Border Delays Cost US and Canadian Businesses

A study by the departments of economics at Ontario’s University of Waterloo and Wilfrid Laurier University found that border delays cost the U.S. and Canadian economies as much as C$30 billion each year.  The study, “Border Delays Re-Emerging Priority:  Within-Country Dimensions for Canada,” presents a stark reminder that, as successful as U.S.-Canada trade may be, there are serious potential roadblocks to future growth and success.

This most recent study supports a report issued in 2009 by the U.S. and Canadian Chambers of Commerce, “Finding the Balance:  Shared Border of the Future,” which concluded that increased government regulation – regulation that is often redundant has resulted in onerous delays and increased costs for businesses.  The study is also consistent with an August 2012 by Canada’s Fraser Institute, “Measuring the Costs of the Canada-US Border,” which found that post 9/11 security requirements and other border costs account for nearly 1.5 percent of Canada’s GDP.

In the Waterloo/Wilfrid Laurier study, the authors found that while every industry was affected by border delays, the automotive industry was especially hard hit:

“The automotive industry is so integrated that the production of 4,000 vehicles in North America may involved over 28,200 customs transactions.  With car components crossing the border 5 to 7 times during assembly, delays can easily add an extra $800 to the cost of production per vehicle, costing the automotive industry millions of dollars each year.”  By way of comparison, a shipment of automobiles arriving from Asia is only required to give a 24-hour advance notice and go through a single security check before rolling off a ship and on to car dealerships.

The studies’ authors cite three main areas of concern:

  • Increased security mandates, especially since 9/11
  • Infrastructure that has failed to keep pace with increased volume
  • Increased random inspections and additional regulatory requirements

As an example of the poor condition of much of the border-area infrastructure, consider the Detroit-Ontario Ambassador Bridge.  The bridge was opened in 1929 as a five-lane link between the two countries.  Today, it is the busiest international gateway, with roughly 6.4 million cars and trucks crossing annually.  But now it is only a four-lane bridge, with one of the original lanes having been edged out in deference to today’s wider cars and trucks.  Some relief is in sight though, as a long-stalled effort to construct a new bridge was finally given the green light in late 2012.  However, like all major infrastructure projects, progress will be slow, with construction of the new bridge expected to take seven years.

The issue of border delays has become so serious, that a Conference Board of Canada survey found that a growing number of businesses were reverting to pre-NAFTA practices of stockpiling inventory as a way to guard against late shipments due to border delays.

In fact, the Waterloo/Wilfrid Laurier paper notes, “The benefits of NAFTA may have evaporated, or at least have been negated, by the reemerging priority of new security-drive barriers to trade at the border.”

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Doing Business in Canada? Understand the Marketplace

When a U.S. retail giant opened its first Canadian stores in Fall 2012, questions were raised about the slow path the company took to its northern expansion.  After all, dozens of U.S. businesses had already made the leap, and Canada seemed like such a natural place for the company.  But in fact, entering the Canadian market is far more complicated than meets the eye.

“You can’t just say that we are close in proximity or we both speak English, so it should be the same,” company President told the New York Times.  “We recognize there are differences.  That’s probably why we’ve been slow in coming to Canada.”

Comments like these are interesting because “similarities between the two countries” is frequently cited by American businesses as a reason why they chose Canada as their primary export market.  In fact, the International Trade Administration (ITA) reports that while fewer than one percent of all U.S. businesses export, of those that do, 58 percent export to only one country, typically Mexico or Canada.

So while choosing Canada as the starting point for your business’ export operations may seem logical, the fact is that there are cultural differences and geographic limitations that could affect your success.  For example:

Canada is officially a bi-lingual country: Although English is spoken by roughly 58 percent of Canada’s 34 million residents; the country recognizes both English and French as its official languages.  French is spoken by more than 18 percent of the population.  While most French-speakers live in Quebec, there are communities across the country where French is spoken. According to the 2011 Canadian census, a growing number of Canadians – almost 20 percent – speak a language other than English or French.

Some Canadians can be very hard to reach: While 90 percent of Canada’s population lives within 100 miles of the U.S./Canada border, and are therefore easily reachable by most delivery carriers, it’s important that you are able to reach non-urban residents.  And some of those non-urban residents are very non-urban!  For example, population density in Saskatchewan is 1.8 people per square kilometer.  In Newfoundland and Labrador the figure is 1.4 residents per square kilometer, and in Manitoba, it’s 2.2 residents per square kilometer.  Although your business may not get the bulk of its orders from the more remote regions of the country, you will need to have a plan in place to reach all Canadians.

