Canadian businesses expect growth in U.S. trade
This is according to a new report from the Economist Intelligence Unit (EIU), in partnership with American Express.
Although there are some issues to be tackled as regulatory and compliance challenges cause costs to rise, a majority of firms anticipate their trade with the U.S. to increase, in part thanks to the Trans-Pacific Partnership.
The research, which includes a survey of 531 companies worldwide, explores the relationships companies have with the U.S., looking at how they trade, the challenges they face, and how they expect international trade with the U.S. to change based on upcoming regulatory shifts.
The research found that the U.S. is, unsurprisingly, a top trading partner for three-in-four (76%) Canadian businesses. Furthermore, a huge majority (94%) of Canadian companies surveyed derive up to 30% of their current global annual revenue from the U.S. market – the same as the U.S.'s other continental neighbour and NAFTA co-signatory, Mexico.
The reliance on trade with the U.S. is expected to rise, as 58% of Canadian companies surveyed expect their trade with the U.S. to increase in the next five years with around one-in-five (18%) seeing it grow by more than 10%.
A majority of Canadian firms surveyed think that the Trans-Pacific Partnership (in addition to NAFTA) will improve opportunities for them in the U.S. market.
Despite the strong trade relationship between the two countries, there are specific challenges Canadian companies find when trading with the U.S. The top two challenges for Canadian businesses trading with the U.S. include access to trade finance (46%) and trade-related infrastructure (46%).
Other top concerns when trading with the U.S. include exchange rate volatility (44%), trade-related regulation and harmonization between countries (40%), and making payments (38%).
The two main impediments to accessing finance for trading with the U.S. are limited credit insurance options (cited by 30% of respondents) and lack of dollar liquidity (26%).
Over a third of (36%) Canadian firms surveyed say they rely heavily on the rail network in order to trade with the U.S., with 28% mentioning a reliance on port facilities and 24% on air links.
Despite being listed among the top challenges to Canadian-U.S. trade, changes in the exchange rate with the U.S. dollar positively affected a majority (54%) of Canadian companies' profitability in 2015.
Nearly three-in-four (72%) Canadian companies surveyed have seen an increase in the cost of doing business with the U.S. due to trade-related regulatory and compliance issues over the last 12 months – 42% have seen increases of over 10%.
Canadian businesses surveyed cite top issues with making payments to the U.S. as currency fluctuation (78%), banking hours (68%), bank fees (68%), limited or no terms (66%), limited payment visibility (56%), and process inefficiencies (52%).
Outside of the U.S., international trade presents a unique set of challenges for Canadian businesses. These include making payments (50%), transportation costs & delivery (46%), insufficient market knowledge (42%), and communication challenges and cultural hurdles (40%).
Over a quarter (28%) of businesses surveyed spend more than 10 per cent of their annual costs in purchases from the U.S., while the majority (82%) derive up to 10 per cent of their annual revenue from U.S.-based customers.
Payment challenges (currency fluctuations, bank fees, process inefficiencies, etc.) have impacted Canadian businesses, resulting in limited response to emergency payments (32%), unbalanced cash flows (20%), increased foreign exchange exposure (20%), shipment delays (18%), and increased processing and payment costs (10%).
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