It took several years for the U.S., Mexico and Canada to agree on a replacement for the 30-year-old North American Free Trade Agreement. At last, though, the USMCA is in place. So what’s the difference between the two? Is USMCA nothing more than “USMCA 2.0”? On this episode, we delve into the details with Chris Antonelli, district manager-west with Purolator. He sketches a picture of the trade and shipping landscape between the U.S. and Canada, and details some key differences in the way in which those two countries are served by logistics providers. While they share a number of attributes on the trade and logistics front, it would be a mistake to overlook their differences. Listen in below!
A Conversation With Chris Antonelli
Bob Bowman – 0:00
This episode of the SupplyChainBrain podcast is supported by Purolator International, the leading expert on logistics and shipping between the US and Canada. Be sure and stick around after the discussion for a look at the company and what it offers to customers. But now, on to the podcast.
Bob Bowman – 0:30
The US Mexico Canada trade agreements supplants NAFTA as the treaty governing trade and shipping between the US and Canada. So how does it differ from its predecessor? Hi, everybody, I’m Bob Bowman, Editor In Chief of SupplyChainBrain, and this is a SupplyChainBrain podcast.
Bob Bowman – 0:58
After several years of dickering, the US, Canada and Mexico finally agreed on a replacement for the North American trade agreement. So just what is this new US MCA? Is it just NAFTA with a new name? Or does it alter the cross border landscape in some key ways. To talk about the new agreements’ impact on US-Canada shipping, I’m joined today by Chris Antonelli, District Manager West with Purolator. We’ll delve into the details of US MCA, as well as explore the ins and outs of shipping across the 49th parallel. While the US and Canada share many attributes when it comes to logistics requirements, it would be a mistake to overlook some key differences. So here is my conversation with Chris Antonelli.
Bob Bowman – 01:58
Chris Antonelli, welcome to the show.
Chris Antonelli – 2:01
Thank you. Great to be here.
Bob Bowman – 2:02
I want to talk about the new US MCA, the United States-Mexico-Canada agreement that replaced NAFTA. First of all, what do you see as the major differences between this new trade pact and the old one, with regard to shipping between the US and Canada?
Chris Antonelli – 2:17
Yeah, there’s a number of differences. They largely left the base of NAFTA and all of its good points in the agreement, but really updated some things outside of transportation, like technology. Back in 1993 when NAFTA was first written, there was not a lot of e-commerce or technical protection against -there wasn’t a need for the technical protection against the pirating. So a lot of those great things that were put into the new agreement, but as it relates to Canada, and specifically our industry, a lot of really great things have come into place. The increasing of de minimis levels for tax and duty benefits is really the largest benefit that we’ll see coming out of this.
Bob Bowman – 2:58
Let’s just quickly describe what you mean by de minimis levels. Those are the minimum levels for not having to pay taxes and duties. Is that correct?
Chris Antonelli – 3:04
Yeah, that’s exactly what it means. Prior to- well, I guess under NAFTA and what exists today, the de minimis for shipments entering into Canada is $20, and that was doubled up to $40, meaning tax free importation. The term de minimis means not relevant, so Canada probably would spend more money trying to collect taxes on such low value shipments, so that’s a huge benefit. Doubling the de minimis allows for importation of individual shipments without taxes. And then the threshold for duty free eligibility is $150. So that’s another benefit as well. So this impacts a lot of B2C shippers who are importing to individual consignees in Canada. So it’s a big benefit for a lot of companies who play in that space.
Bob Bowman – 3:49
So far, everything you’ve described sounds positive, compared with NAFTA. Are there any negative or any concerns that arise from this new agreement that weren’t present under NAFTA?
Chris Antonelli – 4:00
When you negotiate deals like this, each country negotiates for their benefit. So for example, the de minimis value for entering into the US is $800, versus the $40 I just described for Canada. So there’s a little bit of an imbalance there, and I know that retailers in Canada were relieved to hear that the value is $40 and $150, because it really protects the retail environment in Canada and any retailers that are selling goods within Canada. So that’s a benefit but the e-comm shippers, I think they would have wished that the de minimis value was raised even higher. So probably that’s the biggest discrepancy is the $800 versus the $40.
