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

A new fee charged to truckers importing Canadian goods to the U.S. could have ripple effects on your portfolio.

| More on:

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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.

More on Investing

Oil pumps against sunset
Investing

Oil or Tech? Why Choose When You Can Get Both in a Single Stock?

Tech stock Pason Systems (TSX:PSI) is exposed to the energy market boom.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Investing

Protect Against Inflation With 2 Top TSX Stocks

Here are two top TSX stocks that long-term investors concerned about inflation may want to consider in this time of…

Read more »

Woman has an idea
Tech Stocks

The Smartest Stocks to Buy With $20 Right Now and Hold Forever

These under-$20 stocks have the potential to grow further with time and deliver solid capital gains.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

TFSA Investors: Put $45,000 in These Top TSX Stocks and Watch Your Passive Income Roll In

Are you looking to retire early? Here are a few ideas about how your TFSA could earn a passive-income stream…

Read more »

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Dividend Stocks

Love Passive Income? Here’s How to Make Plenty of it as a Real Estate Investor

You could definitely create passive income by investing in pure real estate, but you could make just as much, if…

Read more »

Make a choice, path to success, sign
Dividend Stocks

2 High-Yielding Dividend Stocks You Can Buy and Hold for Years

These two high-yielding dividend stocks can be the perfect addition to your portfolio, as the bear market causes payout yields…

Read more »

A worker uses a laptop inside a restaurant.
Tech Stocks

Why Investors Shouldn’t Give Up on Shopify Just Yet

Here's why long-term investors may not want to throw in the towel just yet on e-commerce juggernaut Shopify (TSX:SHOP).

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

TFSA Wealth: How to Turn $88,000 Into $1 Million for Retirement

Canadians can use the TFSA to hold a basket of diversified equity investments, allowing you to turn a $88,000 investment…

Read more »