Surge in Canadian E-Commerce Opportunities for Global Logistics Providers

While Canadian consumers may have been slow to embrace the Internet and online shopping, the trend has caught on with a vengeance, and volume is expected to more than triple by 2015.  And as it does, there will be a corresponding need for qualified logistics providers with border clearance expertise to move those shipments into Canada.

This was one of the key takeaways from a panel discussion that took place during World Mail and Express America’s conference, which was held in Miami in early February.  More than 200 mail, parcel, logistics and business representatives attended the conference, which focused on key trends in mail and shipping patterns.

Integral to that discussion, is the global surge in e-Commerce, and the implications that growth has had on postal and courier systems.  And among the great e-Commerce success stories, has been the rise of online shopping among Canadian consumers.   Consider these facts about Canadian e-Commerce:

  • According to Statistics Canada, during 2007, more than 70 million online orders were placed by about 8.4 million Canadians.  The value of those orders was $12.77 billion (CAD). 
  • By 2010, those numbers had grown to more than 114 million orders placed with a value of $15.3 billion (CAD). 
  • By 2015, eMarketer predicts that Canadian Internet sales will spike to nearly $31 billion (CAD).

These numbers are even more impressive, when you consider that the population of Canada is roughly 34 million people, versus a U.S. population of 313 million.

Jonathan Routledge, Eastern District Manager for Purolator International, a leading provider of logistics services for shipments to Canada spoke about the surge in Canadian e-Commerce, and noted that, while the trend has created an increase in B-2-C shipments to Canada, there are things about shipping to Canada that should be considered.

Specifically, Routledge focused on four key areas:

  1. Border clearance and customs compliance.  Although Canada’s border clearance process is “probably what you would consider ‘normal,’” he noted that there are “unique aspects that differentiate the Canadian clearance process from other countries.”   For one thing, the U.S./Canada clearance process has become stricter in recent years, as each country has imposed new security requirements.   A 2009 report issued jointly by the U.S. and Canadian Chambers of commerce highlights a “thickening” of the border, whereby new or increasing fees and inspections, uncertainty over wait times, layers of rules and regulations from multiple departments, have combined to create a “perfect storm” for border inefficiency.  And while joint-government efforts are underway to try and ease the clearance process, compliance will remain a source of frustration for shippers and carriers.
  2.  Trusted Shipper Programs.  Canada has attempted to facilitate the border clearance process for high volume and regular carriers through a number of “trusted shipper” programs.  Once approved, program participants are generally assured of fewer inspections, pre-clearance and minimal wait times.  In fact though, carriers have been complaining in recent years that those perks are being ignored, as CBSA has increased its focus on security.  “But nevertheless,” Routledge said, “any carrier interested in providing regular cross border service into Canada needs to be aware of, and participate in these trusted shipper programs.
  3. Tax and Fee Structure.  Canada’s duty and fee structure can be confusing to the uninitiated.  Goods shipped to Canada generally trigger an array of taxes and fees including:  Goods and Services Tax (GST), Provincial Sales Taxes,  Brokerage Fees, Disbursement Fees and Conversion Fees.  In addition, a carrier must be aware of all trade agreements and tariff requirements.
  4. Demographics.  An often overlooked fact of doing business in Canada – are the unique characteristics of Canada itself.  “Because the U.S. and Canada have so much in common,” Routledge told the group, “people tend to assume that a Canadian business transaction will mirror a U.S. transaction.   That sort of thinking gets people in trouble.”  Among the key considerations:  Canada is a bi-lingual country with 23 percent of the population listing French as their preferred language.  And while 80 percent of the population lives within 100 miles of the U.S. border, a carrier must find a way to reach consumers living in the more remote regions of the country.

The growth in Internet sales among Canadian consumers presents a strong opportunity for qualified carriers and logistics providers.  But before a carrier markets itself as “Canada experienced,” there are a few things to be learned.  And as Routledge told the World Mail audience, “it’s better to understand the Canadian market going in, rather than face a ‘trial by fire’ upon arrival at the border.”