Bob Bowman – 4:37
And I would assume that’s probably the biggest change between 30 years ago and now- it’s just the enormous amount of e-commerce flowing between the two countries. Does this facilitate and recognize that boom in commerce and make it easier to achieve such shipments?
Chris Antonelli – 4:53
Yeah, for sure. It certainly addresses that as companies continue to offer free shipping based cart value size that allows them to be more competitive in the e-commerce space for those companies. So by raising that and allowing for the taxes and the duty free to be waived certainly makes us companies more competitive when selling to consignees in Canada.
Bob Bowman – 5:15
These days also with e-commerce, everyone is obsessed with the notion of visibility. That buyers of products over the internet demand to know where their products are, when they’re going to arrive, and that kind of stuff. I am wondering, what is the situation there with regard to visibility across border freight of cross border packages now? Is it pretty good or are there still some gaps to be addressed?
Chris Antonelli – 5:38
Yeah, it depends on the provider for Purolator. Our business is USA to Canada here in the US, that’s obviously something that we addressed early on, and one of the first requirements from all of our customers is visibility, peace. The border is there, and working with a good customs broker is pretty critical and helping the goods clear, timely, ensuring the information sent to Canada customs for clearance, even before the truck departs the facility. So that’s kind of the key to it. But also the visibility piece, as you mentioned. For our customers, it’s almost treated as a domestic US shipment- the tracking number is applied, that information is sent to a website, and almost immediately the customer has visibility from pickup, crossing the border and into Canada and ultimately to the customer. So it’s a huge deal for us, and we feel we’ve addressed it quite nicely.
Bob Bowman – 6:25
Huge deal for you. But of course in the world of e-commerce, it is the retailer that gets blamed when something doesn’t show up on time or something gets lost. Nobody goes back and says “Oh, it’s the fault of the carrier”, the retailer takes the hit and may lose customers as a result, so it seems essential that it be pretty much as good over the border as it is domestically, right?
Chris Antonelli – 6:44
It’s important to provide consistent service, right? And Canadians understand that it may take a little longer knowing that they’re ordering from a US ecomm retailer. Providing that consistent service, if it’s a two day delivery or a three day delivery, as long as you’re hitting those metrics consistently, then we find that customers can advise their customers even on their website, rather than give the 7 to 14 day, it’ll get there when it gets there, turn weekend, provide our customers with exact transit times and allow them to set the right expectations with their customers.
Bob Bowman – 7:16
What is the situation at the border right now? I know this doesn’t necessarily affect freight moving across it, but the border between the US and Canada is essentially almost or are absolutely shut down for travel right now. Is that in any way affecting the movement of packages?
Chris Antonelli – 7:33
It’s not impacting commercial traffic. And in fact, the shutdown is mostly for passengers crossing the border; individuals. So what we’re seeing is actually an improved experience at the border with our trucks and most other companies as well. The commercial traffic is flowing quite nicely, and there aren’t as many backups at the border prior to COVID-19. So we’re finding that it’s actually helping us and has improved our ability to cross the border.
Bob Bowman – 7:58
Yeah, certainly less congestion. Definitely, that’s just a situation. Things are different in Canada, just generally, in terms of serving that country versus serving the United States. You have a gigantic country, with a relatively small population clustered in just a few urban centers. And then you have the challenge of reaching very remote outlying areas. Talk a little bit about what are the major challenges of serving Canada, especially for shipments from the United States.
Chris Antonelli – 8:24
One is the border and again, getting a good customs broker to help with that customs clearance and ensure that that goes smoothly is really critical. And yes, Canada is a large country and collecting a service provider that has national coverage is pretty critical. As you mentioned, the cluster of people are in the Toronto, Montreal, and then there’s a huge gap before you get to Western Canada, Calgary, Edmonton, Vancouver, are the other major markets as well. So having that strong presence in those markets is critical, but also being able to serve those rural locations, which is certainly more of a challenge than a Toronto or Montreal area. So people who live in those areas understand that they live in remote locations and are usually a little bit more patient and understanding. It may take a little bit longer to get that delivery. As long as we understand that and set the correct expectation for the shipper in the US, that helps ease that issue.
