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Will This New U.S. Fee Affect Your Portfolio?

Truckers and logistics companies are in arms against actions taken by the U.S. Department of Agriculture that they say violate NAFTA. The USDA announced that it will be raising inspection fees on all trucks crossing the border in order to fund its Animal Plant and Health Inspection Service. What does this have to do with investing, though, and why should investors be interested?

With over 5.6 million trucks crossing into the U.S. from Canada in 2013, investors should be concerned with the companies contracting these logistics companies, as any additional fee that would further erode truckers’ margins could be passed back to manufacturers and retailers.

A violation of NAFTA?

The U.S. Department of Agriculture claims that these fees will be used to increase the frequency of inspections to protect the country from unwanted flora and fauna. Yet it is rumoured that all trucks, both 18-wheelers and any commercial vehicle, will be forced to pay the fee to carry Canadian goods into the country.

The original fee has already been in place for some time, charging each truck $10.75 per crossing, or $105 per year with a transponder. These increases have raised fees to $13.50 per crossing, or $320 year with a transponder. This is above and beyond the $100 annual Customs and Border Protection fee paid by each truck crossing into the U.S.

Hypothetically speaking, if each of the 5.6 million trucks that entered the U.S. in 2013 paid the per-crossing fee it would have netted the U.S. Department of Agriculture $1.8 billion.

Canada’s top truck company at risk?

Now what about a home-grown company like TransForce (TSX: TFI), which employs the largest fleet of heavy trucks in the country? It is unreported how many of TransForce’s trucks cross the border each year. For the sake of argument, let’s say that all 11,930 trucks owned by or contracted with TransForce had one of these transponders at the new fee. It would cost the company a whopping $3.8 million per year. Again, that doesn’t even include Customs and Border Protection fees, which add another $100 charge to each truck per year.

These extra fees and charges would have to be paid for somehow, most likely by eventually passing the fees back up to consumers. Considering that 23% of TransForce’s revenues comes from retail companies, they could be hardest hit by higher transportation costs.

TransForce is not alone here, as even a smaller player such as privately owned Bison Transport, with its 1,400 trucks, would see an annual bill of $448,000 if all its trucks were equipped with transponders.

Rails to the rescue?

A potential benefactor to this trade debacle could be the Canadian rail industry, led by Canadian National Railway (TSX: CNR)(NYSE: CNI) and Canadian Pacific Railway (TSX: CP)(NYSE: CP). During 2013, over 29,000 trains entered into the U.S. carrying 1.5 million containers.

While this sounds impressive, it is only a fifth of what is brought in by trucks. Today, 54% of all goods flowing from Canada to the U.S. still rely on truck transportation. If these fees continue to appear on trucking companies’ books, transportation by rail, which only transports 16% of trans-border goods, could become more economical.

The fees are already in place, and logistics companies are watching their margins shrink as this is estimated to cost the trucking industry $15 million per year. Advocacy groups and the Canadian government are fighting to undo this NAFTA-violating cash grab, which puts Canadian goods at a competitive disadvantage.

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Fool contributor Cameron Conway has no positions in any of the stocks mentioned in this article. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National is a recommendation of Stock Advisor Canada.

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