U.S. e-tailers are increasingly looking north to Canada as a source for growth, and liking what they see – a country of more than 36 million consumers who have largely embraced eCommerce, and are big fans of U.S. brands and goods. But before attempting to penetrate the Canadian market, there are several factors that need to be considered, including the critical last mile. Many U.S. retailers make the assumption that selling and delivering to Canada is no different than transactions with American customers. This assumption is just plain wrong, and is often the reason why many businesses fail in Canada. This interview took place with Inbound Logistics in March 2018. Listen below!
Jeff – 0:00
You’re listening to the Inbound Logistics podcast with today’s guest, John Costanzo, President of Purolator International.
Jeff – 0:15
US retailers are increasingly looking north to Canada as a source for growth and liking what they see. A country of millions of consumers have largely embraced ecommerce, and are big fans of US brands and goods. But before attempting to penetrate the Canadian market, there are several factors that need to be considered. John Costanzo joins us to talk about the pitfalls that a US company should look for if they want to succeed in Canada.
Jeff – 00:42
Today, we’re pleased to have with us an expert in the US Canadian logistics process, Mr. John Costanzo, President of Purolator International, the US subsidiary of Canada’s largest integrated freight and parcel solutions company Purolator, Inc. He’ll be able to shed some light on some current trends in Canadian ecommerce expectations, especially with regard to critical Last Mile services. John Costanzo, thank you so much for taking some time to speak with the Inbound Logistics audience today.
John Costanzo – 1:03
Great, Jeff, thank you. Good to be with you today.
Jeff – 1:05
It’s great to have you. John, let’s start off with a quick overview of the Canadian market. What do US businesses need to know before they even think of selling to Canadian consumers?
John Costanzo – 1:15
Yeah, well, I think the first thing US companies that are looking to do business in Canada need to know- it’s a great opportunity. There are 36 million people living in Canada. It’s a large country, but it’s equal to California, which has 39 million citizens. So it’s a great market, great opportunity for anyone looking to market their product in Canada.
Jeff – 1:34
Is that right? Really 36 million plus people.
John Costanzo – 1:37
Yeah, it’s about 36 million people. I think the last count- large country, in terms of population, put it another way, as I mentioned, Canada is equal to the size of California, which is good for most US based companies. And not many think of Canada as being that large an opportunity. And the other thing I think that’s also to keep in mind is although it’s a large market, 80% of those people are within about 100 miles of the US border, so they’re easily accessible for most distribution centers down here in the States.
Jeff – 2:09
What about the state of e-commerce itself in Canada? Are there things that US businesses need to take into account before delving into that aspect of it?
John Costanzo – 2:16
Oh, yeah, there’s a few things to keep in mind about Canada, although it is, culturally and economically very closely tied to the United States, it is a bilingual country. So if you’re entering the market, marketing your services in terms of dual language platforms, it’s not only a good thing to do for marketing purposes, it was actually a requirement by provincial laws. So that’s one issue to keep in mind. The other is that it does have its own currency. It’s also called the dollar but it’s the Canadian dollar, so it has a different currency, and you have to work through that as sort of basic tenants before you begin to market. It also- you should be aware Canadians are very smart consumers, they do homework, and they like shopping online. Just last year, though, only about 46% of Canadian retailers had an online presence. So that provides a great opportunity, we think, for US to market their service to the Canadian consumer. They look, as a result of that, to other places, and of course, since the language is pretty much common, Canadians want to buy everything we buy. They look to the United States websites for opportunities to buy products they can easily access up in Canada.
Jeff – 3:34
But it hasn’t always been smooth sailing for US retailers, though, correct?
John Costanzo – 3:37
That’s true. Companies like J Crew actually had to issue an apology after Canadian consumers complained that they failed to offer the kind of merchandise they offered on their US websites and at similar price, they had to adjust and redirect their efforts. Zappos actually announced a few years ago, they pulled out of the Canadian market because they couldn’t they couldn’t obtain distribution agreements that would meet their customer experience requirements. And I think everyone’s fairly familiar with Target’s problems in entering the market and struggling a bit with inventory choices, particularly related to their apparel sales. It is more competition but I think probably US retailers here have a bit of a jump and an opportunity to succeed in the market.