Bob Bowman – 9:18
What about the respective customs policies of the two countries? Is it equally easy to move stuff north as it is south?
Chris Antonelli – 9:24
Yeah. The US and Canada have traditionally worked really well on both sides of the border with understanding the potential challenges of dealing with customs and so that the two agencies work really closely and typically, when one puts an initiative, there’s discussion between the two and shortly thereafter, the other typically follows. There was an initiative recently put in place called the Single Window initiative, which allows for kind of one transmission of a customs file to help clear all goods and dealing with any other departmental agencies within the Customs Organization, for example The FDA and Health Canada, allowing one file transmission.Previous to the single window initiative, you had to file your your customs transmission with your broker into Canada customs, but also get approval from these other government agencies, and sometimes that slowed down the customs clearance. Now it’s one transmission and the departments are working closely together to allow for good commercial clearances.
Bob Bowman – 10:23
It’s my understanding that in the United States, Single Window gets you one filing that goes out to something like 48 separate agencies? Is that a similar situation in Canada, and were the two single window initiatives implemented simultaneously?
Chris Antonelli – 10:37
They were. Typically for our customers, we’re working with three or four. There are other government agencies that cover other areas, but for our customers, and for commercial traffic, it’s typically three or four that we had worked with before. So it does certainly help kind of minimize the administrative red tape that you have to go through.
Bob Bowman – 10:54
What would you describe if in fact, you can identify a single biggest obstacle or challenge that is present in shipping between the US and Canada? What might that be?
Chris Antonelli – 11:05
Yeah, I think it’s ensuring that customs clearance is set up, and that the data that we’re using to clear goods is accurate. What we find with a lot of our customers in the US, they set up the Harmonized Tariff codes as part of the transmission to go to Canada customs, and a lot of customers make the mistake of assuming that the HTS codes are the same for Canada in the US. So we have to coach our customers, and again, a good customs broker will help you with this. To understand the differences, it’s a 10 digit code, and the first six digits are common across the world, but the last four are specific to each country. So just ensuring that an understanding of that, and again, working with your broker to find the same product to different codes and ensuring that the Canadian code is used as opposed to the US code. If not, then that causes issues at the border and slows things down, causes re-entry. So a lot of extra work that goes into it if it’s not done correctly.
Bob Bowman – 12:00
The coronavirus pandemic has, of course, affected countries all over the world, including the US and Canada, and it has triggered what we now fear is going to be a very serious and very deep economic recession. As to how long it’s going to last, nobody knows, but we are headed into some turbulent waters on that front. How do you think that will affect the ability going forward of shipping between the US and Canada with regard to available capacity, if companies of providers go out of business, if they’re unable to support such movements going forward? Do you have any concerns about that in the long run?
Chris Antonelli – 12:34
Yeah, I guess even before COVID, there’s always been a concern about capacity, especially with trucking companies. The job of a truck driver isn’t a glamorous one, and even before COVID, we saw capacity challenges. And really, it was a pretty big concern in our industry. And I think that- I know that’s going to impact going forward, knowing that some of the smaller companies may close their doors, and that’ll impact our industry kind of upstream.
Bob Bowman – 12:59
But you don’t see any permanent distribution pattern changes at all? You think they will continue to say- there are changes we see in the size of distribution centers being located in urban centers, and for reasons have nothing to do necessarily with the economic situation now, but do you see any changes in the supply chain and with regard to where distribution is happening, the size of distribution centers, where you have to route things in order to get from point A to point B? Are there any big changes coming down the pike that you can see?
Chris Antonelli – 13:26
Yeah, it’s tough to forecast in this environment. I don’t really see any change in that regard. Flexibility is key, and being able to shift based on the situation and on demand is pretty critical to keeping the supply chain going. Long term, I really don’t see a ton of challenge in terms of shifts and where distribution centers are, for example. So you may see if a US entity has two distribution centers in the US to kind of cover east and west and one of those, or both, cover distribution in Canada, I think that’s kind of a more of a natural progression. A company may have two facilities in the US, and they have a facility in Toronto, for example, to cover Canada, you may see a removal of the facility in Toronto, for example, and ship out of the US. So that’s been happening over the last 15-20 years anyways, but you may see a pick up on that in the near future.
