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Balancing security and prosperity a challenge for cross-border trade

As the U.S. government tightens security at the border, the movement of goods between Canada and the U.S. has become increasingly complicated. Compliance requirements and inefficiencies created by tightened security have added costs into the supply chain, concerning Canadian importers and exporters.



July 13, 2006
By Vawn Himmelsbach

The Canadian and U.S. governments are trying to reconcile border issues
to balance security with prosperity, and stakeholders are waiting for
answers. But the dynamic between security and prosperity is anything
but predictable, said Glenn Rice, president of UPS Canada, during a
Cross Border Trade Summit hosted by UPS Canada last month. The
challenge is to lessen the impact of new custom regulations, he said,
without compromising security.

The business connections between Canada and the U.S. are greater than
any other two countries in the world. Some US$1.5 billion of goods
cross our common border daily — in fact, more goods pass over the Peace
Bridge between Detroit and Windsor than all trade between Canada and
Japan.

What makes this relationship even more unique is that Canada and the
U.S. work together to co-produce products, so it’s not limited to
importing and exporting, said Elizabeth Whitaker, U.S. deputy assistant
secretary of state of Western hemisphere affairs. “In areas like
automobiles,” she said, “we’re working together to co-produce products.”

Unfortunately, criminals also use this open trading system, she added,
so there has to be a way of balancing security with prosperity in
cross-border trade. This includes having a common approach to emergency
management, developing smart and secure borders and establishing a
high-tech screening standard for goods and people.

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In January 2007, every person entering the U.S. by air or sea must have
a passport or other secure ID. By January 2008, this will also apply at
land borders. The objective is to standardize documentary requirements,
said Whitaker, but the concern is this will damage trade. Currently,
1.1 million people cross the border daily, and border officials see
8,000 different types of documents over the course of a year, from
driver’s licences to birth certificates. As a result, work is being
done on a “car” version of the passport.

This has all added up to extra costs, according to Danielle La Pierre,
who oversees operations and business development for New Balance
Athletic Shoes. The company has manufacturing sites in the U.S. and
Mexico, and has just introduced its Warrior brand into Canada.
“Although we have free trade, it does not equate to free movement of
products,” she said.

The company has had to hire a new employee whose sole responsibility is
dealing with compliance issues. “I no longer share truckloads with
anybody because I cannot trust anybody else’s paperwork,” she said. “So
that’s increased my cost of goods — my freight has probably increased
by 15 per cent because I can’t trust another consignee’s paperwork and
that could result in delays at the border.”

According to a 2005 Canadian trucking survey, security-induced delays
increased the time to cross the border an average of 32 minutes,
costing companies $239 million.

“Who’s absorbing it?” said La Pierre.
“It’s industry.”

To absorb these additional costs, New Balance has had to work smarter
through the use of supply chain technology.

“If you don’t, then you’re
out of business,” she said. “So either we reinvent ourselves or we die.”

Tremco Canada, which manufactures sealants, weatherproofing and passive
fire control solutions, has also had to reinvent itself. “We have
tremendous amounts of goods flowing in both directions across the
border,” said Kevin Riddell, traffic manager with Tremco Canada. The
company manufactures its lines in Toronto and the U.S.; the lines are
combined and sold to customers throughout North America.

While the company has had great success with this cross-border system,
since 9/11 it’s been affected by the costs and effort to comply with
new policies to demonstrate to customs officials that Tremco is a known
importer/exporter.

“It hasn’t so much affected our shipments in terms of delays ”“ it has
more so affected us internally, meaning a new staff member here, new
software there,” he said. “We have had to spend more time with the
back-end of the business.”

The company is looking into a global trade
module from software vendor SAP, for example.

Some 40 per cent of trade is intra-company and another 30 per cent is
done through supply chain companies like UPS and Purolator, said Jim
Phillips, president of the Canadian/American Border Trade Alliance.
“It’s interesting that there is no small package system for a real
efficient movement of goods,” he said. “The reality to solve the
U.S.-Canada border [problem] is to go to perimeter clearance — we
should get people involved offshore at their origin.”

Also, governments should identify low-risk people, provide them with a
special identity and give them the ability to cross the border almost
without query ”“ as opposed to just going after the bad guys. “We’re
looking at it from the wrong direction,” he said. “And we know it’s
going to be a disaster if done wrong, but on the other hand, if we were
able to identify the low-risk [people] and really facilitate the
economic movement of goods and people, we could be ahead of the game.”


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