MOVING FORWARD 2 0 0 4 CROSS BORDER

MOVING FORWARD 2 0 0 4 CROSS BORDER TRADE October, 20041

Outline n Cross Border Trade Important to both Canada & the US n Importance of transborder trade to CPR n The rail advantage n The Transborder Shipping Today n US CBP’s Trade Act 2002 n FDA’s Bio-terrorism Act n VACIS n Impact of Border Inspections– cost of delays n What have we learned 2

Cross Border Trade Important to both Canada and US n Canada: Exports to US 83% of Canada’s goods in 2003 (Statistics Canada) n Canada: Imports from US 70% of all imported goods in 2003 (State of Trade, DFAIT) n US: Exports to Canada 23% of US goods in 2003 (US Census Bureau) Canada was the lead export market of goods for 39 states in 2002 (DFAIT) n US: Imports from Canada 18% of all imported goods in 2003 (US Census Bureau) n In 2002 the total value of Canada – US merchandise trade by rail US$60 billion (US Bureau Transportation Statistics) 3

Transborder Trade is Important to CPR n Transborder business is very important to CPR with 2004 volumes expected to exceed 800, 000 loads n Transborder shipments account for over 30% of CPR’s total business n Transborder traffic is projected to continue to grow – most of this growth can be attributed to the international intermodal segment of the rail business. n CPR has integrated, advanced electronic processing with both Canada and US Customs (ACROSS and AMS) n CPR has the following transborder/security accreditations: C-TPAT - US Customs – Trade Partnership Against Terrorism PIP – Canada Customs Partners in Protection CSA – Canada Customs Self Assessment Program 4

The Rail Advantage § Environmentally friendly § Cost competitive § Time sensitive & competitive service § Dedicated corridors that are a safe alternative to increasingly congested § § highways System wide police force - security The rail industry has integrated, advanced electronic processing with both Canada and US Customs Becoming more and more seamless with other railroads Routing advantage through Canada to access US / NAFTA markets 5

Canadian Pacific Railway n Provides freight transportation over a 22, 000 kilometer network in Canada and the US n Eight Canada/US border crossings 6

Transborder Shipping Today n Since September 11, 2001 we have seen many changes that have impacted rail and rail’s transborder customers n US Customs and Border Patrol (CBP) now have over twice as many inspectors across the Northern border with plans to additional officers. n We have seen the publication and implementation of increased reporting requirements from CBSA, CBP and the FDA n US CBP has implemented ATS - the Automated Targeting System. n Implementation of VACIS (Vehicle and Cargo Inspection System) at all major rail crossings across the Canada / US border 7

US CBP Trade Act of 2002 As of July 12, 2004 rail must provide electronically a complete train consist to US CBP at least 2 hours in advance of border arrival Customers must provide complete shipment information including § Precise cargo descriptions § Complete names and addresses of actual shippers and ultimate consignees § Seal numbers Expected later this fall the US Export reporting implementation. Rail exporters must file via the Automated Export System at least 2 hours prior to border arrival. Rail customers will need to provide the ITN (Internal Transaction Number) prior to in-gating the container at the rail terminal. § Exporters need to ensure that they are using the correct port codes with AES 8

Food and Drug Administration Bio. Terrorism Act n 2 parts to this regulation Registration of Food Facilities Prior Notice of Imported Food n Customers must submit electronically to the FDA no fewer than 4 hours before arrival by rail. Intermodal customers must have completed the PN prior to in-gating the container at the rail terminal. n Rail encourages customers to submit their PN via the ABI/ACS system (US Customs Automated Broker Interface of the Automated Commercial System) n There has been a phase in period for compliance – the compliance policy guide is available on the website 9

VACIS Vehicle and Cargo Inspection System n Under a declaration of Principles signed in April 2003, both CPR and CN have committed to work with Canadian and US customs agencies to install VACIS at all major rail border points. n VACIS uses gamma ray technology to scan rail cars as they pass by at 5 to 7 mph n Non-intrusive inspection technique, Safe due to very low radiation dose per scan n VACIS will expose any trade or compliance errors - mattresses versus steel poles n 100% screening of all rail traffic is not consistent with the Smart Border Accord principle of risk based targeting 10

Border Inspections - Impact Cost of Delays § Point #15 of the Smart Border Accord states - Develop an integrated § § approach to improve security and facilitate trade through away-from-theborder processing for truck/rail cargo (and crews). Today rail has seen an increase in the number of inspections at the border points Rail infrastructure at the border locations was not designed for switching and setting out cars and containers for inspections Rail switching costs are not the main issue. Actual cost of switching is variable and depends on circumstance. Costs are thousands of dollars per occurrence. Product delay is the biggest impact: • Delay to several containers, not just one. It’s not as easy as taking one container off. • Minimum delay to a series of containers is 48 hours and up to two weeks or more. Less competitive with truck. • Impact to importing and exporting customers. • Impact to other customers. 11

What have we learned n Rail is cost competitive, environmentally friendly, and is the safe answer to a congested highway system. n That advanced electronic information that is complete and accurate is the key to moving shipments across the border, northbound and southbound. n Increasing border congestion, due to the significant tightening of US Security, has delayed shipments and has added cost to the transborder trade network. It is expected that as we move forward we will see more security programs implemented. n By following the Smart Border Accord principles of implementing a risk based targeting solution, border security will be enhanced while continuing to promote the flow of legitimate trade. n Trade is critical to both Canada’s and the US’s economic performance. 12

MOVING FORWARD 2 0 0 4 CROSS BORDER TRADE 13 October, 2004