Canadians don’t like surprises – not in the form of hidden fees anyways! When the Canadian dollar reached parity with the U.S. dollar in 2007 – for the first time in 30 years – Canadian consumers responded to their newfound buying power with a surge in orders for U.S. goods.  But much of their anticipated cost savings quickly evaporated, when consumers were hit with unexpected bills for fees and delivery charges.  Unexpected and additional delivery charges are a significant issue for Canadian consumers – a definite no no – and they are completely avoidable.  The “Non-Resident Importer” program was developed as a way for U.S. businesses to act as an importer of record, which means that all taxes and customs fees can be paid in advance.  Make sure your business – or the partner you choose to handle your logistics – is a NRI program participant.

Having a link to Canada is important: A study by Leger Marketing found that 63 percent of Canadians have an interest in whether or not the products they are buying were made in Canada – and are willing to pay more for homemade goods.  Thus it seems obvious that a U.S. business interested in expanding to the Canadian market would be wise to align itself with distinctly Canadian business partners.  Consider this advisory from the U.S. government’s  Doing Business in Canada:  A Country Commercial Guide for U.S. Companies: “An important key to achieving market penetration and expanding export sales to Canada is to minimize the Canadian customer’s work by making the transaction resemble a Canadian domestic transaction as much as possible….”

Many U.S. businesses make the mistake of entering the Canadian market without doing their homework.  After all, they reason, our countries have so many similarities, how hard can it be?  In fact, doing business in Canada can be very complicated, bureaucratic and confusing.  Do your due diligence before you reach out to Canadian consumers, and make sure you take into account the unique characteristics of that market, including those listed above.

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Government Resources for US Businesses Looking to Export

Here’s a startling statistic:  According to the International Trade Administration (ITA), of the more than 30 million small businesses in the United States, less than one percent export to another country.  Of the businesses that do export, 58 percent export to a single country – usually to either Canada or Mexico.

The ITA cites several reasons why U.S. businesses are reluctant to dip their toes in the export waters:

  • Trouble obtaining necessary working capital
  • Fears about receiving payments from foreign customers
  • Difficulty navigating foreign customs and regulations
  • Difficulty arranging meetings and networking with potential distributors

While these are viable concerns, the fact that less than one percent of U.S. businesses export is alarming, especially considering the U.S. economy continues to struggle.  As U.S. businesses seek to regain their financial footing, now is the time to look to foreign markets as the source of new customers.

Businesses interested in exporting will find a plethora of government agencies and programs designed to help pave the way:

  • National Export Initiative: As part of his goal of doubling U.S. exports by the end of 2014, President Barack Obama issued an Executive Order in March 2010 laying out the groundwork for a National Export Initiative (NEI).  The purpose of the NEI is to remove trade barriers and help U.S. businesses enter new export markets by helping to remove obstacles, assisting with financing and serving as a liaison to facilitate meetings between U.S. businesses and foreign parties.
  • Export.gov is a gateway to the trade promotion and export finance programs of the federal government.  Administered by the International Trade Administration, the export.gov website, is a go-to source of information on key topics including:
  • Export-Import Bank:  The official export credit agency of the U.S.  The Ex-Im Bank works with U.S. businesses – large and small – to identify potential global partners, and to secure funding necessary to enter the export market.
  • Office of the U.S. Trade Representative:  Agency charged with negotiating directly with foreign governments to develop trade agreements, resolve disputes and participate in global trade policy organizations.  USTR officials also meet with governments, business groups and public interest groups around the world to promote U.S. trade relations.
  • Foreign Agricultural Service (FAS): A department of the U.S. Department of Agriculture (USDA), FAS works to facilitate export opportunities for U.S. agriculture in the global marketplace.
  • Small Business Administration:  Independent agency of the federal government charged with assisting small businesses to start, grow and prosper.  SBA’s International Trade division offers loan guaranty programs that enable the small business exporter to obtain working capital to finance shipment needs and finance acquisition of fixed assets.
  • U.S. Export Assistance Center (USEAC): A network of export and business specialists located in more than 100 U.S. cities and over 80 countries worldwide.  These trade professionals provide counseling and a variety of products and services to assist businesses in developing export programs.
  • U.S. Trade and Development Agency (USTDA): Helps companies create jobs through the export of U.S. goods and service for priority development projects in emerging economies.  Links U.S. businesses with export opportunities to support infrastructure and economic growth projects in partner countries.

This list is just a sampling of the export-facilitating services offered through the federal government.  Businesses can also take advantage of international trade assistance offered by each state.

With 70 percent of the world’s purchasing power outside U.S. borders, why not consider expanding your customer base to a foreign market?  Does your company currently have plans to expand?  What markets are being considered? As the above discussion indicates, there are many government agencies willing to lend a helping hand.