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Beyond the Border Agreement Receives Mixed Reviews

With more than $1.5 billion worth of goods and services crossing the U.S./Canadian border every day, and with each country serving as the other’s largest trading partner, you can bet that any border-related government announcement will generate a lot of attention.

Such was the case when the new “Beyond the Border” perimeter and security agreement was announced. As presented, the agreement will help facilitate travel and trade between the two nations, align regulatory requirements, and improve border security.

While the agreement drew barely a mention by the U.S. media, Canadian business leaders and editorial writers expressed a range of opinions. “This is a very scary document,” Michael Vonn of the B.C. Civil Liberties Association told The Huffington Post. “We’re appalled. It is essentially a wholesale adoption of U.S. policy and standards across the board.” Others had a different take, including Canadian Chamber of Commerce Director Perrin Beatty, who called the agreement “Good news for all Canadians,” and the Toronto Star editorial page, which seemed to think the deal would have little immediate impact, calling it a “cautious work in progress that will be figured out, fought over and rolled out in pilot projects for years to come.”

With such a wide range of reactions, what exactly does the agreement claim to do? Canadian Transportation & Logistics outlined the key implications for businesses and transportation providers:

  • Faster border crossings with commercial traffic getting more dedicated lanes and technology.
  • Wait times measured and posted ahead of border crossings.
  • The agreement expands on programs to speed up border crossings for frequent and trusted traders, clearing cargo at the first port of entry.
  • Companies will have a “single window” to submit data required by government for shipments. The cargo clearance pilot project will start in Montreal and Prince Rupert, B.C., by 2013.
  • Consumer health products that have already been approved in the U.S. could be approved faster in Canada, with regulatory bodies sharing information and adjusting labeling standards to make it easier to market a product in both countries.
  • Under the agreement, border and law enforcement efforts will be more integrated, starting with a radio system that will work on both sides of the border, all the way up to integrated criminal and intelligence investigations.

The two countries will also conduct joint investigations to target security threats. While both the U.S. and Canadian government have forecast significant benefits from the agreements – including $16 billion that will be saved by eliminating regulatory redundancies — time will tell if the agreement is a help or a hindrance to the nations’ shared concerns – keeping the border secure and promoting the critical U.S./Canada trade relationship.

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Message to Congress: Highways/Truckers are Top Priority

Don’t underestimate the effect of new regulations on the nation’s commerce, was the unmistakable message delivered by a contingent of shippers, carriers and trade association officials who traveled recently to Capitol Hill. The visit, which organizers named “Stand Up for Trucking,” was intended to convey concern about pieces of legislation currently awaiting action on Capitol Hill, and to remind lawmakers that more than 7 million Americans work in trucking-related jobs. Among the concerns the group took to Washington:

  • Highway Reauthorization Act: The House of Representatives recently began action on a five-year $260 billion surface transportation plan that includes provisions for everything from infrastructure investment to truck weight limits to the hyper-political Keystone pipeline project. The “American Energy and Infrastructure Jobs Act” is expected to receive full House consideration in February. According to Logistics Management, trucking advocates support a “longer-term (six years, ideally) that focuses on funding the 166,000 mile National Highway System, addresses highway congestion and establishes a freight program to address interstate commerce.”
  • “Final” Hours of Service Regulations: Industry supporters were alarmed when, in late December the Federal Motor Carrier Safety Administration (FMCSA) issued a final rule that will reduce drivers’ work weeks from 82 hours to 70, and require rest periods that include the hours between 1am and 5am. Trucking advocates oppose the changes, which they say will force the hiring of additional drivers, thereby driving up costs and resulting in more trucks on the road.
  • Interstate Tolls: Some members of Congress are in favor of increasing – and in some instances initiatiing – interstate highway tolls as a way to fund infrastructure improvements. The trucking coalition strongly opposes this, arguing that fuel taxes are a more efficient and fairer way of raising revenues. Plus, the industry argues, tolls amount to double taxation, since trucks pay both existing user fee taxes, and would be forced to pay a toll on top of that.

The more than 100 pro-industry supporters held meetings with a number of influential House and Senate members who will play a role in the legislation that eventually emerges from both the House and Senate. “We have to help our lawmakers understand the impact and dampening effect regulations are having on our businesses,” Dan England, chairman of truckload carrier C.R. England told Logistics Management. “We’re hoping to find people who can see reason.”

