E-COMMERCE GUIDE Canada 2020 - Switzerland Global Enterprise
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Canada 2020 E-COMMERCE GUIDE OFFICIAL PROGRAM
E-COMMERCE GUIDE
CANADA 2020
Date:
Language:
Number of pages: 10
Author: SBH CANADA
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DISCLAIMER
The information in this report were gathered and researched from sources
believed to be reliable and are written in good faith. Switzerland Global
Enterprise and its network partners cannot be held liable for data, which might
not be complete, accurate or up-to-date; nor for data which are from internet
pages/sources on which Switzerland Global Enterprise or its network partners
do not have any influence. The information in this report do not have a legal or
juridical character, unless specifically noted.
Contents
1. FOREWORD____________________________5
2. EXECUTIVE SUMMARY __________________7
3. MARKET OVERVIEW ____________________8
3.1. Buyer behaviour _______________________ 8
3.2. Future direction _______________________ 9
4. LOGISTICS____________________________10
4.1. Shipping ___________________________ 10
4.2. Distribution _________________________ 10
4.2.1. Documentation required for importing into Canada
__________________________________ 11
4.3. Customs regulations and taxes _____________ 11
4.3.1. Calculation of duties and taxes _____________ 11
4.3.2. Incoterms considerations and pricing strategy __ 12
4.3.3. Non-Resident Importer _________________ 12
4.3.4. Risk Management and Cargo Insurance ______ 12
4.3.5. Import Permits _______________________ 12
4.3.6. Food Imports ________________________ 12
4.3.7. Canadian Standards and Consumer Protection _ 13
4.3.8. Canada-EFTA Free trade Agreement (CEFTA) __ 13
4.3.9. Fulfilment Centers, Inventory and Returns ____ 13
4.3.10. US Market Access _____________________ 13
5. NESPRESSO CASE STUDY ______________15
5.1. The Canadian online experience ___________ 15
List of tables
1. Foreword 1. Foreword Each year, Canada Post, the Crown Corporation which functions as the primary postal operator in Canada, publishes a report on the state of e-commerce in Canada. Their most recent research showed that eight out of ten Canadians shopped online in 2019, and spending was estimated at $43 billion in 2019 – rising to almost $80 billion by 2024 ($1 CDN = 0.7 CHF) Thirty-two per cent of Canadian online shoppers say that they planned to buy more online in the coming year, and this was before the onset of the COVID-19 pandemic and subsequent lockdowns that forced Canadians to largely move their shopping experience from bricks and mortar to online. With that in mind, we wish to provide some valuable information to Swiss firms that have an interest in the Canadian e- commerce market in the form of some key guidelines for setting up an online operation. These guidelines will cover the following key topics: market overview; logistics (shipping and distribution) aspects of selling online to Canadian customers; and customs regulations and taxes for online sales and Canada. A case study looking at the online experience of Nespresso in Canada concludes this report.
1. Foreword EROS ROBBIANI Head of Swiss Business Hub Canada Swiss Business Hub Canada 1572, Avenue Docteur-Penfield Montréal QC Mail eros.robbiani@eda.admin.ch Phone +41 58 463 0736 Phone +1 514 657 8191 s-ge.com E-COMMERCE GUIDE 6
2. Executive Summary 2. Executive Summary Accelerated by the rising number of internet connections, e-commerce retailing in Canada has experienced strong growth, increasing at an annualized rate of 12.8% over the five years to 2019. E-commerce sales grew by 7.9% in 2019 alone as more Canadians, persuaded by increasingly easy-to-use and secure websites, shifted their shopping online. The exceptional rate of growth in this industry is aided in part by the increasing internet traffic volume (e.g. number of fixed broadband and mobile connections), disposable income and reduced unemployment. As internet traffic increases and online shopping becomes more popular, retailers are expanding the product range that they carry to include common household goods, such as grocery and cleaning products. Hard-to-find niche products or products that are no longer being produced have also found a place in online markets because retailers do not have to contend with limited shelf space. As product ranges have grown, so has the number of industry operators. While the industry attracted many new entrants, Amazon Canada has gained a dominant market share. In 2013, the company launched its popular Amazon Prime service in Canada, and has expanded in subsequent years to now dominate the industry. The membership service provides free two-day shipping, encouraging consumers to use Amazon over other e-commerce sites. Over the next four years, to 2024, revenue growth was initially forecast to slow down, but remain strong. However, with the onset of the Coronavirus pandemic, online purchasing is expected to continue its inexorable rise. E-COMMERCE GUIDE 7
3. Market overview
3. Market overview
Canadians are shopping online like never before. The Canadian internet and e-commerce landscape is comparable in quality to
the United States: even though it only has 33 million internet users, a fraction of the US digital population, the affluence of
Canadians, and well-spread habits of using online shopping make it a sophisticated market. Canadians use both computers and
mobile devices to shop online for a wide array of goods and services.
