Tips for Developing an E-Commerce Logistics Strategy for the Canadian Market

Canadian e-commerce logistics often depends on last mile delivery

Worldwide, the ecommerce business is certainly booming.  Globally, e-commerce retail sales are anticipated to grow from 2.3 trillion U.S. dollars in 2017 to nearly 4.9 trillion U.S. in 2021.  As of 2018, the Canadian e-commerce market had expanded to nearly 1.6 billion Canadian dollars.  Within the retail e-commerce market, Canadian revenue is anticipated to exceed 55 billion Canadian dollars by 2023.  This is a significant increase over the revenue generated in 2018, 40 billion Canadian dollars as well as an increase in parcel delivery.

According to the U.S. International Trade Administration, one third of the Canadian e-commerce dollars are going to retailers based in the U.S.  More than 9.2 Canadians made at least one purchase from a U.S. website in 2018 alone.  The rise of the “power shoppers” in Canada, those who purchased more than 25 items a year online increased from 10% in 2016 to 18% in 2017.  That 10% of the Canadian population represented 48% of all the B2C deliveries in the nation. 

82%

of Canadians live in medium to large-sized cities and Canada’s e-commerce market is the eighth largest in the world.

In terms of user penetration rates for e-commerce, the 2018 rate of 53.6% is anticipated to reach 65.8% by 2022.  This may indicate that Canadians outside of urban areas including those in more isolated geographic regions are also making e-commerce purchases.  Overall, the Canadian e-commerce industry is thriving and is anticipated to do so for years to come.

Cross-border fulfillment, even with our friends in the North, can be a tricky business, especially in meeting Canadian consumers’ desire for quick, low cost order fulfillment.  American companies operating in Canada have at times been flummoxed that an established logistics plan that worked perfectly well in the United States is not applicable to the Canadian market.

Canadian Fulfillment Models

Intra-Canada Fulfillment Model

Typically, intra-Canada fulfillment is easier than cross-border fulfillment and this model provides the best service-level options.  More cost effective, deliveries also tend to be easier in the intra-Canada fulfillment model.  This is important as it facilitates a more brand consistent experience across all channels and provides faster delivery with lower shipping costs and an easier returns process.  Consumers usually evaluate brands based on the delivery experience and purchase accordingly.

Having a successful intra-Canada fulfillment strategy depends on numerous factors such as locations to store inventory for fast, easy access and delivery.  Typically, Toronto, Edmonton, Montreal, Mississauga, Vancouver and Calgary are considered to be the best locations for positioning fulfillment centers to reach targeted populations of online shoppers.

Cross-Border Fulfillment into the Canadian Market

The 1994 North American Free Trade Agreement, commonly referred to as NAFTA resulted in a 400% growth rate in cross border trade by making it easier to fulfill cross-border orders between the United States and Canada.  More than 83% of Canadians purchased goods from an international retailer in 2017, most of which were fulfilled by retailers in northern regions of the U.S. that then transported the goods into Canada.

12 Struggles American E-Commerce Retailers Experience in Dealing with the Canadian Market

1. American logistics companies operating in Canada often do not have access to a Canadian distribution network.
2. Transportation and logistics companies used in the U.S. do not necessarily perform at the same high level in Canada.
3. Most American carriers lack direct expertise in the Canadian market and do not have a thorough understanding of the culture and nuances of this market.
4. Carriers which hand off goods at the border to a Canadian logistics services provider tend to lose control of the delivery. This increases the likelihood of a tardy or damaged delivery.
5. Dual language packaging requirements and other issues specific to Canada can be problematic and costly in terms of compliance.
6. Multiple agency regulations can impact fulfillment including Health Canada, Industry Canada, Competition Bureau, Canada Post and others.
7. Unexpected customer charges, duties or sales taxes
8. Higher costs for any kind of expedited service
9. Sluggish delivery service without shipment tracking
10. Inability to execute trial offers due to increased average product delivery time (two weeks without a tracking code)
11. Returns….returns…returns….. Have you pre-classified your SKUs with Customs to facilitate returning SKUs to a U.S. distribution center???
12. Goods are often classified differently in the U.S. and Canada, causing delays.
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Along with the positive trends towards a continued increase in online shopping, comes a caveat.  Here’s the great big blinking yellow light.  According to the United States Commerce Department, what is the top reason that U.S. businesses are unsuccessful in dealing with the Canadian market?  Put simply, they don’t know what they don’t know.  Failure to take the time to do deliberate, careful research and planning can be costly and devastating.  Look before you leap.  Take the time to develop a logistics strategy tailored to the Canadian market.

Why Develop an E-Commerce Logistics Strategy Specifically for Canada?

Consumers worldwide are impatient these days.  Across both the United States and Canada, consumers prefer quick, low cost delivery and typically base their perception of brands on the last mile delivery experience.  In 2018, two out of every three packages nationally were delivered by Canada Post. 

