Study: Cross-border shopping and the loonie

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Whether measured by the number of same-day auto trips across the US border or the average amount spent on these trips or online shopping, the recent increases in cross-border shopping have been minimal relative to retail sales, according to a study released today in the Canadian Economic Observer.

Cross-border shopping volumes in 2007 pale by comparison with the phenomenon observed two decades ago.

A relatively small rise in the exchange rate in the late 1980s and early 1990s provoked a huge increase in same-day auto trips to the United States. By comparison, since 2002 the largest appreciation of the exchange rate ever has been accompanied by a relatively small rise in same-day auto trips.

The close relationship between the exchange rate and same-day auto trips from 1986 to 2001 weakened substantially as border security tightened following the September 11, 2001 terrorist attacks and has not been re-established since.

Often overlooked in the hype about Canadians flocking in droves to shop in the United States is that the Canadian dollar's record rise has had a significant impact on other travel flows. Cross-border shopping by Americans in Canada has tumbled almost 50%, or an average 11.3 million trips, since the loonie began its rise in 2003. This is far more than the 2.2 million increase in same-day auto trips to the United States by Canadians in the same period. Overnight visits to Canada by Americans have also fallen.

From 1986 to the third quarter of 2001, same-day auto trips by Canadians to the United States moved closely with the exchange rate. Between 1986 and 1991, when the Canadian dollar rose 21%, Canadians flooded south of the border, with the number of same-day auto trips more than doubling. (Same-day trips are the commonly-used measure of cross-border shopping trips, although some of these trips reflect other purposes, such as commuting or visiting friends and relatives).

However, the close relationship between the exchange rate and cross-border shopping by Canadians changed after 2001.

The propensity of Canadians to make cross-border shopping trips has barely risen between 2002 and 2007. In the first nine months of 2007, there were an average of 1.9 million same-day auto trips per month, compared with 1.7 million in 2002 and the all-time high of 4.9 million in 1991. By contrast, the Canadian dollar jumped 44% between 2002 and October 2007.

Moreover, much of the recent monthly growth of same-day auto trips represents a rebound from a sharp decline last winter. When a cold snap hit in January and February 2007, just as the United States introduced new passport regulations, same-day auto trips plunged 11.1%. A slow recovery since then left them, in September, only 2.5% ahead of their level in December 2006, despite a 12% rise in the dollar over that period.

Canadians have not shifted markedly from cross-border auto trips to the United States to online shopping there. Shipments to Canada by public- and private-sector couriers, the dominant route to receive a product ordered online, show a steady increase since 1995 of $300 million a year on average. Rather than showing an exceptionally strong increase in 2007, growth has been below average.

Vehicle purchases in the United States are the best example of Canadians buying more from across the border as the loonie rose. The value of new and used car and truck imports by persons (not manufacturers or dealers) from the United States approached the $1-billion mark in 2007 (at annual rates), five times their 2002 value, as the number of these vehicles rose to an annual rate of 60,000 in the first nine months of 2007.

While this makes vehicles the fastest-growing segment of cross-border shopping, the dollar amount still represents less than 2% of the vehicles purchased by Canadians in the first nine months of 2007.

Regionally, Ontario was disproportionately affected by cross-border shopping. By itself, Ontario accounts for the largest share (79%) of the small increase in same-day auto trips by all Canadians since 2002. This partly reflects the short distance between major cities in Ontario and the United States.

However, the costs of trips across the border, which include gasoline consumption and waits at the border, appear to have dampened the enthusiasm of people crossing the border from Ontario to the United States.

Between 1986 and 1992, same-day auto trips across the border from Ontario to the United States soared 243% from an average of 874,000 trips a month to 2.1 million. From 2002 through the first nine months of 2007, such trips through Ontario have risen only 15.5%, from an average of 951,100 trips a month to 1.1 million.

The remainder of the small increase in cross-border shopping by Canadians since 2002 has gone mostly through New Brunswick.

There has been almost no change recently in same-day auto trips through Quebec and Western Canada. Cross-border shopping has never really been significant for the Prairie provinces, partly because their large cities are not close to the United States. Same-day auto trips across the border from British Columbia have edged up 14.5% since 2002, but remain only one-quarter of their peak level set in 1991.

Same-day auto trips from Quebec to the United States are not as significant as elsewhere, accounting for only 10% of such trips by Canadians. In 2007, 58,100 fewer Canadians returned from same-day auto trips to the United States through Quebec than in 2006.

The study, "Cross-border shopping and the loonie: Not what it used to be", is included in the December 2007 Internet edition of Canadian Economic Observer, Vol. 20, no. 12 (11-010-XWB, free), now available from the Publications module of our website. The monthly paper version of Canadian Economic Observer, Vol. 20, no. 12 (11-010-XPB, $25/$243) will be available on December 20.

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For more information, or to enquire about the concepts, methods or data quality of this release, contact Philip Cross (613-951-9162; ceo@statcan.gc.ca), Current Economic Analysis Division.