Costly Canadian border bottlenecks frustrate Minn. businesses

  • Article by: ADAM BELZ , Star Tribune
  • Updated: July 24, 2012 - 12:34 PM

Efforts are underway on both sides of the border to facilitate commerce with Minnesota's largest foreign trade partner.

It sounded like a routine assignment for HRST Inc., a quick trip across the Canadian border for repair work on a power plant.

Two engineers from the Eden Prairie-based company set out for southern Ontario to do the work. They flew to Detroit and drove toward the border crossing at Port Huron, Mich.

And that's as far as they got.

"The border guard thought that whatever work we were doing, the work could have been executed by Canadian workers," said Philip Novak, a systems engineer for the company.

Such roadblocks to commerce have become a significant problem for businesses that do work on both sides of the border. The Canadian government estimates that hangups of cargo and travelers at crossings cost $16 billion annually on that side of the border alone.

Vigilance at entry points to both Canada and Mexico borders is in part a response to real concerns about immigration and post-9/11 security. Yet there is a growing awareness that delayed shipments and other inefficiencies have an economic cost.

As a result, the U.S. and Canadian governments have launched initiatives to grease the wheels of commerce -- both by clearing border obstacles and aligning product regulations.

"A lot of companies just don't know what to do," said Bill Blazar, an executive at the Minnesota Chamber of Commerce. "They think it's like going to fish. It's not."

A lot of manufacturing takes place in a network that spiderwebs through the Twin Cities, Chicago, Detroit, Toronto, Winnipeg and Edmonton.

For instance, Winnipeg-based New Flyer Industries has factories in St. Cloud and Crookston, and a supplier network across the Upper Midwest.

The bus manufacturer buys hydraulic tubes from a company in Plymouth. Air conditioning components come from just outside Chicago and fabricated metal from North Dakota.

Such cross-border supply chains are most prevalent in the auto industry, which is "pretty much in Michigan and Ontario," said David Biette, director of the Canada Institute at the Washington, D.C.-based Woodrow Wilson International Center.

But crossing the border adds 12 to 15 percent to the invoice cost of every shipment, said Birgit Matthiesen, senior U.S. adviser for the Canadian Manufacturers & Exporters.

That penalty is felt uniquely by U.S. and Canadian companies, because container ships from overseas get inspected only once.

On the heels of free trade agreements with South Korea, Colombia, and Panama, the "thickness" of the border places American and Canadian manufacturers at a disadvantage, Matthiesen said.

"If that finished product has to go through three or four times more of the border compliance costs than the competitor product arriving from overseas, someone else is winning and it's not North American manufacturers," Matthiesen said.

Railway inspections

The curve of the globe puts Ranier, Minn., along a major trade artery between Asia and the United States.

The North American port closest to Asia is Prince Rupert, British Columbia. The fastest route by train from there to Chicago runs through Ranier, a town of 145 people 2 miles east of International Falls.

More than 1,200 rail cars cross from Canada each day, and similar volume travels in the opposite direction.

Canadian customs inspects containers at Prince Rupert before the trains head east. U.S. customs inspects the containers again at Ranier.

If nothing is amiss, the freight train booms away into the Koochiching State Forest, carrying mostly coal and Asian goods destined for Chicago and points farther east.

If a rail car gets flagged, however, workers have to disconnect and set it aside for inspection. Disassembling and reassembling the train can take hours.

"You don't know what's going to get held up at the border and for how long," said Biette, at the Woodrow Wilson International Center.

Earlier this year, CN railroad installed a $6 million machine that pulls containers off rail cars and sets them aside for inspection. The sole purpose of the machine is to avoid having to disconnect a car and reconnect the rest of the train at customs.

A plan to streamline security

All this would be moot under proposals from the U.S. and Canadian governments to streamline the border, something called the Beyond the Border Action Plan.

The idea is to push security outward, to a shared perimeter, while opening the U.S.-Canada border for business.

U.S. customs officials would set up at Prince Rupert to eliminate the second inspection at the border.

Among other things, the U.S. and Canadian governments want to expand and harmonize programs that green-light trusted traders and travelers at border crossings.

"It can be more efficient; we can do even better," said Martin Loken, Canada's consul general in Minneapolis, who held a conference on the issue at the Minneapolis Federal Reserve Bank in June.

The Canadian and U.S. governments also want to eliminate unnecessary differences in regulations governing transportation, small businesses, health, the environment, nanotechnology, and the production and marketing of food. Slight differences in the rules exist for everything from the size of baby food jars to specifications for auto parts.

For example, Golden Valley-based General Mills must fortify Cheerios differently for the Canadian market than it does for U.S. consumers.

It's a difference no one would notice at the breakfast table.

"Really? Is it really that different?" said Biette. "There are a lot of niggly things like that."

Quest for consistency

For HRST in Eden Prairie, an efficient, predictable border is crucial.

HRST engineers regularly fly to power plants all over Canada. Only once have employees been turned back at the border.

But the episode in Port Huron left a strong impression, and there have since been close calls.

In April, a border guard told Victor Ferris, HRST's president, that his engineering certification and a letter of invitation from a power plant manager weren't enough to get him across the border.

He had to call an employee, who took Ferris' engineering degree down from his office wall, pulled it out of the frame, and faxed it to Canadian border guards.

Novak said the company understands that border guards see lots of different cases, and that their job is to protect the border.

But leaders at HRST worry that delays could lose them Canadian business in the future.

"We learn lessons and we circulate information within the company," Novak said. "But it still seems arbitrary depending on who you're standing in front of."

Adam Belz • 612-673-4405

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