One of the main reasons why strong growth is still expected in Canada is that, currently, 60% of all online purchases in Canada
are made by just 18% of online shoppers. As more Canadians become accustomed to making their purchases online and with
the continued democratization of internet access, a greater number of Canadians are expected to increase their online shopping
frequency.
Since the Canadian market is technologically advanced and solvable, it is no surprise that the online competition is fierce.
Given the market size advantage of American companies, Canadian e-commerce is dominated by US platforms operating
through multiple segments, especially Amazon, which is by far the largest e-commerce player in Canada.
The evolution of online shopping in Canada has resulted in more diversity in sales channels. Consumers are buying from online
marketplaces, social media, direct from the manufacturer or wholesaler, and subscriptions. With so many potential points of
contact, it’s important to make every channel work as effectively as possible. An integrated, carefully sequenced and balanced
marketing mix is the most effective way to reach audiences.
3.1. BUYER BEHAVIOUR
As Canadian e-commerce expands, the factors that influence buyer behavior are changing. What used to differentiate retailers
from their competitors, like free shipping or fast check-out, are now necessities. A 2019 Canada Post Survey of 5000 Canadians
found the following reasons why Canadians decided to purchase from an online retailer.
Source: The 2020 Canadian e-commerce report, Canada Post
E-COMMERCE GUIDE
83. Market overview
What do Canadians buy online? In short, almost everything! Of the 5000 Canadians surveyed by Canada Post,
the following product categories were most popular:
Source: The 2020 Canadian e-commerce report, Canada Post
3.2. FUTURE DIRECTION
Our world has been fundamentally changed with the onset of the Coronavirus pandemic and retailing has been one of the
industries hardest hit by the crisis. A recent survey by Accenture has found that COVID-19 is permanently changing consumer
behavior in Canada. With 83% of Canadian consumers now limiting the number of times they shop, traditional bricks and
mortar retailers, with a significant fixed cost base, have suffered greatly and several historic retail brands in Canada have filed
for bankruptcy protection. Those retailers with little or no online sales channels have been hardest hit. The survey revealed that
online shopping today accounted for one-third of respondents’ purchases, and that the number was expected to rise to 40%
over the next year, a large increase in such a short period of time.
The key question for many market analysts has become which retailers will make a come-back and which will not survive.
According to HRC Advisory, a retail consulting firm, a proactive approach to mitigate the new environment will be essential to
survival. Central to this will be the need to invest heavily in digital and omni-channel capabilities to adapt to the acceleration in
the shift to e-commerce from bricks and mortar shopping. However, survival will not be just about the transactional shift to
online and delivery but will have to include investing in engagement and the creation of an online experience beyond just the
transactional. Customer retention will be just as important, if not more important, than customer acquisition. A study done in
May 2020 by the Nielsen Group found that the pandemic has amplified brand disloyalty as consumers are more willing than
ever before to try out new brands and products. Companies that can leverage technologies—by meeting changing consumer
demands online, enabling seamless interactions through direct-to-consumer offerings and enhancing consumer experience
with augmented and virtual realities— will have a better opportunity to earn consumer loyalty.
E-COMMERCE GUIDE
94. Logistics
4. Logistics
4.1. SHIPPING
For shipping products to Canada there are direct weekly ocean services from the North European ports of Le
Havre/Antwerp/Rotterdam/Bremerhaven/Hamburg to Halifax, Montréal and Vancouver and from the Southern European
ports of Genoa and Fos sur Mer to Montréal. Transit times vary depending on the port pair and the ship’s rotation but a typical
transit time from the last North Europe port of call to Montréal is 7 days and from South Europe 10 days. Small ocean
shipments (less than full container-loads) are usually routed via Antwerp and Montréal.