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Halloween! The Kick-Off to Holiday Shopping

Retailers that tailor their holiday logistics plan based upon the traditional “Black Friday” start to the shopping season may be in for a surprise this year, as industry experts predict that bargain hungry shoppers may begin their quest as early as Halloween.

“Halloween is the new Thanksgiving,” Scot Wingo, CEO of ChannelAdvisor ecommerce consultants said in a recent eMarketer webinar.  The webinar cited a Hay Group finding that 31 percent of retailers plan to start their holiday promotions earlier this year, with 42 percent starting in October.

And for retailers who still aren’t convinced of the need to deck-the-halls at the same time they’re putting out their Jack-O-Lanterns, Compete marketing found that by Black Friday 2011, 54 percent of online shoppers had completed more than one-quarter of their holiday purchases, compared with 49 percent during 2010.

Online sales are expected to be an increasingly popular option among shoppers, with sales expected to reach $54.5 billion during November and December, up 16.8 percent from 2011.

Proper logistics of course, will be integral to a retailer’s successful holiday season.  Satisfied customers are more likely to return, and to spread the word about their positive experience.  And consumers’ expectations for either “flat” shipping fees or “free” shipping, and ASAP delivery, add to retailers’ challenges.

Retailers that have not yet planned for the coming holiday season should act now to lock in service.  This is especially true for businesses that expect to ship significant volume to Canada.  Similar to expectations in the U.S., Canadian shoppers are also expected to set new records for online shopping this holiday season.

U.S. retailers must not underestimate the U.S./Canada cross border process.  Despite the closeness of our two countries, and our vast similarities, there are huge differences when it comes to border clearance procedures and navigating Canada’s vast infrastructure.

Experienced cross border logistics providers offer flexible and efficient options for shipments to Canada, but a business needs to do its homework.  Many providers claim to have cross border experience, but in fact, are not up to the job.

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Should-Cost Modeling Helps Control Costs

Let’s say you’re the purchasing manager for your company, and you buy a fair amount of customized products.  Word has come down that costs need to be reduced by 15-20 percent.  Oh, and of course you are not allowed to cut corners on quality, performance or any metric.  What to do?

This is a conundrum in which purchasing managers routinely find themselves, especially since the black cloud of the economic downturn took hold.  Increasingly, managers are turning to “should-cost” modeling as a way to gain better insight into costs, as well as a bit of leverage with suppliers during negotiations for customized products.

Should-cost modeling is not new – in fact it was developed by the Department of Defense as a way to try and trim costs of some highly specialized manufacturing products.  While most businesses don’t have the time, manpower and financial resources of the DoD, we can all learn a lesson from their approach.

Should-cost modeling, as defined by Sourcing Innovations, refers to “the process of determining what a product should cost based upon its component raw material costs, manufacturing costs, production overheads, and reasonable profit margins.  Knowing roughly what a product should cost transfers pricing power from a supplier to a purchaser, especially for strategic purchases.”

The should-cost concept is especially helpful for businesses in need of “customized” materials that can’t be cost-compared on the open market.  By drilling down to determine component and other costs, a purchaser can have much greater visibility and awareness of a product’s true costs.

“If the difference between the approximated should-cost and actual cost of a product is roughly 20 percent or more,” Sourcing Innovation notes, then the buyer could have an opportunity for considerable savings.  But if the savings is less than 10 percent, then the quoted price is probably fair.

Tim Reis, sourcing manager for industrial cleaning products manufacturer Continental Commercial Products, says the key to successful implementation of this strategy is to do your homework and make sure you have your facts straight.  This is essential because “you know with 100 percent certainty that the supplier will challenge your assumption in attempt to turn the cost discovery negotiation process back to their side.”  You need to be certain, he added, that a supplier can raise only minor objections to your should-cost model, and will have no choice but to negotiate a new price.

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U.S. Retailers Continue with Canadian Invasion

When upscale department store chain Nordstrom Inc. announced in September that it would open four locations in Canada beginning in the fall of 2014, it joined a growing list of U.S. retail chains that have crossed the border into the Canadian market.  Earlier this summer, retail giant Target announced that it would open at least 125 stores in Canada within the next two years.