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Is Your Logistics Provider a Problem Solver?

With the spotlight pointed directly at the predicted capacity shortage, businesses are looking to ensure that their shipments will not be left behind.  While many businesses are scrambling to lock-in service with a suitable carrier, others may find that the solution may be as easy as a heart-to-heart talk with their current provider.

That’s because a good logistics provider should also be a logistics problem solver.  Rather than just offer scheduled pickups and deliveries, with little room for flexibility, a problem solver will have options at its disposal to meet your specific needs.

In a recent Canadian Transportation & Logistics blog post, Dan Goodwill noted that the issue of delivering solutions had come up at a recent shipper-carrier roundtable he had attended.  “This idea was mentioned by both Heather Felbel, vice president, logistics of Indigo Books & Music, and J.J. Maislin, president of Maisliner, a Quebec-based freight carrier,” Goodwill wrote.  “Shippers are looking for transportation organizations that are problem solvers and can pull together a combination of resources to meet each cluster of customer needs,” he continued.  “Shippers are looking for solutions providers that can provide a range of services and modes, that can offer storage when requested, and that can make available value-added information services as needed.”

So how can your make sure that your logistics carrier is a logistics problem solver?  A few “points of discussion” to consider:

Flexibility:  Does your carrier offer a “one size fits all,” “take it or leave it” approach, or is there a menu of options to choose from to meet your exact needs?

Customized Plans:  Does your carrier understand your business needs and objectives?  Have you worked together to develop a logistics strategy that is specifically designed to meet or exceed those objectives?

Out of the Box Solutions:  Can your provider call on different resources to put together unique logistics plans to address unexpected or “rush” situations?

Contingency Planning:  When the inevitable crisis or SNAFU arises, will your carrier be able to offer a “Plan B” to ensure that your shipments are not delayed?

With 2012’s challenging business climate and transportation shortage on the horizon, it’s more important than ever for a business to have confidence that their logistics provider is also their partner.  A few minutes today to discuss your carrier’s service options could go a long way toward addressing your long-term service needs.

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New Driver Regulations Sent Holiday Chill through Trucking Industry

In a late-December announcement, the Federal Motor Carrier Safety Administration (FMCSA) gave the trucking industry what amounted to a lump of coal, when it finalized new rules that it claims will promote driver and highway safety.

FMCSA’s action, which takes effect in 18 months, will place tighter restrictions on the “restart provision,” that resets a driver’s clock following a designated period of rest. According to the Journal of Commerce, the new rule would cut weekly work time from 82 hours to 70 and require rest periods including the hours between 1 am and 5 am.

In a positive turn for the trucking industry, FMCSA opted not to proceed with a proposal to reduce the current 11-hour limit on daily driving.

However, industry groups were outraged by the changes to the restart provision, arguing that the change will reduce efficiency across their supply chains, complicate delivery schedules, and raise costs and possibly even increase incidences of highway accidents.

“This rule will put more truck traffic onto the roadways during morning rush hour, frustrate other motorists and increase the risk of crashes,” said American Trucking Association (ATA) President and CEO Bill Graves.

The National Retail Federation also expressed opposition:  “The current regulations have allowed U.S. retailers to achieve significant efficiencies within their supply chains and distribution networks while keeping safety as their top priority,” said David French, NRF senior vice president.  “We believe the new restart requirement will have a significant impact on the industry, especially those who rely on overnight or early morning deliveries.”

The ATA is considering legal action to try and prevent the rule changes from taking effect.  As currently written, the new rules will take effect in July 2013.

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US Retailers Be Prepared – 62% of Canadian Consumers Buy Online

Late last year the Canadian government reported that Internet sales in that country passed C$15.1 billion during 2009, an 18 percent increase from the C$12.8 billion that was spent online during 2007.  Internet sales were slow to take hold in Canada, but clearly, the option has caught on and is here to stay.  In fact, Canadian shoppers are projected to spend more than C$22.8 billion during 2012.  And the good news for U.S. retailers, is that roughly 62 percent of those consumers will be buying from U.S. retailers.

