costs that vary with the length of shipment. Higher fixed costs are consistent with border delays and compliance costs which are passed on to the consumers of trucking services. Higher line-haul costs are associated with greater difficulties obtaining backhauls, which, in turn, may be the result of regulations on cabotage rights.
The extra cost associated with cross-border, truck-borne trade amounts to an ad valorem tariff equivalent ranging between 0.4% and 0.9%. Compared with equivalent domestic trade, cross-border trade is 18% to 31% more costly. For exports to the U.S., these costs added 0.9% to the delivered price of goods in 2004. This figure fell to 0.4% in 2009, as cross-border line-haul costs converged with domestic levels. Higher fixed costs per shipment accounted for most of the additional cost of transporting goods to the U.S.
The extra costs associated with bringing goods into Canada by truck added about 0.4% to the value of imported goods in 2004. This percentage rose to 0.8% in 2009, as line-haul costs, and to a lesser extent, fixed costs per shipment, rose. Line-haul costs accounted for most of the additional costs of transporting goods into Canada by truck.
In general, over the 2004-to-2009 period, the additional line-haul costs associated with cross-border trade fell for exports but rose for imports. This is consistent with the 'backhaul' portion of the journey switching from the journey home for Canadian-based carriers to the journey to the U.S., as the balance of truck-borne trade shifted from exports to imports.
The costs measured here are only part of the total cost of shipping goods across the border. The institutional costs borne directly by exporting firms for matters like customs administration have been estimated to be as great or greater than the costs passed on to them by freight carriers.
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