Jeff – 4:28
And despite that, the top eight ecommerce sites in Canada are all subsidiaries of US companies, right?
John Costanzo – 4:33
That’s true. Amazon, Apple, eBay, Costco, etc. are significant players in the market here in the States as well as in Canada, but Canadian retailers are catching up pretty quickly. So anybody thinking about entering that market need to move quickly to ensure they get a share in that segment before the retailers in Canada. It’s going to be a tough market eventually- it is today. It’s a very competitive market, but it’s just going to get tougher over the next several years, so I think anyone thinking about entering that market, it’s probably a good window of opportunity now to make that move.
Jeff – 5:08
Now with a company like Amazon- has Amazon had the same transformative impact in Canada, as it has here in the US?
John Costanzo – 5:15
Absolutely. Amazon is invested heavily in Canada, and it’s certainly been growing very quickly over the last several years. Last year, I believe, I read recently that there was an 80% growth among Canadians on the Amazon Prime program. So that Amazon effect, as we call it here in the States, certainly is having its day in Canada as well.
Jeff – 5:36
Speaking of that Amazon effect, what do Canadians expect, actually, when it comes to their online transactions? Specifically, with regards to delivery and fulfillment?
John Costanzo – 5:45
Well, the big elephant in the room, of course, is free shipping. You know, we’ve done some surveying, and I’ve read other surveys recently that indicate that 64% of online shoppers in Canada say that they’ve abandoned an online cart because of additional shipping costs- about half or a little more than half. So they jumped to a competitor who offered free shipping. So free shipping is becoming a very important part of the experience in Canada, and there’s a bunch of reasons for that. And remember, there’s a border between us and Canada, although economic ties and regulatory regimes, so to speak, are pretty highly aligned. You know, it still is a separate country, there’s a border to cross and regulations to follow. And if you make a delivery to Canadian consumer from the States, and at the door, somebody is trying to collect duty and tax, that experience is not quite what they like, and I think you’d want to deliver. So that’s one of the elements that has to be factored into how a company enters the market in order to make sure that experience is almost identical- in fact, is identical to the experience a US consumer would experience.
Jeff – 6:55
Yeah, I believe you referenced a Deloitte holiday survey that kind of bolsters the information behind that.
John Costanzo – 7:02
Sure thing. Most consumers said that within three to four days was acceptable. However, just a year later, the overwhelming consensus by most consumers was that fast shipping meant two days. And we certainly see that from our clients here in the States: that looking for two days. And that includes, in many cases, the border experience, meaning moving it from the States into Canada and delivering. We do that quite a bit, we have the ability to deliver that quickly, we’ve got access to the greatest network, so we’ve been able to leverage that. That’s both Purolator’s network, of course, which is high speed and meets that need directly, and CanadaPost, for customers that are willing to wait a few more days for delivery and feel price is more important. We can leverage that.
Jeff – 7:52
Many of these fulfillment expectations fall into the category of Last Mile services. Can you talk about the uniquely Canadian factors that can affect the retailer’s ability to deliver on those last mile expectations?