Canadian consumers are increasingly looking to U.S. retailers, since the stronger Canadian dollar means increased buying power, and since U.S. goods are generally in high demand among quality and status conscious consumers.  But, as a 2010 report by Visa Inc., points out, Canadian consumers have set some specific parameters when it comes to U.S. e-commerce:

  • 82 percent do not want to pay extra shipping charges for cross border sales
  • 75 percent are concerned about being faced with unexpected, or hidden charges
  • 72 percent believe U.S. sites offer a wider selection

Despite the strong demand among Canadian consumers for U.S. goods, a surprising number of American businesses have yet to develop websites targeted at the potentially lucrative Canadian market.  Breaking into the Canadian market can be a difficult process, as U.S. shoe retailer learned.  Zappos, which has established a niche in the U.S. as a result of its “free shipping both ways” policy, found that it could not replicate that service in Canada, nor could it offer the same selection of brands, due to distribution agreements.  The company announced that, effective April 1, 2011, it would no longer offer service to the Canadian market. 

Other U.S. retailers, including had to contend with stiff resistance from Canadian-based businesses, who claimed that the lower-priced U.S. retailer would unfairly infringe on their business.

According to Ksl eConsulting, there is a list of “do’s” for U.S. businesses interested in being “seriously considered as an online shopping destination for Canadians.” Among the tips:  Make sure your website lists prices in Canadian dollars, and be sure to use a Canadian shipping company!

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Driver Shortage Squeezes Already-Tight Capacity

It’s no secret that the recession had a serious impact on capacity – with the Internal Revenue Service reporting that as many as 3,000 carriers were forced out of business during 2008 alone – a less talked about story is the continuing shortage of drivers impacting current capacity.  Not only is there a serious driver shortage throughout the nation’s trucking industry but also, proposed changes to federal regulations threaten to make the problem worse.

The Council of Supply Chain Management Professionals (CSCMP) reported that the industry lost about 150,000 driving jobs during the recession, or more than 12 percent of the total number of drivers.  Factors in drivers leaving are due to retirement, new federal regulations and the industry’s need to add 400,000 drivers to accommodate post-recession spikes in demand.  Plus, a recent report by the American Trucking Association found that driver turnover rate is as high as 79 percent at some larger carriers.

In addition to recessionary cutbacks, reasons for the driver shortage include:

  • Aging workforce:  CSCMP reports that roughly one in six drivers are over the age of 55, and less than one quarter are under age 35.
  • Competition within Industry:  Shortage of drivers is resulting in companies increasing pay and benefits – which in turn has caused drivers to jump from carrier to carrier.
  • Proposed Federal Regulatory Changes:  Washington has issued proposed regulatory changes – under the auspices of improving highway safety and weeding out bad drivers – that industry officials say would have a net effect of forcing more drivers out of the workforce.  Among the federal government’s proposals:
    • Hours of Service Reduction:  The government would limit drivers to a 14-hour workday and reduce driving time to 10 hours from the current 11.  The Federal Motor Carrier Safety Administration has also proposed mandatory breaks and rest periods.  The trucking industry claims that these provisions will result in added costs and the need to bring on even more drivers, at a time when current drivers are in short supply.
    • CSA:  Though it is a Compliance, Safety, Accountability initiative, FMCSA has proposed new standards for driver safety and vehicle maintenance.  FMCSA is proposing to expand on current practices already in place.  The industry believes that the new changes are burdensome and impractical and will have little impact on the agency’s stated goal of reducing accidents.

How is your business looking to combat capacity shortages?  Do you maintain your own fleet or are you speaking with your logistics provider on maximizing linehauls for your shipments?

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U.S. Visitors from Mexico and Canada Face New Entry Tariff

Mexican and Canadian visitors to the United States are going to find that the price of admission has just gotten a bit steeper, thanks to a new $5.50 tariff that will be assessed on all visitors arriving by air or sea.

The new fee is the result of a U.S.-Columbia free trade deal, which was passed by Congress and signed into law by President Obama in October.  According to the CBC, the trade deal includes a clause “that removes an exemption from the tariff for travelers from Canada, Mexico and the Caribbean.”