Bob Bowman -14:31
Chris, tell me about the history of Purolator.
Chris Antonelli – 14:34
Purolator now is 60 years in the business, mainly in Canada. We’re the most recognized brand in Canada, so when customers choose to use Purolator, they’re typically working with a company that has expertise in Canada. Our US division where Purolator International, for a wholly owned subsidiary of Purolator Inc., so our business in the US is to work with customers in the US to distribute their product to Canada. We’ve got 30 gateways across the country, pretty much in every major market that you would think of. Working with medium to large sized companies to help them with smooth transition into Canada and delivery throughout Canada.
Bob Bowman – 15:11
In those decades of existence, how has Purolator changed in terms of its service offering, and in adjusting to the types of services that are required?
Chris Antonelli – 15:21
In the beginning years Purolator was known, and up until probably the last 15 years, pretty much a business to business type delivery company. And obviously, with the onset of e-commerce, our focus has shifted to help do deliveries at home, which is a different type of delivery for our company, but we’ve adjusted quite nicely. Also, Purolator is owned by Canada Post. So Canada Post has a further touch point to help us deliver to rural communities, we’ve got a product that we call PuroPost, that’s a good mix of kind of speed, and the bells and whistles of the courier delivery, including visibility, but handoff to CanadaPost for the final mile delivery to deliver to PO boxes, to deliver to the community mailboxes, and to deliver to the rural areas. So our B2C business has grown, and with COVID, it is taking it to another level where both Purolator Courier and CanadaPost have kind of stepped up to the challenge to do that home delivery, which is now more critical than ever,
Bob Bowman – 16:18
How has Purolator embraced technology over the years?
Chris Antonelli – 16:21
We mentioned it earlier, the fact that visibility is not a nice-to-have, it’s a must-have. So the technology behind that, especially if we’ve got two different types of products- and we actually also have an LTL service as well, which is a very similar experience as our courier and our Canada Post service. So allowing the technology to first of all help with the customs clearance. Back in the day, commercial invoices and Canada customs invoices were kind of the norm and it was print the paper, give it to the driver, the driver presents it at the border. Now everything is done electronically, as demanded by our customs agencies. So that’s a good thing because it helps smooth the transmission and it helps ease the transmission of the customs data to the broker. Again, on the visibility piece, that’s critical and that’s a must-have, so we have got to keep up with all of the latest technologies. We’re going down the path of kind of providing that Uber experience where we send a truck into a major urban center full of packages and allow for a notification on a customer’s cell phone to understand where that truck is, and when it’s going to be in their area. So they can come down from their apartment building and go pick up their package as opposed to having the driver get out of this truck and go into the building. So allowing that kind of ease of receipt of the goods is something I think that we’ve experimented in Canada and that we’ve kind of rolled out over the last couple of years, mostly during Christmas time. But I think now it’s going to be rolled out even further to help with the convenience for the customer.
Bob Bowman – 17:51
Certainly does seem like that might be the future of this business. Chris Antonelli, thank you so much for being with us to talk about the US-Mexico-Canada agreement`
how it differs from NAFTA, the whole landscape of shipping between the US and Canada, and also a little bit about Purolator itself. Thank you very much for being with us today.
Chris Antonelli – 18:08
Oh, my pleasure. Thank you.
Bob Bowman – 18:18
That was my conversation with Chris Antonelli of Purolator, talking about the new US-Mexico-Canada agreement. Our thanks to Purolator for sponsoring this episode. We’re online at www.supplychainbrain.com. Where we post a new episode of this podcast for streaming and downloading every Friday. And also read my Think Tank blog, watch thousands of videos and access all of our other content, including the digital edition of our magazine. Look for us on Facebook and LinkedIn and follow us on Twitter at @SCbrain and also download or subscribe to the podcast on Apple podcasts. Got any comments or suggestions on this or any episode? Email me at rBowman@supplychainbrain.com. Stay well and see you next time.