Ecommerce retail sales have been steadily increasing over the years, especially in the United States. This is great news for American retailers; it points to a bright future with ample opportunity for growth. But what about ecommerce opportunities just north of the border?
While American retailers can find success domestically, the benefits of expanding your operations into Canadian ecommerce markets should not be ignored. Learn more about the ecommerce opportunities in Canada, and some of the unique challenges that American retailers may face when expanding their operations.
Why is Canadian Fulfillment So Important for American Ecommerce Companies?
The Canadian ecommerce market is full of potential for small to medium American ecommerce companies looking to scale. In 2019, Canadian ecommerce revenue in 2019 was just over USD $25 billion, and by 2024, that number is projected to grow to more than USD $36 billion.
At a high level, it’s a market of roughly 25 million consumers and very little (if any) adjustments are required in your marketing efforts to reach these potential customers. The bottom line is, American ecommerce companies are leaving money on the table if they’re not shipping to Canada.
What does cross-border shopping from the USA to Canada look like right now?
While ecommerce activity in Canada has grown overall, cross-border shopping on online US stores hasn’t.
In fact, it actually decreased in 2019 in comparison to 2018, with only 8% of Canadian shoppers claiming that they would continue to cross-border shop online.
Based on Canada’s ecommerce growth, this may come as a surprise, but the truth is, American retailers and Canadian shoppers face roadblocks that make cross-border shopping way more inconvenient and expensive than it needs to be — with the most crucial ones being duties, fees and long shipping times.
But don’t let that discourage you from expanding your order fulfillment and shipping to Canada; these barriers are avoidable, and once these obstacles are overcome, American retailers have a much clearer pathway to expanding their operations into the Canadian marketplace.
Keep reading to find out exactly what difficulties American ecommerce companies face when expanding into Canada, and how American retailers can find success in spite of them.
What duties and fees can I expect as an American retailer shipping to Canada?
Let’s address the first roadblock for American retailers shipping to Canada — duties and fees.
You’re probably familiar with the variance in domestic shipping costs within the USA. They vary based on factors such as:
- Package size and weight
- Type of goods
- Origin and destination
- Tracking and insurance
On top of these base costs, American retailers expanding their order fulfillment and shipping to Canada can also face some time-consuming and costly difficulties:
Regulations: The shipment of certain goods, such as drug and health products, are heavily regulated by Health Canada and the FDA. American retailers need to ensure that they have the appropriate certification or documentation needed for their goods to cross the northern border.
Duties: Orders that exceed the threshold of CAD $150 are subject to customs duties. The amount owing is based on the value of the goods in Canadian dollars, and duty rates vary depending on the type of goods imported. In comparison, thanks to Section 321, the threshold for import duties on goods moving from Canada to the USA is USD $800.
Taxes: In addition to duties, there are three (yes, three!) different types of taxes that imported goods may be subject to in Canada. While your orders will be subject to GST (Goods and Services Tax), a 5% federal tax, PST (Provincial Sales Tax) may be applied depending on the province shipped to, or HST (Harmonized Tax) which combines the federal and provincial taxes.
Tariffs: Import tariffs can apply on goods (or components of goods) that were not manufactured in the USA. A USMCA exemption from tariffs is made on products and components that were manufactured in the United States, Mexico or Canada.
These additional roadblocks can be expensive, time-consuming and sometimes quite confusing. As a result of all this, American ecommerce retailers often charge Canadian customers a 25-40% shipping premium to cover their costs.
How Long Does it Take to Ship Products to Canada From the USA?
Duties and fees can be inconvenient and costly, but that’s just the tip of the iceberg.
On top of these shipping premiums, Canadian customers can expect longer shipping times when purchasing from US-based stores, and their preferences for faster shipping are influencing their shopping decisions: 60% of Canadian shoppers consider the shipping times when choosing a retailer to shop from online.
As an example of just how long these shipping times can be, consider that Canadian shoppers can receive shipped parcels within Canada in as little as two business days from local postage provider Canada Post. Meanwhile, a parcel from an American competitor can take as long as 20 days to arrive when shipped from comparable US services.