Swiss and major European airlines transport air cargo from Switzerland to the main Canadian airports of Toronto, Montréal,
Vancouver and Calgary on passenger flights (belly freight). Pure cargo flights are less frequent and concentrated on Toronto.
Integrators (DHL, Fedex, UPS and similar courier companies) serve Canada very well however it should be noted that their
flows are transhipped via their US hubs, which can cause delays and regulatory complications.
4.2. DISTRIBUTION
Distribution of products in Canada is reliable and cost-efficient within the Québec City (Québec) –Windsor (Ontario) corridor,
where most of the country’s industry and population are located. From a distribution center located in a main town or city
within this area, deliveries to customers in Québec and Ontario will be done by truck within 24-48 hours. Deliveries to Western
Canadian customers will be done by rail/road combination mode, with longer transit times and higher costs.
Source: Wikipedia
The main port of entry for European products being Montréal, distribution centers should be located with relative proximity of
Montréal, if products are shipped by ocean freight. If products are shipped to Canada by air cargo, proximity to Toronto is
ideal.
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104. Logistics
4.2.1. Documentation required for importing into Canada
A commercial invoice (or a pro-forma invoice for samples or when the goods aren’t sold) is required and must list the
following:
• seller
• buyer
• description
• HS code (first 6 digits)
• origin
• origin certification (CEFTA Free Trade Agreement)
• quantity
• unit price
• total price
• currency
• terms of payment; and
• terms of sale (Incoterm).
A packing list is preferred, though packing details can be incorporated in the invoice, if it is practical to do so. Special
permits/certificates may be required, depending on the type of product. The Swiss Business Hub Canada can support
companies wishing to obtain these permits/certificates.
4.3. CUSTOMS REGULATIONS AND TAXES
Customs matters are administered by the Canada Border Services Agency. All goods entering Canada must be declared via an
import declaration, filed either by the importer himself/herself, or by an accredited customs broker appointed by the importer.
In the latter case, the customs broker will require a signed authorization from the importer called a Power of Attorney. For
imports coming via the postal system, Post Canada will usually perform the customs clearance on behalf of the importer using
Form E14-CBSA Postal Import Form and charge the duties and taxes payable to the receiver upon delivery.
The main components of customs compliance in Canada are as follows:
• Description: goods must be described so that a Customs officer can relate to them, i.e. brands and model names are
not sufficient.
• HS code: the 10-digit Canadian HS code must be entered in the declaration.
• Valuation: the declared value for customs purposes is the sales prices (transactional value), less freight and insurance
(if included in the invoice). For this reason, if freight and insurance are paid by the seller, it is recommended to
itemize them separately on the invoice.
• Origin: the country of origin of the goods must be declared, in addition to the ‘’origin certification’’ for goods
qualifying under the CEFTA Free Trade Agreement. From Customs’ point of view, the origin of goods is where they
have been grown, produced, made, manufactured and/transformed, not necessarily the country where they are sold
from.
Value thresholds for Customs and computation of costs.
• Duty/tax free allowance: shipments valued at CA$20 and under are allowed free of duties and taxes.
• Low value Shipments: shipments valued of CA$2,500 or less are considered Low Value Shipments and benefit from
an expedited clearance process. This amount will be increased to CA$3,300 on July 1st, 2020.
• Shipments valued at CA$2,500 (CA$3,300 on July 1st) follow the standard formal entry process.
The Canada Customs import declaration form is called a B3. The B3 serves three purposes: the importer’s declaration, the
Customs release form and an accounting document, since it details the duties and taxes payable.