With these announcements, Nordstrom and Target join a growing list of U.S. retailers making the move north.  Other retailers are already operating in Canada include:

J. Crew Ann Taylor
Tory Burch Kate Spade
Victoria’s Secret Brooks Brothers
Crate&Barrel Apple
Tesla Motors Lowe’s
Walmart  

While expanding to Canada might seem like a natural move for U.S. retailers, given our shared border and shared language, the move has been more problematic for some chains.  In the past, the New York Times notes, “the Canadian market was hard to crack for many companies.  The Canadian dollar was weak, costs were higher, and with limited real estate development, it was difficult to find space.”  In addition, some businesses learned the hard way that savvy Canadian consumers were not willing to pay higher prices in Canadian stores for identical products available at lower prices either in U.S. stores on online.

Now though, many of those obstacles have been eliminated.  The Canadian dollar is competitive – if not stronger – against its U.S. counterpart.  The Canadian economy is more robust than the comparatively stagnant U.S. economy, and the real estate market is much more inviting.

But perhaps the most enticing reason for U.S. retailers to expand to Canada?  Higher profits.  “Sales per square foot at Canadian malls were almost 50 percent higher in 2011 than sales per square foot in American mass,” the Times reported in citing a Colliers International Consulting survey.

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Mexico Offers Nearshoring Opportunities for Canadian Businesses

While there are no predictions Canadian importers are ready to move away from China as a leading provider of manufactured goods, favorable business and labor conditions in Mexico have resulted in a spike in Canadian interest in the country.  And with good reason.  The “2011 U.S. Manufacturing-Outsourcing Cost Index,” prepared by international business consultants AlixPartners, found that Mexico has become the top location for U.S. businesses looking for low landed costs.  This fact, according to Canadian Transportation&Logistics blogger Laurie Turnbull, “should be of interest to Canadian importers if for no other reason than proximity to [Canada’s] largest trading partner.”

In other words, as Mexico has become more cost efficient and labor effective, and as manufacturers in the U.S. have taken note, so too should Canadian manufacturers interested in manufacturing and supply chain efficiencies.

The Alix study makes note of rising labor costs in China, as well as volatile exchange rates and increased freight costs.  Consider this – in 2008 the hourly wage for manufacturing workers in China was $1.36, a figure that is about 4 percent of the average wage in the U.S.  According to Alix’s forecasting model, wages in China will likely see annual increases of 30 percent.

At the same time, the Alix model assumes that Chinese freight rates will increase by 5 percent annually.  While this is not in and of itself outrageous, the bigger variable is the possibility of rates increasing at a faster pace.  Should that happen, North American businesses could face staggering costs for transporting their “low cost” goods back from China.

So as a growing cloud of uncertainty seems to be settling over China, those same clouds have cleared over Mexico.  Although Mexican labor costs ($6.23 per hour, according to the U.S. Bureau of Labor Statistics) are higher than in China, other factors offset that variable, including reduced transportation costs, greater control over the supply chain, along with heightened quality and accountability.

Mexico has become such a favored source of North American nearshoring, that a separate 2012 survey by AlixPartners found that 50 percent of manufacturing executives said that Mexico was their top option for bringing manufacturing back from China.

“As manufacturing costs have increased in China and elsewhere in Asia,” says AlixPartners director Russ Dillion,  “the cost and time factors involved in shipping goods across vast distances are magnified and, whether it’s in Mexico or the U.S., any company that’s not at least considering alternative manufacturing sources closer to their home market is certainly missing an opportunity.”

Central to this though, is how quickly a business is able to adapt its business plan to take advantage of cost efficiencies found closer to home.  But, as blogger Turnbull points out, locating product suppliers is only the first step.  “Another prime consideration is logistics suppliers, companies capable of providing integrated transportation, distribution, documentation and risk-management/compliance capabilities to support the importer’s objectives in increasing competitive advantage.”

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When It Comes to Supply Chain Data, Is Less More?

There is no disputing that today’s supply chains are data driven, faster and leaner than before, some industry experts are starting to question whether too much data can be counterproductive.  Instead of searching for ways to tap into more information, would time be better spent analyzing existing data to find learnings?

Guy Courtin, director of industry solutions at Supply Chain for Progress Software, took on the issue in a recent issue of EyeForTranport.com.  Noting that “visibility” has become the term du jour among supply chain managers, Courtin wonders if rather than “seeing” or “possessing” more data, supply chain managers might find it more helpful to focus on “what it is we are already observing and how it impacts our supply chain.”

He uses as an example a retailer who wants more POS data.  “What if they could collect greater detailed information about how their stores are doing, what units are selling and at what volume and mix.  If they could get more visibility down to the SKU level…how fantastic,” he writes.

“But,” he adds, “what if that data is too old once they received it?  Have you really gained more ‘visibility’ or just more noise, information that might have once been valuable but now is lost due to a host of factors?”  Instead he posits,  “Supply chains need to focus on the data they are already viewing, understand what they are observing and determine if there are any causalities that can be identified.”

