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Online Retail Logistics in Canada

How should you go about planning your logistics strategy for servicing the Canadian ecommerce market and what are the options available? This article looks at this issue in detail.

Canada is a spectacular 9,306 km from extreme east to extreme west. That fact alone determines the logistics landscape. For any non-Canadian retailer looking for delivery partners to ship into the country, only large players with the scale to cover such a geography are particularly relevant.

Infrastructure is good, with the obvious exception of the far north. However, as noted earlier, ecommerce customers in remote regions will be few and far between: population is low, and so is ecommerce penetration. In general, therefore, a consistent and achievable delivery promise can be made to at least 97% of the population, and probably in reality to about 99% of the likely buying population.

Key Points

Access to Canada Post can be achieved via local national parcel carriers e.g. Royal Mail in the UK

Direct access solutions, such as those offered by Landmark Global and others, offer a more highly managed way of accessing Canada

The geography of Canada makes it easier for external retailers to compete credibly on shipping times, but does also make shipping a little more expensive than in some markets

Shipping promises will need to vary a lot by destination: Toronto and the freezing north are very different targets

Customer services call-centre hours are unchallenging, although of course you’ll need to consider time differences and the need for French

There’s only a CA$20 de minimis, so effectively duties apply to all orders

Typically rates of duty are in the 20%-35% spectrum, applied on an FOB basis.

Delivery

Global carriers

UPS, DHL and Fedex all offer services to Canada from all major markets. The services most suitable for ecommerce are summarised in Figure 1, shipping outbound from the UK as an example.

Figure 1: Global Carrier Options

Local carriers

The dominant local player is Canada Post, which has a 62% volume share of the Canadian market for parcels (Canada Post, How to Grow Your Business into Canada, May 2014). Like most national carriers it had been observing the decline in letter post with concern, but had to wait slightly longer than others for the rise in parcel volumes associated with ecommerce to counteract this. As a strategic response, it acquired a key competitor Purolator, in which it has a 91% stake (Canada Post, Annual Report, 2014).

Within Canada it offers 1-day, 3-day and 7-day delivery options (with some extended durations to more remote locations).

Existing National Mail to National Mail service partnerships are the obvious way to access Canada Post from outside Canada.

For example, from the UK, Royal Mail partners with Canada Post to offer a 5 to 7-day service, with tracked and signed-for options as extras. You’ll need to prepare form CN22 (which is very short) for typical-sized orders.

Canada Post also acts as a service partner to direct access companies, some of which act as the international arm of other National Mail service providers.

Direct Access

A growing alternative is to use direct access solutions. such as those offered by various companies operating from the UK including Landmark Global, wnDirect, P2P, and Rebound. This type of company offer new options by consolidating volumes in the country of dispatch to achieve better air transport rates, and provide a fully managed service. For example, Landmark provides 3-5 day delivery from the UK to Canada.

It additionally includes:

  • The calculation of duties and delivery charges, in the preferred local currency to provide the customer with a Delivery and Duty Paid (DDP) price for their order at checkout. Duty charges are calculated using HS code classification (HS = Harmonised Tariff Schedule). The Harmonised Tariff Schedule is a moderately standardised global coding structure for applying customs duties to different kinds of products. It may be a ‘global’ standard, but Canada has its own version.

  • Customs clearance which is often “wheels up” in advance of arrival, combined with multiple points of entry which reduce in-country travel, which combine to reduce overall shipping times. Landmark, for example, has two operating centres in Canada (Calgary and Toronto) through which it injects parcels into local distribution networks

  • Returns management including a localised online portal, quality inspection, re-stocking (if using an in-country fulfilment solution), return to sender, or disposal which may mean options ranging from authorised destruction to gift to charity. Export duties originally paid on orders can be recovered.

Domestic carriers

Various domestic carriers will accept online retail orders and ship them to Canada to be handed to local agents (often the global or postal carriers) for delivery. Service times will vary depending on the line haul arrangements in place and the Canadian carrier partner chosen but a couple of examples from the UK include:

  • Hermes, who offer a 4-7 day service

  • DPD, who offer options for 2-4 days and 3-6 days

If you already have a service contract with a domestic carrier, this is probably the best place to start looking; at the very least it will serve as a shipping benchmark.

Integrators

Retailers with a reasonable volume of orders going to Canada may wish to consider the option of parcel management service integrators who can provide immediate integration with a wide range of service providers delivering in the Canadian market.

You will need to have a contract with the integrator who will then offer the ability to allocate orders to the most appropriate service (using agreed business rules), print labels and customs documentation, provide tracking and help to manage returns. For smaller retailers some integrators offer a parcel broker option that can help obtain better rates.

