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

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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)
Type of Cost Minimum Midrange Maximum
Transit Time/Uncertainty Costs
Carrier Related
Primary Inspection Transit Time 275.3 324.2 351.8
Secondary Yard Processing 602.5 755.4 908.3
Excess Plan Time 113.7 416.4 515.7
Reduced Cycles/Other 65.8 120.7 197.4
Driver Documentation/Fax Time 133.5 250.7 400.9
Carrier Subtotal 1190.8 1867.4 2374.1
Manufacturer Related
Manufacturer Sourcing Benefits 1007.0 1530.0 2000.0
Extra Inventory Carrying Cost 229.0 458.0 686.0
Manufacturer Subtotal 1236.0 1988.0 2686.0
Personal Traveler 96.7 159.0 209.6
Transit Time/Uncertainty Subtotal 2523.5 4014.4 5269.7
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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)
Type of Cost Minimum Midrange Maximum
General Border Costs
Carrier Related
General Border Administration 100.0 200.0 250.0
Cabotage 100.0 150.0 333.3
Carrier Subtotal 200.0 350.0 583.3
Manufacturer Related
Brokerage Costs 372.8 462.9 552.9
Duties, Border Fines, and Fees 1337.6 1605.1 1872.3
Customs Administration 2630.0 3290.0 3950.0
Manufacturer Subtotal 4340.4 5358.0 6375.2
Federal Inspection Services Staff 452.9 571.5 960.9
General Border Subtotal 4993.3 6279.5 7919.4
Transit Time and Uncertainty Subtotal 2523.5 4014.4 5269.7
Total U.S.-Canada Border Costs 7516.8 10293.9 13189.1
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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