Key Takeaways

Canada-U.S. Trade Dynamics

• Trade Volume Scale: $760 billion in trade moves between Canada and the U.S. annually, with $422 billion transported by truck.
• Economic Interdependence: Canada remains the largest export market for the U.S., eclipsing China, Japan and the UK combined.
• State-Level Reliance: 36 U.S. states rely on Canada as their top export destination, with 43 states exporting goods worth $1 billion or more each year. 23 U.S. states also import more from Canada than any other foreign market. 
• Cross-Border Congestion: Wait times at key crossings like the Blue Water Bridge and Ambassador Bridge have increased by 1–2 hours, creating supply chain delays for businesses. 

The Impact of Tariff Shifts on Market Conditions

• Pre-Tariff Inventory Rush: Shipment activity increased by 25% from January to February 2025 as businesses scrambled to move goods before tariff deadlines.
• Tender Rejection Rates: During the peak tariff adjustment period, rejections jumped 4x from their pre-disruption levels to more than 10%, reflecting moderate capacity constraints and heightened volatility.
• Spot Market Activity: Cross-border shipment volumes surged in February 2025, with loads from Canada to the U.S. up 79% and from the U.S. to Canada up 64% year over year.
• Spot Rate Surges: Spot market rates jumped 2–3x their usual levels on some lanes as carriers struggled to meet surging demand.
• Historical Comparisons: Similar market behavior occurred during the 2018/19 U.S.-Canada tariff wars, which caused steel shipments to fall by 40% and aluminum shipments by 20%.

Capacity Challenges  

• Equipment Costs: Tariffs could increase the cost of new Class 8 trucks by $20,000 or more per unit, limiting fleets’ ability to invest and constraining expansion.
• Capacity Expectations: Reduced investment in fleet renewal and expansion is causing tightening capacity even as demand fluctuates.
• Future Pressures: Equipment replacement rates are projected to drop below breakeven points for some carriers, further tightening the market.
• Fleet Consolidation: Larger carriers are becoming more selective in the freight they accept, prioritizing volume stability and optimizing asset utilization.
• Metrics Normalization: Although tender rejection rates and spot rates are beginning to stabilize, both remain higher than pre-tariff levels, indicating ongoing market adjustments.

Economic Indicators

• Rising Inflation: Canada’s Consumer Price Index (CPI) rose from 1.9% in November 2024 to 2.6% in February 2025, exacerbated by a combination of tariff-induced cost increases and sticky inflation.
• Business Impacts: According to the Bank of Canada and Royal Bank of Canada Economics research, more than 50% of Canadian companies surveyed reported that they would raise prices due to the added costs of tariffs, with some industries anticipating increases of up to 100%.
• Household Effects: Bank of Canada and Royal Bank of Canada Economics research results also revealed that around 70% of Canadian households anticipate higher living costs as inflation and cost-of-living pressures mount.
• Fuel and Energy Costs: Diesel prices averaged $1.69 per liter over the past year, but potential energy market instability poses a risk, particularly for smaller freight operators.
• Carbon Tax Concerns: The possible reinstatement of carbon taxes would further increase shipping costs, putting additional pressure on budgets and intensifying inflationary effects.
• Spending Shifts: Demand for essential goods remains relatively consistent, but volumes related to discretionary purchases are declining as businesses contend with consumer spending shifts.

Supply, Demand and Rate Outlook

• Near-Term Capacity Relief Unlikely: Despite slight normalization, capacity across the Canadian freight market is expected to tighten further amid rising operational costs.
• Freight Demand Flattening: Inflation and cost-of-living pressures will likely keep consumers cautious about spending, subduing demand for non-essential goods shipments in turn.
• Spot and Contract Rate Adjustments: While spot rates have cooled slightly from tariff-driven highs, both spot and contract rates are expected to stabilize at elevated levels compared to pre-tariff norms.
• Potential for Regional Capacity Imbalance: Certain geographic areas, particularly smaller provinces with lower overall freight volumes, may experience more pronounced shortages.
• Macro-Economic Influences: If inflation continues to rise or energy prices suddenly spike, both supply and demand could face further disruptions into late 2025.

Strategic Recommendations

• Capitalize on Volatility: Declining volume for things like discretionary goods means opportunities may arise to renegotiate non-peak lane rates.
• Limit Long-Term Forecasting: Given ongoing policy shifts and market volatility, avoid planning too far ahead; instead, stay informed and be prepared to pivot as market conditions change.
• Leverage Data: Use real-time data and analytics to anticipate supply, demand and rate movement and adjust your operations as needed.
• Create Contingency Plans: Build flexibility into your shipments to mitigate the impact of regional bottlenecks or sudden cross-border delays.
• Collaborate with Carriers: Work proactively with carriers to ensure your shipments are prioritized in the event of capacity crunches or when urgent shipment needs arise.
• Stay Ahead of Regulatory Shifts: Monitor potential changes to tariffs and other trade policies to avoid surprises.

Want to learn more about these trends and what they might mean for your business? Email arriveinsights@arrivelogistics.com today to chat with one of our market experts.