Canadian businesses that rely on tariff-free access to the U.S. market can breathe a sigh of relief. The newly proposed Canada-United States-Mexico Agreement (CUSMA) will continue to give exporters access to over 400 million customers in the U.S. and Mexico without interruption.
As with all negotiations, there was give and take. One of the areas where Canada agreed to provide greater access to this market was through changes to the de minimis thresholds for taxes and duties on imports into Canada. Canadian-based e-commerce businesses and other small and medium-sized firms with customers in the U.S. need to understand these changes and how they may impact their competitiveness on price around shipping costs.
De minimis is a Latin term that means a negligible amount. When we refer to the de minimis level under the proposed CUSMA, we’re talking about the value of shipments below a value deemed negligible. This makes them exempt from duty or taxes.
Canada’s current de minimis level is CDN$20. Right now, packages with a value of $19.99 or less imported from another country can enter Canada without being subject to sales tax or duty. The current $20 rate is one of the lowest in the world. By comparison, the de minimis rate in the U.S. was raised to USD$800 from USD$200 in 2016.
Under the new CUSMA, Canada has agreed to increase the de minimis exemption for express courier shipments to CDN$150 for duties and CDN$40 for taxes. This applies to shipments coming from any country in the world, not just the U.S. or Mexico.
This means, when the new trade deal is ratified, an express shipment valued at CDN$149 can enter Canada duty free but will be subject to the sales tax of the province that imports. A package valued at CDN$39 will be exempt from both duty and sales tax.
Canada’s low de minimis rates have historically given Canadian e-commerce businesses a price advantage over their international competitors when selling to Canadian customers. Historically, Canadian customers making an online purchase of more than $20 might be thinking twice before buying from a business outside of Canada when they considered the added taxes and shipping fees. The new trade deal erodes that advantage domestically. At the same time, more competition here at home offers greater incentive for Canadian firms to sell to consumers outside of Canada.
The right shipping strategy can make international sales easier
At eShipper, we help e-commerce providers and other small and medium-sized enterprises take advantage of highly competitive shipping rates, offering access to shipping and fulfillment solutions that may otherwise be out of reach for smaller firms. We offer this service to businesses across the world, including in the U.S. and Canada. Changes to the de minimis threshold in Canada under the CUSMA will most likely encourage more competition from the United States. We anticipate our U.S. operations will see increased demand from U.S. companies looking for the most cost-effective ways to ship into Canada and take advantage of the higher de minimis threshold.
For Canadian e-commerce businesses to remain competitive, they will need to tighten their shoelaces. As a Canadian business you will need to think creatively about where you can be cost competitive and save your customers money to ensure they purchase locally, rather than import from the rest of the world. Free shipping promotions are a common tactic, but can you afford to absorb that hit to your bottom line?
Canadian e-commerce businesses worried about increased competition for domestic customers should consider looking beyond our borders for growth. Over 300 million people over the border in the U.S. are primed and ready to purchase your products. The promise of a new trade deal means continued stability in North American trade.
If you’re ready to look to the U.S. for customers, consider including these elements as part of your shipping and fulfillment to the U.S. to be cost competitive:
1. Abandon one-at-a-time thinking
A common practice for many Canadian businesses with customers in the U.S. is to ship all their products from Canada or through one induction point in the U.S., such as Buffalo, and let FedEx or the United States Postal Service take it from there, fulfilling orders one at a time. This leads to a range of shipping costs for customers in different parts of the country, depending on the final destination.
A more creative and competitive solution is to ship multiple units to specific states. This allows you to keep your shipping rate localized in that state or regional postal zone. For example, it may cost $30-$40 more initially to ship 500 units of your California-destined product to a regional fulfillment centre in Los Angeles instead of Buffalo. But you avoid paying additional costs to ship from one part of the U.S. to another. Having regional fulfilment options, means you may be able to pass on more savings per unit in shipping costs to your customers in the Los Angeles postal zone as a result. As with marketing, when it comes to your shipping strategy, it’s best to think of the U.S. as a series of regional markets, rather than treating it as a single, large market.
2. Pay attention to how you scale your business
Your e-commerce business might be growing quickly, from 10 parcels a day to 50 or more in a short time. The last thing you want to do is invest in warehouse or storage space, resources and training staff to fulfill your orders on a day-to-day basis, just to keep up with increased demand.
Instead, look for partners that can help you outsource aspects of your business that may lie outside your core competencies. That includes shipping and fulfillment. Leveraging these expert partners means you can concentrate on the things you’re good at, like product development or sales and marketing.
3. Work with partners that can give you an advantage
Most small to medium sized e-commerce enterprises simply don’t have the volume of shipments necessary to access preferred shipping rates that would create a price advantage for customers.
Look for partners that can provide you with creative solutions that may not be available to you as a smaller enterprise. This can include solutions such as shipping at an ounce rate instead of flat one-pound rate, shopping cart integration built into fulfillment solutions and other features that can help you reduce soft costs.
With the right shipping strategy in place, the new CUSMA de minimis thresholds can be an opportunity, rather than a burden, to your bottom line.
