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Keeping trade with the US smooth

How Canadian companies can overcome key cross-border trade challenges


October 17, 2016
by Paul Roman, vice-president, global commercial payments, American Express Canada

US Canada flags

Despite the current shaky US political climate, a new survey shows the majority of Canadian companies still expect to strengthen business ties with our neighbours to the south in the coming year.

According to the new report from the Economist Intelligence Unit (EIU) in partnership with American Express, more than half (58 percent) of Canadian companies expect their trade with the US to increase in the next five years, with around one-in-five (18 percent) seeing it grow by more than 10 percent. In addition, a majority of firms believe the Trans Pacific Partnership (in addition to NAFTA) will improve opportunities for them in the US market.

Considering the US is already a top trading partner for three-in-four (76 percent) Canadian businesses and that the overwhelming majority (94 percent) of Canadian companies derive up to 30 percent of their current global annual revenue from the US market, it’s great to see this kind of optimism in the Canadian market.

However, our nation’s businesses will need more than optimism to increase trade with our continental neighbour. While the US of course has long been our most intimate trading partner, even experienced business owners find cross-border trade to be challenging.

Here are five key trade issues facing Canadian businesses:

1. Access to Finance: Almost half of Canadian businesses (46 percent) see access to trade finance as an obstacle, with the two main impediments being limited credit insurance options (cited by 30 percent of respondents) and lack of dollar liquidity (26 percent).

2. Infrastructure: 46 percent of Canadian firms view trade-related infrastructure as a problem, with over a third of businesses (36 percent) saying they rely heavily on the rail network in order to trade with the US, 28 percent mentioning a reliance on port facilities and 24 percent relying on air links.

3. Exchange Rate Volatility: While almost half of businesses (44 percent) view exchange rate volatility as a challenge, changes in the exchange rate with the US dollar actually had a positive impact on the majority (54 percent) of Canadian companies’ profitability in 2015.

4. Trade Regulation: Nearly three-in-four (72 percent) Canadian companies have seen an increase in the cost of doing business with the US due to trade-related regulatory and compliance issues over the past 12 months—42 percent have seen increases of over 10 percent.

5. Making Payments: Canadian business cite top issues with making payments to the US as currency fluctuation (78 percent), banking hours (68 percent), bank fees (68 percent), limited or no terms (66 percent), limited payment visibility (56 percent), and process inefficiencies (52 percent).

The payment issues impacting the nation’s businesses are particularly damaging as over a quarter (28 percent) of Canadian companies surveyed spend more than 10 percent of their annual costs in purchases from the US, while the majority (82 percent) derive up to 10 percent of their annual revenue from US-based customers. These challenges, such as currency fluctuations, bank fees and process inefficiencies, often result in firms having limited response to emergency payments (32 percent), unbalanced cash flows (20 percent), increased foreign exchange exposure (20 percent), shipment delays (18 percent), and increased processing and payment costs (10 percent).

The bottom line is that cross-border payments are tricky, and Canadian businesses need help when trying to solve the many inefficiencies and hidden costs that come with traditional payment methods. For example, American Express Global Currency Solutions can help business owners control, manage, and simplify their international payments, and with newfound visibility over their full spend, businesses can improve cash flow, minimize foreign exchange impact and reduce their transaction costs.

With faster, easier and more convenient cross-border payments, Canadian firms can eliminate one of the key issues inhibiting trade with the US, turning this year’s optimism into new business opportunities that will help them grow and expand.