Jace Davis of IBM Sterling Supply Chain Visibility seems to echo that point by arguing that businesses need to focus on “quality” of data rather than quantity.  “The better data you have, the better decisions you can make,” Davis wrote in his The Social Business blog.

He also warns that “today’s complex supply chains create too much data for manual processes to absorb.  This causes a lack of real-time visibility into supply chain events as well as an inability to detect and resolve exceptions in a timely manner.”

So it would seem that businesses looking to build greater visibility into their supply chains should think carefully about the volume and categories of data it needs to capture.  It may well be that “less it more” when it comes to meeting visibility needs.

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Environmental Factors Not a Concern for Most Shippers

Earlier this year, Canada’s Environment Minister Peter Kent announced new regulations to cut greenhouse gas emissions from new on-road heavy-duty vehicles.  The new regulations, according to Kent, would have the equivalent effect of removing 650,000 personal vehicles from the road by 2020.

While this is certainly a laudable goal, and definitely in sync with work by carriers and transportation providers to adopt greener and more sustainable practices into their operations, a new study suggests that all this fuss about the environment may not be registering on shippers’ radar screens.

The results of the 2011 Shipper’s Pulse Survey, conducted annually by the Canadian Industrial Transportation Association (CITA) indicate that carriers’ efforts to minimize their environmental footprints are not a top concern.  The survey, which has been conducted annually since 2005, is intended as a way for CITA to gain “current thinking” of its members, so that it can better represent members’ views to government, media, and other audiences.

With regard to environmental issues the survey found that, when choosing a carrier:

  • 39.2 percent consider environmental factors that reduce greenhouse gas emissions
  • 37.8 percent consider environmental factors that reduce air pollutant emissions
  • 27.0 percent are aware if their carrier uses hybrids or alternative fuels; and
  • 64.9 percent consider the age of the engines in a carrier’s fleet.

The survey also found that 75 percent of respondents admitted to having “very little” or “little” knowledge about transportation greenhouse gas emissions and effects.

One bright spot of the survey, is that nearly 60 percent of shippers say they do have an environmental plan in place, indicating that shippers may be open to learning more about advances in fleet management to reduce greenhouse gases and minimize environmental damage.

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Trucking Capacity Shortage May Finally Be Here

Carriers have been warning for the past two years that the trucking industry is facing a serious capacity shortage, and that it was only a matter of time before that shortage would start to affect operations. Well, that time may be here, with industry analysts and executives stating that capacity has become so tight, that the slightest uptick in the economy could have severe repercussions.

How bad is it?  “Sometime in 2012 there is a reasonable probability of sporadic supply chain failures based on capacity,” freight industry economist Noel Perry recently told an audience at the Council of Supply Chain Management Professionals (CSCMP) annual conference.

The capacity crunch is attributable to two main factors:

  • Continued Recessionary Fallout:  The trucking industry underwent a major retraction during 2007-09, with as many as 3,000 carriers closing up shop in North America alone.   Carriers eliminated underused routes and consolidated wherever possible.  The American Trucking Association reported that demand for service fell by 24 percent, and that the average carrier cut its fleet by 14 percent.
  • Driver Shortage:  Fewer trucks on the road meant fewer drivers, about 150,000 of them.  And now that carriers are in a position to replenish their ranks, they are finding a small pool of willing applicants.  For one thing, life on the road is a demanding gig.  Long stretches away from home and increasing federal scrutiny have chased away many potential applicants.  But, as the industry has responded with higher pay and better benefits, the shortage is expected to gradually ease.

Most shippers did not feel the impact of reduced capacity right away, since volume was down 30 percent at the peak of the recession.  But now that tonnage has rebounded, shippers are increasingly feeling the squeeze.

The capacity crisis “is staring us right in the face,” Mark Whittaker, vice president of transportation for PepsiCo told the CSCMP audience.  “We probably haven’t ever been through what we will be going through in the next four years.”

So how can a shipper protect itself and ensure continuity of service?  American Shipper offers three suggestions:

  1. Consider moving product to a non-peak shipping season;
  2. Be carrier friendly.  Make your business as accessible and efficient as possible by paying bills on time, making sure trucks have immediate loading dock access and by not making drivers handle freight; and
  3. Try to be consistent with your shipping patterns and keep you carrier in the loop with regard to your shipping needs.

Those who are still not convinced that the threat is real should take notice:  Perry warned the CSCMP audience that “It is probable that capacity shortages will last for several years, not just one….  We could easily see sporadic supply chain failures based on capacity shortages.  That’s something we are not used to.”

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