Should You Expand Fulfillment Operations into Canada?
Knowing when to expand your warehouse and fulfillment footprint to Canada is a choice that must be weighed carefully. While fulfillment centers throughout the United States offer convenience and affordable rates and can ship internationally, sometimes expansion into other countries such as Canada make more sense for your business. But how do you know if you should expand to Canada? There are many factors that must be weighed into your decision. Here, we break down just a few considerations you should make when making your choice.
At the end of the day, it boils down to shipping costs and shipping times. Shipping orders one-by-one from the US to Canada will potentially cost more per shipment and could take more transit time per order. But your monthly order volume will impact the point at which it makes sense to carry additional inventory in Canada rather than continue to ship orders from a US based fulfillment center.
International Shipping Costs
The first thing you’ll want to consider when it comes to expanding into Canada are international shipping costs. Remember that Canada uses a different currency than the United States, so make sure you have the proper conversion rates when making your budget.
Furthermore, you’ll have to account for the differences in shipping costs in Canada versus the US. There are a number of different Canadian shipping carriers and options, so familiarizing yourself with those options and obtaining sample price quotes will help with your analysis. Many websites offer Canadian shipping calculators so you can see the pricing for shipping of orders.
Also, keep in mind that you may incur other fees such as customs fees, clearance fees, and import/export duties. These must be calculated on a per order basis when shipping orders from a US based fulfillment center, and they can be compared to the costs of shipping a bulk order of inventory to Canada for fulfillment of orders by a Canadian fulfillment center.
According to the Canada Border Services Agency, “any item mailed to Canada may be subject to the Goods and Services Tax (GST) and/or duty.” This tax of five-percent pertains to goods imported into Canada and is based on the value of the goods in Canadian currency. These fees may be subject to change depending on the goods you are importing and the country of origin. Items mailed into Canada are exempt from these fees if they are worth CAN $20 or less, or if they are considered gifts from friends or family and worth less than CAN $60.
Some provinces collect an HST (harmonized sales tax) of 13 percent, so check with the local municipality where you plan to host your fulfillment to see if this will apply to you.
Customs clearance fees cover the process of preparing and submitting the customs paperwork. Clearance fees are not included in shipments sent to Canada with shippers such as UPS Ground or FedEx. If you are considered a higher volume shipper, you can negotiate a discounted fee, however, some ground shipments accrue a customs entry preparation fee which is assessed upon the shipment’s “value for duty.” This fee begins at around seven dollars and increases up to 20 percent of the shipment’s total value.
Import / Export Duties
According to Canada.ca, most goods that are imported to Canada will accrue the federal GST. This is “five-percent of the duty paid value of the shipment.” The fee must be collected at the border at the time of entry unless the goods are being shipped to a bonded warehouse. If the planned destination is a bonded warehouse, the GST is due when the goods leave the warehouse and are able to be sold in Canada.
For export duties, any goods which are eligible for the GST/HST may be untaxed if being exported from Canada. These are considered “zero-rated” goods. There are many criteria that must be met to qualify for this exemption, so check with a reputable source such as Canada.ca to see if your merchandise qualifies.
The good news is depending on where in Canada you host your fulfillment services, these fees may not make much of an impact on your overall cost.
International Delivery Times
Another consideration when deciding to expand your fulfillment center to Canada is delivery times. Because goods to Canada must go through customs, there could be delays in delivery times crossing the border. This significantly impacts individual orders that are sent from the US and can cause intense friction with customers as their orders are delayed during this process. There can also be delays as shipped goods switch postal services from Canada Post to the United States Postal Service or vice versa so take that into consideration as well. On the other hand, if you ship a bulk inventory of goods into a Canadian warehouse, outbound orders to individual customers won’t have to clear customs, and therefore will arrive much quicker, increasing customer satisfaction.
The Best Fulfillment Centers in Canada
The next question you must ask yourself when considering hosting your fulfillment center in Canada is, ‘where are the best fulfillment centers in Canada for me, and how do you find them?’
The answer is not so simple, as you must do your homework here. Canada is a vast country with multiple population centers spread throughout a large area. Where your product is produced and where it will enter Canada will also dictate any preferred warehouse locations. Furthermore, the location of your customers will have a large impact on this decision as well. Using any sales data that you have from previous sales will help narrow down the largest markets for your products.
Major Markets in Canada
The most significant markets in Canada include major cities like Vancouver, British Columbia, Alberta, Montreal, Quebec, Mississauga, and Toronto, Ontario. Depending on how close your fulfillment center is to a major city may affect your warehousing rates, so if you are budget conscious, consider hosting a bit outside the major markets. Furthermore, weighing the costs and benefits of bringing product into a larger population area such at Toronto (which may cost more in terms of inbound freight) versus bringing product into a closer port such as Vancouver (but potentially incurring higher outbound shipping costs per order to other areas of Canada) is critical in this analysis.
