The U.S.Canada Border: Border Economic Costs, Their Causes, and Alternative Border Management Strate

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The U.S.-Canada BorderBorder Economic Costs,
Their Causes, andAlternative Border Management
Strategies

• Prepared for
• U.S. Department of Transportation
• Talking Freight Seminar Series
• by
• John C. Taylor and Associates
• Seidman School of Business
• Grand Valley State University
• October 15, 2003

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Ambassador Bridge Detroit, Michigan Windsor,
Ontario
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Blue Water Bridge Port Huron, Michigan
Sarnia, Ontario
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Methodology

• Secondary literature review
• Multiple site visits to seven crossings
• Traffic data from 1984 and monthly data pre to
  post 9/11
• Primary inspection transit time (backup) data
  from Canada Customs for both directions
• 173 personal interviews of key organizations/perso
  ns
• Estimation of border related costs by impact
  category and in total
• Analysis of border management options

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Extent of Trade and Traffic

• The U.S. and Canada have annual merchandise trade
  of US382 billion with US235 billion moving by
  truck
• Traffic levels have fluctuated, however
• Truck traffic is up 122.5 since 1984
• Auto traffic is up 24.9 since 1984, but down
  11.8 since 1995

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Prior Studies of Border Costs

• Pre 9/11study of six major crossings by Battelle
  and Texas Transportation Institute
• Canadian Manufacturers and Exporters Association
  estimates border adds 6 to the costs
• Former Prime Minister Mulroney estimates the
  border adds C30 billion in costs
• Testimony before the Windsor Chamber of Commerce
  indicates border costs equal to 2-3 of NAFTA
  trade levels
• A U.S. Manufacturers Alliance report estimated
  border crossing costs at up to 13 (Magner 2001)

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Macro Indicators of Border CostsCross-Border
Freight Rates

• Cross-border freight rates suggest a border cost
  impact
• Interviewees indicated that cross-border rates
  average 10-20 higher than U.S. domestic rates
• Cross-border freight rates are an estimated
  US1.59 billion higher than comparable U.S.
  domestic rates
• Some carriers have border crossing surcharges of
  as much as C20 per consignment

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Macro Indicator of Cost Impacts Reduced
Sourcing From Canada
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Detailed Cost Estimates

• Total cost impacts are estimated at US10.3
  billion.
• These costs represent 2.70 of total 2001
  U.S.-Canada trade in goods.
• Specific truck related costs represent 4.02 of
  total truck based trade.
• Transit time and uncertainty costs, specifically,
  total an estimated US4.01 billion.
• Trade policy related costs totaled an estimated
  US6.28 billion.

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Transit Time and Uncertainty Related Impact
Summary (Millions of US)
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Primary Inspection Transit Time Costs

• A key cost category - primary inspection transit
  time (backup time) costs
• Costs were estimated using transit time data
  collected by Canada Customs. This data is
• Collected six times a day at all key crossings
• For both directions of travel
• For cars and trucks separately
• Represents average backup minutes at that point
  in time
• Sample of daily data from May 1 to August 31,
  2002
• Average backup times were used a sample and
  applied to annual traffic to arrive at total
  backup hours
• Using a cost of 150/hour total backup costs were
  estimated (Maring and Lambert 2002)
• US324.3 million in costs

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Secondary Yard Processing Costs

• Secondary yard processing costs are very
  important
• Costs apply to the 20-40 of trucks
• Average times in secondary of 1-2 hours are
  assumed depending on the crossing and direction
  of travel
• Processing times are based on numerous interviews
  with key parties
• US755.4 million in costs

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General Border Costs and Grand Total (Millions of
US)
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Key Causes of Long Transit Times

• Insufficient number of open primary inspection
  booths
• Congested ingress roads with insufficient
  capacity and too many obstructions to free flow
  traffic
• U.S. exit checks at key crossings
• Crossing roadbed capacity is generally not a
  major cause of problems

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Key Causes of Long Transit Times

• Other problems relate to broker locations too
  distant from parking spaces, hours of operation
  and quality of staff at night and weekends, and a
  lack of adequate attention to processing PAPS and
  PARS faxes.
• Poor documentation preparation and uneducated
  drivers are an additional major problem

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Possible Short/Medium Term Solutions

• Increasing FIS staff levels, a process well under
  way, but they must be put in booths
• Full participation in customs clearance systems
  such as FAST that will minimize secondary visits
• Expansion of plazas to allow more primary and
  secondary inspection areas, and dedicated lanes
  for approach to NEXUS and FAST
• Use of off-site second stage inspection areas at
  where existing plazas cannot be expanded
• Use of full off-site secondary inspection, joint
  facilities and reverse inspections

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Possible Short/Medium Term Solutions

• Broker processes and relationships with drivers
  also need improvement
• TV camera monitoring of crossing backups and
  communication of images/info to FIS and local
  police
• An option might be to require licensing of
  carrier/drivers in order to be allowed to conduct
  cross-border trucking

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Possible Long Term Solutions

• Increase security and/or trade processing
  capacity
• At major border crossings
• Major investments in additional roadbed crossing
  capacity
• Major investments in plaza expansion
• Major increases in FIS staff
• Along the entire border
• Major investments in remote monitoring technology
• Increases in Border Patrol staff
• Are there alternatives???

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Consider The Present Situation

• Total border costs represent 2.70 of merchandise
  trade
• Costs relate to border security and control
  measures which were designed to collect duties
  which dont exist in most cases
• Border congestion on the Canadian side, from
  backups related to entry to the U.S., are causing
  major concerns in Canada
• Given the level of interaction across the border,
  security is difficult
• Processing times for cars and trucks average 30
  and 75 seconds
• A very small percentage of trucks actually have
  doors opened
• GAO recently reported on a lack of simple
  identity checks and the ability to walk across
  the border through border parks unchecked
• Most border crossings are unstaffed along the
  5300 mile expanse of the border and entry is
  relatively easy

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Proposed New Security Measures

• New security measures to impose some minimal
  level of protection will
• Be costly
• Have the potential to dramatically impact border
  congestion and delays
• Examples of new security programs include
• Entry exit check systems
• U.S. Customs proposed rules for advance
  notification
• New advance notice law on food imports from
  Canada
• And it is unclear that security can be
  significantly enhanced given trade and travel
  volumes
• Is their a better approach?

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External Perimeter Strategy Discussion

• A European Union like open border system is one
  option
• Such a system would
• Be implemented slowly
• Require Canada to adopt tougher security measures
• Rely on random inspections, extensive post audits
  by Customs, and severe fines
• Rely on tougher Customs and Immigration controls
  on the external border
• Likely spur a push for additional harmonization
  of rules
• This kind of system could free up a significant
  portion of the US10.3 billion in costs
• Could actually increase security by freeing up
  resources for high risk priorities
• While there is increasing support in Canada,
  obvious issues in the U.S. relate to
• Border security concerns
• How to deal with Mexico