Economics

As a result of the continuing economic uncertainty within the United States the strength of the Canadian dollar has reached highs not seen in years. Due to the uncertainty of the American debt situation and political brinkmanship, investors have been pushed to find safer markets. As a result, the Canadian dollar has proven to be a “safer” investment than a comparable U.S. investment and this is reflected in the valuation of our currency when compared to the U.S. dollar. For resource-based businesses, this has proven to be impairment to success due to weakened demand for products south of the border. However, one upside to this situation is that the strengthened dollar has given us increased buying power for products and equipment. The question is: “How much buying power do you really have?”

Finding forestry equipment south of the border

The availability of quality forestry equipment around the province continues to be an issue for all operators. Demand for production volume has picked up recently and well-maintained equipment seems to be harder and harder to find as operators look to meet production targets. As a result, looking to the States for purchases has become more and more common, particularly as the economic slowdown in the U.S. makes more equipment available. Prices are even being dropped further to ensure the equipment is moved. Going through equipment vendors or simply searching online are the most common ways of sourcing these used assets. Of course, it is important to remember that the key issue in Canada remains the same in the U.S.: finding “good” used equipment is difficult.

Demand for equipment is significantly stronger in Canada. According to Ritchie Bros. Auctioneers, total purchases by Canadian buyers have totaled US$23.2M at auctions in both Canada and the U.S. in the last 18 months versus only U.S. $11.5M by American buyers. Over two times as much volume has been purchased by Canadian buyers. Additionally, over 65% of the sales activity has been at Canadian auction sites, with only 35% of the sales coming in the U.S. While pricing may be attractive and value can be found in the U.S., the activity reported by Ritchie Bros Auctioneers shows it may even be harder to find “good” equipment south of the border than in Canada.

Importing of forestry equipment

While finding a piece of equipment to purchase is tough, getting the piece into Canada is also a complicated process. It is highly recommended to contact a professional customs broker to ensure your transaction is handled properly. As described by Cherie Storms of Pacific Customs Brokers Ltd., “the import process has many layers to it, with each step being as important as the first, and when steps are missed it can likely cause undue stress amongst the participating parties, not to mention added cost.”

The most common issues seen by Pacific Customs Brokers Ltd. are related to a lack of understanding of how to coordinate the process of getting equipment across the border. “The different government agencies involved will only do what they need to do, and when the process isn’t coordinated, moving the needed documentation between the various parties will get missed and issues will occur,” says Storms.

Using a customs broker offers many benefits:

• Ensures documentation requirements are met, and are further facilitated with the appropriate parties
• Can avoid possible penalties for non-compliance with U.S. or Canada Customs
• Ensures that the applicable duties and taxes are paid
• Allows the importer to de-clutter the process in consulting with a professional

The Canadian Society of Customs Brokers offers a full listing of brokers able to assist with the process.

The savings

How equipment is valued is best left to the experts. Maintenance programs, hours of operation, overall condition and length of service remaining all affect the list price of the asset. Finding two comparable assets to compare is not easy. Rather than trying to find two comparable assets, let’s look at two scenarios: 1) What are possible savings if the price is the same in Canadian funds and U.S. funds? 2) What would the American price have to be to cost the same in Canadian funds?

Scenario 1: Same list price

If $500,000 was the CDN and US asset cost, the savings realized would be $20,429 or 4.1%.

Scenario 2: Pricing with no savings realized

If $500,000 was the CDN asset cost, the $US price would have to be $519,152 to result in zero savings.

Closing comments

Due to the existing strength of the Canadian dollar, savings can be realized by purchasing south of the border. The larger the price tag, the bigger the savings. The key consideration is knowing what is required to get the “new” asset into operation and making sure you’ve accounted for all potential costs.

For further information on importing goods please contact:

Cherie Storms, LCB CCS
Pacific Customs Brokers, Ltd
P (888) 604.538.1566
pcb.ca

Scenario References

¹ Washington or other State taxes do not apply to items designated for export from the US.
² GST (5%) is payable upon entry to Canada, 7% BC Provincial tax would be self assessed or paid upon registration.
³  Most used equipment imported from the United States is duty free, or is duty free with a valid NAFTA Certificate, however, it is best to confirm with Canada Customs or your Customs Broker the applicable duty rate.
⁴ Brokerage fees will vary depending on the value of the transaction and frequency.
⁵ Transportation to/from the border is the writer’s estimate and will vary based on sales location and arrangements.
⁶ Canada Customs inspection for "cleanliness" of asset.
⁷ Estimated fee for cleaning to meet Canada Customs requirement.

This article was originally published in the Fall 2011 issue of Truck Loggers BC magazine.