Consider the fact that inventory can often be sourced in the United States, however, it is essential that you understand the limitations and challenges of the Canadian transportation system and utilize experienced, well connected transportation and logistics professionals to help you craft a strategy that meets both your company’s needs and the expectations of your customers.  With that said, understand that e-commerce shipments to the Canadian market usually require a minimum of two transportation legs.  The first leg is to transport goods into Canada and the second to transport the goods within Canada and to its final destination.

6 Tips for Developing a Canadian Logistics Strategy

1. Make sure delivery into Canada occurs within a specified time period
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2. First evaluate the depth of the experience of the logistics service provider in moving goods from the U.S. into Canada as well as their connections and expertise with the Canadian market.
3. Try and find logistics providers that do not make multiple, time-consuming stops.
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4. Opt for guaranteed, date-certain delivery service to Canada.
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5. Consider the induction point where the goods will enter Canada as transit time can add days to the delivery schedule due to the size of the country.
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6. Find a logistics provider that routes shipments that can clear customs in locations closer to the end destination.
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What Should a Canadian Logistics Strategy Include?

In developing an effective logistics strategy for an e-commerce retail operation, it is important to thoroughly think through the processes of inbound and outbound logistics, order management, shipping and reverse logistics.  This includes not only how each process should optimally work but also what to do if the typical scenario fails and how to handle each element of the challenge.

Here are the basic elements of a Canadian e-commerce logistics strategy:
  • Fulfillment/Warehouse network
  • Inventory management and tracking
  • Transportation and logistics
  • Returns
  • Customs process
  • Regulatory compliance with diverse labeling and marketing requirements, tax code, security mandates
  • Regulatory compliance with requirements mandated by each territory or province

Whether your company is accustomed to doing business in Canada or this is your first venture, educate yourself.  From customs delays, shipping costs and damaged merchandise to incomplete or incorrect customs paperwork, having logistics experts knowledgeable about the Canadian market advise you will help you sidestep disaster and develop an effective logistics strategy.

4 Factors Impacting a Canadian Logistics Strategy

1. Consideration of Regional Transportation Providers

Most freight companies in Canada are regional rather than national.  To traverse the country, multiple transportation and logistics companies are needed.  This can lead to inconsistency in service, decreased visibility throughout the distribution process, lack of trackability and often decreased accountability between logistics providers.  American freight companies should be aware of these issues when contracting for the intra-Canadian aspect of freight transit.

2. Use of Technology in the Canadian Transportation and Logistics Industry

Today, as with many aspects of daily life, technology plays a vital role.  In dealing with time-sensitive shipments including e-commerce fulfillment and last mile delivery, transportation and logistics service providers must avail themselves of leading-edge technology to shave minutes, even hours off transit times.  Route optimization, transportation management software (TMS)    are especially important.

3. Use of Final Mile Logistics Providers

Local transportation and logistics carriers are typically needed to delivery to the most remote regions of Canada unless Canada Post, the national post office system is used.  Canada Post does have a partnership with one logistics company to handle final mile delivery.

30%

“E-commerce retailers experience a rate of returns than that experienced by brick and mortar retailers, up to 30% of sales.”

4. The Challenge of Product Returns

Unfortunately, e-commerce retailers experience a rate of returns than that experienced by brick and mortar retailers, up to 30% of sales.  It is not enough to focus on delivering the goods to customers.  Ensuring a smooth, easy returns process is essential to any e-commerce retail business strategy.

Determine a reverse logistics process, ideally one that consolidates returns to a centralized location for processing.  Having a centralized consolidation point will group smaller shipments so that returns can be grouped to clear the border as a single unit.  This will reduce the time for customs review and aid in keeping transportation costs under control.  This will also be highly useful for processing returns from Canadian consumers who must cross the border.

Industry studies involving e-commerce retail indicate that consumers expect to return purchases at little or no cost.  Consumers expect that the returns process will be simple, easy to execute and result in the quick resolution of the return.

Products returning to the United States from Canada must be cleared through U.S. customs so this should be taken into account when planning the process.

Conclusion

Although Canada is often considered to be similar to the United States, there are supply chain issues specific to each country which differ.  First, educate yourself about the Canadian market as well as about supply chain issues and related transportation and logistics business practices.  Find reliable third party logistics providers experienced in intra-Canada transit, customs and other issues and secure service with those that can commit to definite schedules and delivery dates that meet your requirements.

Find third party logistics providers that rely on technology as they should enable you to have access to real time business intelligence, supply chain management and other tools.  Having access to real time information including tracking of shipments, orders and inventory management is crucial to the success of your e-commerce logistics effort.

Be on the lookout for next week’s blog:  10 Issues to Consider When Selecting a 3PL for E-Commerce Fulfillment in Canada

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