Navigating Cross-Border Business Operations Canada to the USA

As supply chains experience disruptions, production prices in many other regions of the world rise, and the push to produce closer to primary markets intensifies, American corporations are striving to become experts in cross-border trade in North America. The combined gross domestic product (GDP) of the US, Canada, and Mexico exceeds $29 trillion, or over 29% of the world GDP. Over 500 million people live in the three nations. The governments of these countries are often able to collaborate effectively.

Therefore, it should come as no surprise

that the top trading partners of the United States, Canada, and Mexico are one another. As reported by the U.S. Chamber of Commerce, 49 states in the United States include Canada and Mexico among their top three merchandise export markets.

"Trade across borders is more important than it has ever been in terms of Mexico, the US, and Canada. Half a billion people live between the three nations, free trade exists, and the geopolitical climate is stable, according to David Cox, CEO of Polaris Transportation Group, which offers less-than-truckload (LTL) and other services between Canada and the US. According to Cox, the workforce in each of the nations is well educated, which further boosts the effectiveness of cross-border trade.

Throughout the past few years, there has been an increased emphasis on business potential in North America. "A lot of businesses opened up around the world after 2008, but mainly in Asia," says Andreea Crisan, president and CEO of St-Laurent, Quebec-based ANDY, a supplier of supply chain and transportation solutions.

The amount of foreign direct investment (FDI) that China received annually increased from approximately $40 billion in 2000 to $124 billion in 2011, at which point the growth rates declined. FDI into China reached a staggering $189 billion in 2022, a mere 4.5% increase from the year before. Growing labor and shipping costs, as well as the need for sustainability, have forced businesses to go beyond their home nations when choosing where to locate their operations. Numerous North American organizations are evaluating local prospects.

"Returning to the North American continent makes sense, considering everything that's been going on," claims Crisan. She continues, "Manufacturing products closer to the market reduces the distance items must be transported, which is good for the planet."

Nearshoring, usually in Mexico, is becoming more and more popular among American businesses who want better visibility, faster delivery, and more control over the quality of their output, according to Jose Minarro, managing director of Sunset Transportation's Cross-Border Operations.

He continues, "Mexico is appealing for manufacturing due to its proximity to the United States, availability of skilled labor, competitive labor costs, favorable trade conditions, and tax exemptions."

Fashion items, which are seasonal and/or time-sensitive, benefit greatly from reduced transit durations, according to Jerry Haar, an international management professor at Florida International University. Furthermore, by moving certain operations to Mexico, businesses minimize risk by diversifying their supply chains, he continues.

Enhancing Nearshoring Advantages

The advantages of nearshoring and cross-border trade are increased further by trade agreements between the United States, Canada, and Mexico. The most notable, the North American Free Trade Agreement (NAFTA) was replaced on July 1, 2020, by the United States, Mexico, and Canada Agreement (USMCA). According to Haar, the USMCA considerably lowers the risk associated with trading and investment throughout North America by stabilizing laws and standards.

According to Minarro, a large range of goods can be traded duty-free between the US and Mexico under the USMCA. An extra advantage: according to him, a lot of manufacturing firms that locate in Mexico sell some of their output to the country's 130 million or so residents.

Increasing Trade

According to Rachel Honbarger, project manager at supply chain solutions provider Tompkins Solutions, "trade throughout North America has experienced a surge since the inception of USMCA, accompanied by a substantial uptick in investment within industries capitalizing on this opportunity." The Office of the United States Trade Representative reports that in 2022, U.S. goods exports under the USMCA were $680.8 billion, a 16% increase from 2021 and a 34% increase from 2012. Goods imports under the USMCA increased as well, reaching $891.3 billion in 2022 after increasing by 20.5% between 2021 and 2022.

For businesses situated in the US, Canada, and Mexico, cross-border trade and nearshoring within North America present more opportunities for growth and profit. Companies also need to think about possible dangers. Possible modifications to trade agreements or policies are one. Modest modifications can have a significant impact on the efficiency or costs related to running this kind of supply chain.

A recent attempt by certain legislators to change certain provisions of Section 321 serves as an example. This section permits a large number of imports into the United States duty-free and subject to no taxation, provided that the total retail value of the goods imported in a single day that are exempt from payment does not exceed $800. According to Honbarger, a small adjustment to the extent of duty-free exemptions can result in significant shipping costs, rendering nearshore distribution economically unfeasible.

Furthermore, the relocation of manufacturing operations from distribution networks across borders results in higher transportation costs because of tariffs, longer journey lengths, and an increase in cargo volumes to make up for the longer travel durations.