John Costanzo – 8:05
Well, the first one, is one I just mentioned: it’s that if somebody shows up at the door and says, “Oh, by the way, you owe me this much for delivery for the clearance fees that we just incurred”, that’s not going to create a good experience. So building those costs into the shopping cart, for a retail or ecommerce company are absolutely critical for succeeding in the Canadian market. The end delivery piece in Canada sometimes is as much as 80% of the total cost of delivery of an item, so it is a critical part of the supply chain. The one thing you have to think about is Canada is larger in mass than the United States and 100 million people, though most of them are living along the border, there’s some pretty remote areas in Canada, and that aren’t as easy and are difficult, there are weather differences in the northern, and even on the eastern part of the country that can be challenging. So having a company that is more nationally oriented and has a footprint across that and understands how to deal with the market is pretty important. What we’ve seen over the last five years and maybe even less, three to five years, is our e-commerce customers and our retailers are looking at us as part of the customer experience, not just sort of the delivery company. And how we get a shipment to their customer and the interface we have with their IP system so that they can provide tracking and pre-notification advice is absolutely critical and reviewed as part of that experience. I can’t tell you the number of times we get a call from someone saying the information they received in the shopping cart, which obviously we don’t have anything to do with, but the consumer looks at us as part and parcel of the experience. They’ve purchased from e-commerce firm or retailer. So geography is very important as well, as I mentioned. I also think that customers are becoming more selective in where they want that package delivered. So many of our clients are opting,obviously, to deliver to their home. And remember, in Canada, home delivery is facilitated to a degree to a large degree by delivery to a community mailbox, which some people think it’s not so positive, but in Canada it’s pretty positive, and these mailboxes are accessible to 65% of the Canadian population; they tend to be like a parcel locker at the end of the neighborhood’s street and easily accessible, so the route to the home includes that benefit. When using a Canada Post service, for example, or our PurePost services, our Purolator team obviously delivers to the home as well and more efficiently, so that option is one of the options customers are opting for more often. But they also want to be able to pick that up in one of our retail centers or depots in Canada, or sometimes redirect shipments to their office. So selection of location is becoming another factor to keep in mind. And the ability to offer that and work with a logistics provider like ours that can offer that type of service.
Jeff – 11:27
What about expectations for specialized Last Mile services is that something that’s becoming increasingly more important?
John Costanzo – 11:33
Certainly, for companies that are providing consumer goods like washers, dryers, or items that need to be delivered to the home, unpacked, installed, or set up at least, those are becoming obviously much more important, and particularly companies- customers are no longer only buying that from their local retailer who does that delivery and installation, but they’re buying online and expect that experience to be identical. So working with a company that can help arrange those services, obviously very important, and what is sometimes referred to as white glove service is also becoming- it’s a pretty fast growing market. We have a sister company that provides those services for our customers within the group of companies, and those services are very, very important; typically for high tech fragile shipments that need to be handled with care.
Jeff – 12:28
Speaking of handling with care, what about the returns process? How important is that as part of the Last Mile expectation?
John Costanzo – 12:36
Yes, it used to be a question of “How do I handle or should I handle returns”? It’s no longer “should I”, it’s “how you have to” in e-commerce. The returns rate, unfortunately, is higher. People sometimes, as I think we all know, order a couple of items to see which one they like when it arrives at their door, and then it becomes a return. So we have to think through, and the other complication for returns for US companies that are serving the market is whether you plan to keep that return inventory in Canada, or bring it back down to the United States. And if so, it has to clear customs again coming down. So we’ve worked very hard with our e-commerce and retailers here in the states to make sure that all the mechanics of getting that shipment back in through US customers are set up so the returns clearance across the border is seamless, easy, and there’s no delay. We’ve had one client that came to us that wasn’t a customer yet who had over 100 skids of materials stuck in Canada needed help to get it out because they hadn’t thought through that, and so returns is critical. The other thing to think about is do you restock those items in Canada and re fulfill the orders from Canada? We certainly can help with that,but working with a logistics provider is also important because it’s expensive to bring those items back down if there’s no need to. So thinking through that is critical. The ease of returning an item as well. We have the Canada Post’s retail drop centers and facilities around the country, we have over 6,000, almost 7,000, centers around the country that Canadians can reach. In fact, I think every center we have is within three kilometers of a Canadian consumer so it makes that pretty convenient. That may not sound like a big issue, but if you’re in the middle of a pretty cold environment and you got to get a package back, that’s a pretty important consideration to think about on returns. Visibility is also important. It’s important for the consumer to be able to know where their packages are coming in for delivery. But for the retailer receiving returns, knowing where that return is, when it was received, is also critical. We’ve invested in technology that will interface with the inventory management that is for our clients and I think that’s also good to think about.
