How thick is the border: the relative cost of Canadian domestic and cross-border truck-borne trade, 2004–2009

Despite the elimination of tariff barriers between Canada and the United States, the volume of trade between the two countries is less than would be expected in the absence of impediments. While considerable work has been done to gauge the degree of integration between the Canadian and U.S. economies through trade, relatively little analysis has parsed out the underlying costs of the border. The costs of crossing the border can be divided into formal tariff barriers, non-tariff barriers, and the cost of the transport system. This paper focuses on the latter by estimating the cost of shipping goods by truck between Canada and the U.S. during the 2004–2009 period. The incremental cost of import and export over domestic shipments is measured in both absolute and ad valorem terms. The latter provides an estimate of the border increment in transportation cost as a tariff equivalent. The incremental cost is further broken down into fixed and variable (line-haul) components. Higher fixed costs are consistent with border delays and border compliance costs being passed on to the consumers of trucking services. Higher line-haul costs may result from difficulties obtaining backhauls for a portion of the trip home, which may stem from trade imbalances and regulations that restrict the ability of Canadian-based carriers to transport goods between two points in the U.S.