Best Fulfillment Centers in Toronto and the Greater Toronto Area (GTA)
Many businesses have found great savings and success expanding their fulfillment into Toronto, Ontario, or the Greater Toronto area. The GTA offers cost savings, as well as streamlined customs processes at the United States / Ontario Border. Furthermore, the population base is higher in this area, and it is close in proximity to other major Canadian markets such as Quebec and Ottawa. And on top of this, there are an abundance of high quality Toronto area fulfillment centers.
The major metropolitan areas in the GTA include the following:
Mississauga is a suburb of Toronto situated along Lake Ontario. The city offers the benefits of being close to Toronto but may offer lower costs on warehousing and fulfillment due to its location.
Under an hour’s drive to Toronto is the city of Hamilton, Ontario. Like Mississauga, Hamilton benefits from its proximity to Toronto without the big city overhead.
Toronto is the largest city in Ontario and the largest in the entire country of Canada, so fulfillment centers are not only abundant in Toronto and the GTA, they offer the benefit of strategic location with access to roads, air, and the Port of Toronto, a gateway to the St. Lawrence Seaway and the rest of the world.
Making Your Best Decision for a Canadian Warehousing and Fulfillment Location
It makes sense to start by analyzing your supply chain and to discover where most of your product is flowing to. The key to a successful and efficient supply chain is to consider the following questions:
- Where is your port of entry?
- Where are your customers mainly located?
- Does your volume qualify you to have multiple locations?
Analysis of the Canadian Consumer
The location of Canadian customers falls roughly in line with a provincial population map. With that in mind, it is generally safe to assume that 38.4% of Canadians are in Ontario, 23.6% in Quebec, 13.1% in British Columbia, 10.9% in Alberta, 3.6% in Manitoba, and 3.1% in Saskatchewan. These provinces make up almost 93% of the Canadian population. All other provinces are under 3% or less.
The interesting thing about the map below is that it does not give you an idea of where people live within the provinces. 90% of all Canadians live within 100km (62 miles) of the US border. So the map below may look daunting, but the vast majority of Canadians are actually very close by.
The greyed out area makes up 0.8% of the Canadian population – not including polar bears.
Considering the above information, we can see that the 4 most likely locations to consider in terms of sheer population size are Ontario, Quebec, British Columbia, and Alberta.
The two key distribution hubs are Ontario and British Columbia as most consumer products come through Vancouver’s port, and the majority of perishable and automotive shipments pass through Ontario by road or rail. Ontario and Quebec make up 62% of Canada’s population, and this number is growing every year. Most major companies distribute their products from either Ontario or Quebec because the largest cost is the end delivery either to distribution centre, store, or the customer’s home address. If 62% of your customers are in one area, it makes sense to warehouse your product in close proximity. Furthermore, 53% of Ontarians live in the Greater Toronto Area, or within 1 hour’s drive of Toronto.
Reducing Shipping Costs & Delivery Times
If product arrival is not time sensitive, it may be an option to utilize rail as a means to move product from Vancouver to Ontario or Quebec. Shipping by rail can save companies as much as 33% on shipping costs. However, if getting your product to your warehouse is a priority it makes sense to utilize air freight, or a reliable large carrier such as Challenger Motor Freight. Full truckload shipments from Vancouver to Toronto generally take 4-5 days of driving (weather dependent) for a single driver, and that time can be cut in half by team drivers.
Here’s an example to show why it often makes sense to warehouse your product in Ontario:
This is not to say never to warehouse product in Vancouver. If a customer has enough order volume in British Columbia or Alberta, it may make sense to warehouse some product there rather than sending it all the way to Ontario, only to ship it back out to West. That would be expensive and wasteful.
Reducing Shipping Costs & Delivery Times
If you’re shipping from China to Vancouver and have customers all across Canada, one alternative is to warehouse some product in Vancouver area, and to move the rest to the Greater Toronto Area. This is a broad and general statement, but at the end of the day it usually holds true. The key is to look at where your shipments are entering Canada, and to analyse your order destinations within Canada. Keeping the distance and time short on the final delivery is very important.
Expanding your fulfillment services to Canada can be a financially rewarding move for your business. If you are considering expanding your fulfillment services to Canada, remember to consider all fees and duties on your merchandise, and remember to select a location that will allow your merchandise to reach its intended destination without significant delay.
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