Jeff – 15:07
Yeah, it seems like US retailers have a lot at stake when it comes to getting that Last Mile component correct. Do you have any advice for helping them ensure some success in that area?
John Costanzo – 15:18
Yeah, it’s very important to think ahead of time about the market, just as you would any international market. It’s not as complex-language, for the most part, is not a major barrier, the regulatory regime between the States and Canada- which, by the way, are the two largest trading partners in the world. Everybody thinks China is the largest, but China is the largest, or the main country, we all import. Although the US for Canadians is still a significant import market, it’s also a big export market. So the trading block between the US and Canada is very strong. But thinking about all the issues ahead that we just talked about with clearance returns, providing the right experience in the Canadian market, I think is well worth the time and investment to do. It isn’t the 51st state, it’s another country, it’s important to prepare properly and get the advice of the logistics partner when you do
Jeff – 16:27
Where do the benefits of technology in that Last Mile process come in?
John Costanzo – 16:32
It’s as it is in the States, unless you want to set up a pretty significantly sized customer service function at high expense, you’re going to have to provide visibility into the movement of that package, and work with a company that’s investing technology like ours, to ensure that customers can access information on where their packages are at any given time, day or night in our tracking system. They can also contact us to redirect the delivery through our call centers in Canada, so it saves time and money. But I think more importantly, it’s all about that experience, and technology is the game changer today for anybody seriously thinking about entering this segment.
Jeff – 17:18
So to play off of that, with technology like drones and autonomous trucks and self-driving vehicles, Jeff Bezos has said that he imagines a world where delivery drones will be as common as today’s delivery trucks and vans. And when you take into account Canada’s geography and things like that, is that something that will be coming into place sooner rather than later?
John Costanzo – 17:38
Yeah, I’m certainly not going to question Jeff Bezos judgment and business acumen. I think he’s taught all of us what this business can be and is all about. I find it hard to believe there’ll be flying downtown Toronto or Manhattan anytime soon, but for some of the remote areas certainly is a lot of logic, particularly up in territories in Canada, where you could have a central hub or truck operating with drones, perhaps feeding into remote areas. And I see some of that- there’s testing, licenses for drones are much higher in Canada, because of that, is folks applying for that. Right. But I think we’ll see, I won’t probably be the best judge of where that will all end up. I think there’s more likelihood, though, in driverless vehicles. Main reason being, I’m sure you know that the driver shortage for long haul drivers is becoming pretty, pretty bad, and we’re gonna have to solve that problem. There’s also now increased reporting requirements for long haul drivers even short haul to log that. So we’re seeing more pressure on carriers to develop ways to reduce the cost of operating. So I think you’ll see that before drones, but I think maybe you should ask Mr. Bezos, his opinion, he seems pretty good about.
Jeff – 19:02
That’s probably sage advice. John, where can our audience go to learn more about Purolator capabilities?
John Costanzo – 19:07
Sure. So our website Purolatorinternational.com has got a lot of information on what we just discussed. We’re also on LinkedIn, Purolator International again, and Twitter and Facebook. We’re in all the usual places and pretty easily accessible.
Jeff – 19:25
Great John Castonzo. So much good information about US-Canadian logistics. Thank you so much for taking some time to talk with the Inbound Logistics audience.
John Costanzo – 19:33
Thank you, Jeff. I enjoyed it as well.
Speaker – 19:38
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Jeff – 20:12
The Inbound Logistics Podcast is a production of Inbound Logistics Magazine. For the most in depth information around logistics, transportation, and supply chain practices, get your FREE print and digital subscription at inboundlogistics.com/subscribe. Connect with us via LinkedIn, Twitter, Facebook and YouTube for the most current developments in the industry. If you’d like to leave us some feedback, or have a topic you’d like to see covered in a future episode, call our dialogue line at 888-878-3247 or leave us an email at podcast@inbound logistics.com. I’m your host Jeff. Thanks for listening, and we’ll catch you next time here on the inbound logistics podcast.
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