Cabotage laws erode supply chain efficiency

Over the past two years, the general public has shown significant interest in the importance of the supply chain and the efficient delivery of commerce. For those operating within the transportation sector, none of the articles and anecdotes highlighting the current pinch points are surprising. We can now empirically state that North Americans do not like delayed gratification.

But one counterproductive force that has eroded the efficiency of freight movements for close to a century has an unusually foreboding name: cabotage. (Typically, anything with a ‘tage’ suffix brings dark imagery such as sabotage, hostage, and disadvantage.)

Canadian and U.S. for-hire carriers experience slight differences when it comes to these “forbidden freight movements by foreign carriers from two domestic points.”

Cabotage is outlawed not only for road transport, but also for aviation and marine vessels. When a carrier/driver hauls freight from Canada across the border into the U.S., they can only deliver those goods to one or more U.S. destination points. They cannot pick up domestic freight and continue on their route to deliver to additional destinations in the U.S. They must return to Canada on their next loaded/paid move.

Empty miles and repositioning

Anyone with a cursory knowledge of freight patterns knows that manufacturers and food producers on either side of the border do not construct their facilities and distribution centers with a primary goal of reducing empty (deadhead) miles for Canadian or U.S. carriers. Further, the type of freight destined for Canada can change dramatically from season to season.

As a result, Canadian cross-border carriers need to be more nimble than many of their U.S. counterparts, to adjust for these inefficiencies and patterns.

The same rules apply when repositioning an empty trailer, unless the driver entered and subsequently departed the U.S. with that same trailer. For a Canadian carrier, maintaining efficient trailer pools for U.S.-domiciled customers can seem about as complex as building a nuclear fusion reactor with a couple of AA batteries.

Flipping the script, the rules are similar but different for U.S. carriers and drivers entering Canada.

Applicable government agencies are attempting to prevent foreign drivers/carriers from moving domestic goods within their respective borders. However, U.S. carriers have one distinct advantage: repositioning (paid) moves can occur within Canada.

For example, a U.S. carrier/driver can deliver goods to a customer in Toronto, then pick up a pre-scheduled domestic load bound for Montreal if that carrier/driver has a subsequent pickup scheduled in Montreal for an export load bound for the U.S.

Based on our research, this exception was made to enhance the efficient movement of freight within the large geographic expanse of Canada. However, it underscores a glaring lack of quid pro quo for a continent built using free-market economics.

What needs to change?

What exactly should change? The global supply chain is built on an endless series of minor and major variables and potential pinch points. When one of those variables is modified, it can have disastrous effects on the industry and ultimately the public.

Future-proofing the supply chain should be more about eliminating as many easy-to-change non-technical barriers as possible, rather than focusing on moon shots (ie., autonomous trucks and drones). One recommendation is to allow Canadian carriers to build more efficient networks, equating to fewer empty miles, by allowing for the one U.S. repositioning move.

Updating counterproductive barriers like cabotage will end up protecting the very carriers that these laws sought to protect when they were originally proposed and implemented more than 100 years ago. Further, taking a hard look at global supply chain inefficiencies could highlight other similar barriers to efficient freight movements throughout the North American supply chain.