Why are these shipping times so long? Long travel distances and lengthy customs clearances are often the culprits, and they could easily discourage your eager Canadian shoppers.
All-in-all, when you consider the inconveniences caused by extra fees and long shipping times, you get a clearer picture of why Canadian customers are less likely to convert when it comes to cross-border shopping.
Section 321 and the benefits of fulfilling your American orders from Canada
Duties and fees are not just barriers to reaching your potential customers in Canada. As you may already know, duties and fees on imported inventory from overseas can also drive up costs and retail prices.
However, with the help of a US shipment type called Section 321 and a Canadian fulfillment partner, you can fulfill American customer orders for less. How can this work? Let us explain.
What is Section 321?
Section 321 is a US Shipment Type that allows certain goods to clear US Customs and Border Protection. For ecommerce companies, it allows direct-to-consumer goods coming into the United States to be released at the border without any duties or taxes imposed, as long as the total value of that shipment is less than the de minimis of USD $800.
Any time a business sources inventory from overseas and imports these products directly into the USA, duty fees are owed. These fees drive up costs and the end retail price that consumers see. And because these large, overseas shipments are rarely (if ever) valued less than Section 321’s threshold of USD $800, it’s hard to take advantage of the program this way.
Ship Orders from Canada Back to the USA to Use Section 321 to Your Advantage
For American ecommerce companies, fulfilling orders from Canada is a viable way for your business to take advantage of Section 321, and save on import costs!
In this scenario, US ecommerce companies can take advantage of Canadian duties exemptions by having a Canadian fulfillment centre handle the importing, receiving, warehousing and shipment of individual orders heading to their American customers. That way, it’s much easier for these cross-border shipments to fall well under the USD $800 threshold.
And that’s not the only benefit to working with a Canadian ecommerce fulfillment company. The right fulfillment and logistics partner that’s based in Canada can help American retailers avoid cross-border roadblocks including duties, fees and long shipping times when expanding into these new ecommerce markets.
How Do I Start Fulfilling Ecommerce Orders and Shipping to/from Canada?
Apply for a Business Registration Number to import goods into Canada.This is a crucial first step; if you’re looking to start expanding your ecommerce business into Canada, you first need to register for an import-export program account with the Canada Revenue Agency (CRA).
Registering for this account will get you a business registration number with the CRA — a unique 9-digit number that defines your business. Your program account comprises 2 letters and 4 digits that are then attached to your business number.
This number is key, as it’s used by the Canadian government to process customs documents at the border and release your products without delay. Learn more about getting your business set up with a Business Registration Number.
Then, Work With a Canadian Fulfillment Partner
For American brands looking to expand their order fulfillment and shipping to Canada, while also taking advantage of Section 321 for US-bound orders, working with a Canadian fulfillment partner is a sound, strategic move!
Eliminate customs duties costs and import taxes:
- Import taxes, duties, tariffs and the long shipping times and freight costs that can deter Canadian customers become worries of the past with a fulfillment and logistics partner that’s based locally.
- Eliminate duty fees on goods coming into the USA, and use Section 321 to your advantage by fulfilling and shipping from Canada.
- Plus, as an American business working with a Canadian company, you can take advantage of lower overhead costs by paying in CAD as opposed to USD.
Ensure that your customers receive their orders quicker:
- With an ecommerce fulfillment partner that’s based in large Canadian cities, you get access to millions of potential customers and can significantly reduce your shipping times.
- For your American customers, the experience will feel just as streamlined as it would with a fulfillment company based in the USA, as the right Canadian partner can combine sound logistics, proximity to the border and highly-developed carrier relationships to keep shipping times down.
Working with a Canadian fulfillment and logistics partner allows American retailers to effectively avoid the common challenges that come with cross-border shipping including duties, taxes, long shipping times and more. And, American retailers can leverage Section 321 to avoid fees on imported goods for their customers in the USA.