Canada and Mexico had been exempt from the fee, per the 1997 North American Free Trade Agreement (NAFTA).

The new fee has raised the ire of consumers and government officials alike.

“Raising taxes at the border just raises costs on consumers,” said Canadian International Trade Minister Ed Fast.  “Canadian officials have raised concerns about the removal of the exemption at the highest level.  We will continue to raise Canada’s concerns with U.S. lawmakers.”  In addition, U.S. Rep. Bill Owens (D-NY) announced that he will introduce legislation to repeal the fee.

Imposition of the fee comes at a time when the joint Beyond the Border Working Group, established earlier this year by President Barack Obama and Prime Minister Stephen Harper, is attempting to finalize agreements on key trade and security issues.

U.S. officials suggested that budgetary pressures warranted the change.  “The elimination of the exemption was necessitated by the budget situation in my country,” said U.S. Ambassador David Jacobsen.  “It is paid by American citizens and foreign nationals alike, just like Canadian citizens and non-Canadian citizens pay fees at Canadian airports.”

According to the Watertown (NY) Daily Times, the Congressional Budget Office estimates that the tariff will raise “about $1 billion from 2012 until 2012.”

What do you think about this?

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Strong Canadian Dollar – an Opportunity for U.S. Retailers?

The U.S. dollar held strong competitive advantage over its Canadian counterpart for more than 30 years – with that it became standard among Canadian consumers for U.S. imports to cost more.  Recently, the Canadian loonie has achieved parity with the U.S. greenback presumably making U.S. goods less expensive on the Canadian market – many are scratching their heads wondering why prices have not fallen.

While explanations vary from smaller market, higher distribution costs, different labeling requirements and higher taxes among those often cited – others point the finger at retailers who are plain old reluctant to lower prices

As more consumers become aware of the Canadian currency’s increased buying power, many are speculating it is only a matter of time before Canadians look online to find their desired U.S. goods – but at a better cost.  In a report, marketing analyst Lindsay Meredith said if Canadian retailers don’t reduce prices to reflect the new economic reality, “they’re just going to lose a lot of business to the American guys who are going to have a field day picking up the action.”

In the same report, CTV reported that a shopping cart full of U.S. goods purchased in Canada, cost significantly higher than when the identical items were purchased in the U.S. – an average of 20.4 percent more.  “Sample items included a pair of cargo shorts sold from the Gap, which were priced 15% higher in Canada, as well as a Blu-Ray copy of ‘The King’s Speech,’ which was 28 percent cheaper in the U.S.”

While analysts predict the price discrepancy will disappear in the coming months, others are offering what may turn out to be the best advice of all to Canadian consumers.  According to Consumers Association of Canada President Bruce Cran, “there are two things consumers can do to protect themselves.  One is to buy across in the U.S.A., and the second is haggle.”

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Supply Chains have Enhanced Post-Recession Value Survey Finds

A recent survey of  supply chain and logistics professionals found that 89 percent of respondents believe that the supply chain function has become more important to their organization than it was prior to the recession.

The survey, sponsored by logistics industry research/analysis group eyefortransport, was conducted in September 2011 as a way to gauge perception about the role of supply chain management in the post-recession business environment.  As the survey findings make clear, businesses are increasingly realizing the value that a well-planned and well-managed supply chain can have on their bottom line.  In fact, supply chain management has become such a tier one issue, that 56 percent of respondents said that the supply chain function either has a seat on their board, or will within the next two years.

Katharine O’Reilly, eyefortransport executive director summed up the survey findings by nothing that:  “…[O]ne of the best weapons companies have is their supply chain, and the people who run it.  Their views are always of note to smart business owners.”

This survey would seem to support collective wisdom among business professionals that (a) cost efficiency and streamlined processes are key to life in the post-recession and (b) moving forward will mean learning from mistakes of the past.  As Detlef Trefzger of Germany’s Schenker AG put it:  “People are more focused and committed to solutions.  Before the recession we discussed strategies with our customers that were nice to talk about but never implemented.  That has changed.”

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