Getting Across Direct Magazine May 10, 1995

The last few years have seen an increasing number of American catalogers expanding into the Canadian market. In fact, 75% of respondents to last year’s Catalog Age Report survey mention Canada as the most attractive international market. Similar demographics, geographic proximity, underdevelopment in mail order and good response rates are just a few of the reasons expansion into Canada makes sense. Appearances can be deceiving as those who’ve tried and failed found out. The market is not as predictable as rumoured and Canadians are not necessarily waiting with baited breath for the next edition of your catalog to land in their mail box. So, get that stuff right before you worry about postal and fulfillment issues. But, inevitably, in any discussion about “doing Canada”, the subjects come up, and rightly so…what about Canada Post? what about fulfillment?

Since becoming a crown corporation, Canada Post has been busily living down its reputation for being difficult to deal with and going on prolonged strikes at most inopportune times. Part of the new and improved strategies that have gone along with a more

As of January this year, Canada Post has introduced changes to addressed admail (bulk third class) discount standards and rates as well as an address accuracy program. The address accuracy program called for 95% accuracy as of January 1, 1993 or, if eligible, a 3-month extension to March 30 in which to bring mailing up to the requirement. Failure to achieve the 95% level was to result in  a 5 cent per piece penalty charged on all invalid mail. Since the national average accuracy rate was less than 50% at the time, it goes without saying that implementation of the program has been less than flawless. It’s been said that the current situation in Canada is similar to that experienced when USPS took similar action several years ago. In arriving at the Zip+4 solution, USPS may have served as a model.  Meanwhile, mailers who ask for  further extensions are getting them , mailers who haven’t asked aren’t being penalized and additional charges are not being imposed!  The operative phrase is “stay tuned”.

Speaking of USPS, the introduction of Value Post seems an effort to capture market share of  mail that has been prepared then trucked across the border and dropped into the Canada Post mail stream. At least it’s a more attractive rate than the previous alternative–first class. But, at 26 cents per piece for letter mail, in most cases, large bulk mailers are still saving money in trucking to the border and getting a 23 cent pre-sort rate with Canada Post.

Prior to last July, consumers ordering from US mail order companies ciould avoid paying duties and taxes on a single order valued at less than $40. That cutoff has been dropped to $20, plus a $5 fee is payable to Canada Post for handling collection. Since the change, individual orders that are mailed to Canada are released through Customs if the value is under $20 and, if over $20, they are inspected as to the claimed value and duty payable. Customs assigns the duty, tax and GST charge, then it’s over to CPC who deliver to the customer upon receipt of the duty and tax charge plus their $5 handling fee. If the order can’t be delivered, a card is left and the customer has to go to a CPC facility to pick up and pay.

The change to has had a number of effects. According to Canada Post officials, a lot of parcels are being processed in ways designed to avoid charging customers the $5 handling fee. The most notable among these is a massive move to the non-resident commercial stream to import goods.

In some cases, US companies pick and pack individual orders in their own facility, then bulk ship them to a Canadian cusoms broker . In fact, a whole new business for customs brokers has sprung up from this.  The customs broker pays the duty and tax through an EDI system to Canada Custom s. Meanwhile, the US cataloguers have charged  the customer up front for duty and taxes based on the harmonized coding system and remit that payment to the broker. Once entered into the system, the parcel becoms a domestic parcel and can be delivered through CPC or courier without additional hassle on the customer’s part. Customers are spared paying the $5 handling fee. Brokerage and shipping charges are amortized over larger shipments and, due to the package volume, lower parcel post delivery rates can be had from Canada Post .

In other cases, orders are picked in bulk by the US company, cleared through Customs as a commercial shipment and delivered to a Canadian fulfillment service who sort, pack and drop to Canada Post for delivery. The problem here is the additional cost for double handling to pick and then, separately, sort and pack the orders. But, again, it gets around the $5 handling fee and has less impact on the US business.

The Non-Resident Customs Accounting Program is designed to allow eligible foreign companies to assume responsibility for reporting and accounting of goods into Canada and is liable for all duties and taxes owing on those goods. The objective of the program is to improve Customs processing efficiencies by removing high volume/low dollar value items from the commercial stream. The If implemented, this system would allow an eligible American cataloger doing business in Canada to collect applicable duty and tax as part of the customer payment and then remit payment to Canada Customs on a monthly basis. This is instead of the Canadian customer paying for the order, then paying Canada Post the applicable duty and tax plus the $5 handling fee.

Eligibility to participate in the program is based on meeting requirements such as:

having at least 500 shipments by mail or courier per year of goods valued at C$1,200 or less; posting security of not less than $5,000 and not more than $2 million based on the estimated duties and taxes of shipments for the three highest months of the previous year’s exports to Canada with Canada Customs; classify goods shipped to Canada according to the Canadian version of the Harmonized System and the Customs Tariff Act; agreement to the terms and conditions of the program such as stipulations about providing accounting information to Customs electronically on a monthly basis to the appropriate Customs region; calculating and declaring the value for duty based on the rate of currency exchange in effect on the date that the parcel is shipped to Canada; being liable for correct origin and tariff classification when goods arrive. In the interests of servicing Canadian customers in the same manner they would be dealing with a catalogue company domestically, this program appears to be a good idea. Because the program was announced a year ago and still not implemented, there’s some pressure coming from mail order companies. Meanwhile, Canadian companies are worried about the program increasing cross-border shopping. So, now it’s another political hot potato. As it is, implementation would involve a long, regulatory process that encourages public input, but, at this point, according to a government official, they are “reviewing the whole program”.

There’s another option. Local fulfillment within Canada. From the Canadian customer’s point of view the advantages are numerous–quicker turnaround times, no $5 handling fees, payment in Canadian dollars, transparent duty costs, normal taxes. Add to that local customer service assistance, hassle-free returns and the marketing advice and expertise available from the local supplier. On top of all that goes the positive impression that can be created among Canadians who see some effort to support, as opposed to only exploit, the local economy.

As in other areas of the catalog business, there are simply no great black-and-white answers to the cross-border dilemma. In the end, company variables such as product type, product mix, size of product line, total orders, average order value, percentage of returns, processing time, etc. will all contribute to the, ultimately, economic decision as to the best way to go.

The most responsible position for catalogers is to first settle on a Canadian strategy for your company and integrate that into your operational plan. At the very least, you should be fully exploring the options, keeping in mind, that, at the end of the day, isn’t delivering on customer expectations what  counts?

Charles de Gruchy remembers the way it was

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