Providers of such services include MetaPack, Electio, Hypaship’s Parcelworks and Consignor.

Local Consumer expectations

Using the same cross-section of local retailers we have used earlier, Figure 2 shows their online delivery promises / options to Canadian customers.

Figure 2: Local shipping promises

Note the widely variable shipping times, due to the need to make a published promise applicable to both urban Toronto and the capital of Nunavut territory.

In short, if you are prepared to invest reasonably in shipping costs, it isn’t so difficult to compete with Canadian retailers in Canada on a timeliness basis.

In fact, we can see some British retailers taking Canada seriously and doing exactly that.

Figure 3: British retailers’ shipping promises to Canada.

Next, ASOS, Boohoo and Marks & Spencer are all making shipping promises which stand up reasonably well to local benchmarking. They probably don’t compare with the very fastest, but they aren’t unreasonably out of line. The key point is that it is definitely possible to overcome this barrier for customers without (currently) being totally outcompeted by impossible-to-match and highly convenient local promises.

Click and collect?

One option you won’t find much of in Canada is British-style click and collect from store. Only three of our Canadian benchmarks were offering it at the time of writing, and none of the US-in-Canada benchmarks. Clearly this is helpful news for those who don’t have stores in Canada.

This is probably not unconnected with the prevalence of collection from locations other than stores. Canada Post has 6,000 post offices and 27,000 collection boxes (Canada Post, How to Grow Your Business into Canada, May 2014), and if you are willing to make the effort, it’s possible to integrate this option into your website. (Canada Post also notes that 80% of home addresses are empty during the daytime in Canada, and suggests that collection might be a preferred option anyway).
 

Service Options

Returns

A reasonably friendly returns policy is definitely one way to differentiate yourself in Canada. For reference, here are the policies of our usual local benchmarks.

Figure 4: Local returns policies

Of British retailers surveyed, only Next had a local Canadian returns address situated in Ontario, and all required the customer to pay for the return (somewhat surprisingly, including ASOS).

Customer service

Local customer service expectations are for 7 x 9 or 7 x 12 hour opening times for call-centres or chat. Of our sample, only Lululemon offered 24-hour customer service lines.

Remember that you probably also need to offer French.

Time difference with the UK varies from 3½ hours in the east to 8 hours in the west.

Customs and duties

Trade agreements

Canada is a member of NAFTA, the North American Free Trade Agreement.

The Canadian government recently signed a trade agreement with the EU, known as CETA, though there is then a fairly long road to implementation, with full ratification still needed across the EU member states. Obviously, for British readers, it remains unclear at the time of writing how Brexit will impact the UK’s participation in this.

Minimum threshold

Meanwhile the bad news is that Canada has a very low minimum duty threshold (‘de minimis’): CA$20. Theoretically ‘personal gifts’ have a CA$60 threshold, but it’s unlikely you’ll be able to apply this. Basically, if you’re shipping parcels into Canada, you or the receiving customer are going to be paying duty, although this is currently under review. It is probably a good idea to look to service partners that can provide Delivery Duty Paid (DDP) support.

As mentioned above, companies such as Landmark Global will help you calculate these costs to be added to the cost of the item(s) being purchased at checkout. This ensures that the order is not delayed on arrival at Canadian customs while the recipient pays the duties and of course avoids the nasty shock of extra charges.

Duties

The moderately good news, however, is that duties are typically rather reasonable.

Canada appears to take the attitude that the first objective of its duties regime is to recover sales tax that would have been paid if the item had been purchased locally. HST and PST / QST (see sales taxes above) therefore form the basis of payable duties. Most items also incur an additional tariff.

The effect of all this is typically an overall duty rate of somewhere in the 20-35% range for most likely types of goods into most likely Canadian destinations. Since you won’t be charging domestic VAT, typically in the 19-25% range in major EU countries, to Canadian customers, the net effect is that your goods are going to cost a little bit more than they cost back home, plus inevitable higher shipping charges, but not impossibly more.

Tariffs only apply to the goods themselves, not the delivery charges, on an free on board (FOB) basis.

Benchmarks

As an illustration, Figure 39 shows the import tariffs for a representative sample of goods, calculated using the Canadian government tables.

Incidentally, only Next and Harrods, of UK retailers benchmarked, appeared to be offering a complete DDP (delivery and duty paid) solution for Canadian customers at the time of writing.

Figure 5: Sample import tariffs

 

 

 

Retail Landscape  

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