4.3.1. Calculation of duties and taxes
Customs duties are assessed ad valorem for most products and on quantities (weight, volume, number of pieces) in exceptional
cases. Excise tax (alcohol and tobacco products) and anti-dumping and/or countervailing duties (called SIMA assessment, for
Special Import Measures Act) are added to the customs duties payable (if any), in order to compute the Goods and Services Tax
(GST) payable (5%). The 5% GST is a Canada-wide federal tax paid by the importer on all imports. It is a flow-through tax
which can be offset by the importer as an input tax credit. Provincial taxes, which vary from province to province, are not
currently assessed on imports and non-resident merchants are exempt, so long as they don’t have a physical presence or
permanent establishment in Canada. This may change, as Provincial Governments experience revenue losses as a result of the
E-COMMERCE GUIDE
114. Logistics growth of e-commerce purchases. We have seen this happen already in 2019 in the United States with the Wayfair Decision which allowed states to tax remote retailers when their sales cross a certain turnover threshold. 4.3.2. Incoterms considerations and pricing strategy The international ICC Incoterms® are widely used by international traders in Canada. However, Canadian businesses who only trade in North America may be more familiar with the American terms derived from the Uniform Commercial Code (UCC), recognized by local courts. The current Incoterms® rules were recently updated and in effect since Jan 1st, 2020. There are eleven Incoterms®: four used for conventional maritime transport (FAS, FOB, CFR & CIF) and seven used for multimodal transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP). FCA should be used when the buyer arranges and pays for the shipping costs. DAP should be used when the seller arranges and pays for the shipping costs but the buyer arranges and pays for the import customs clearance, duties, taxes and associated costs. DDP should be used if the seller arranges and pays for the shipping costs and also arranges and pays for the import customs clearance and all related costs, including duties and taxes. When the seller transacts on a DDP basis, he becomes the importer of record in Canada, a non-resident importer (NRI). 4.3.3. Non-Resident Importer It is possible for a foreign company to be a ‘’non-resident importer’’ in Canada. A Canadian customs broker or an accounting firm can apply for an importer number for an NRI. The final Canadian customer then does not need to get involved at all in the importing process and the foreign company can conduct business from overseas without having a permanent establishment in Canada. Care must be taken to properly deal with the Goods and Services Tax (GST). Due to recent changes in the import regulations for food products, the NRI status is no longer possible for food imports (see section for food imports). The careful selection of an important is critical. The Swiss Business Hub of Canada can help find the right importer/distributor for Swiss companies interested in building a presence with Canadian consumers. 4.3.4. Risk Management and Cargo Insurance When shipping goods overseas by any mode, close attention must be given to the limits of liability of carriers. These are mentioned in the terms and conditions of carriers in their shipping documents and often expressed in technical language, which can sometimes hard to decipher. They may vary depending on the carrier and the applicable international convention but as a guideline, one can consider 2 Special Drawing Rights (SDRs), costing approximately 2.65 Swiss francs per kilogram for ocean shipments and 22 SDRs (approximately 29 Swiss francs) per kilogram. For goods shipped by courier companies, there is no uniform limit of liability and each company has their own, either per kilogram or per package. Since carriers will only compensate traders up to their maximum liability, which is often lower than the value of the merchandise, it is strongly recommended to contract adequate cargo insurance independently, either for account of the seller or for account of the buyer. 4.3.5. Import Permits Import permits may be required to import certain items in Canada and this is administered by Global Affairs Canada (GAC), separately from the Canada Border Services Agency. A link to the relevant GAC webpage is found at the end of this section. 4.3.6. Food Imports Food imports are administered by the Canadian Food Inspection Agency (CFIA), so all food and plant materials must be cleared by both the CBSA and the CFIA upon importation. Canada recently passed legislation (the Safe Food for Canadians Act) which mirrors the corresponding US legislation (the Food Safety Modernisation Act of the US Food and Drug Administration). Under the last phase of the Safe Foods for Canadian Act rolled out in 2019, all food importers must obtain a licence. One of the conditions for obtaining a licence is to have a place of business in Canada to handle potential food recalls. This new requirement makes it impossible to conduct food-related business as a Non-Resident Importer. Traders should be aware of Canada’s supply management system for dairy, poultry and eggs, whereby the Federal Government sets production limits and minimum prices for these products, to protect Canadian producers. Imports of such products are E-COMMERCE GUIDE 12
4. Logistics therefore managed under a strict quota system, via so-called ‘’tariff-rate quotas’’. Exporting such products to Canada can therefore be cumbersome and costly. Health products are regulated by Health Canada under the Food and Drugs Act and a link to a reference guide for this can be found at the end of this section. 4.3.7. Canadian Standards and Consumer Protection Several products (electricals, electronics, appliances, boots, etc..) for sale to both industrial and individual customers in Canada must follow certain standards, like CSA or UL, and the information on these requirements is maintained by the Standards Council of Canada (see link at the end of this section). Several products (toys, garments, bedding, sporting goods) fall under Canada’s Consumer Products Safety Act and a link to a quick reference guide for it is found at the end of this section. 4.3.8. Canada-EFTA Free trade Agreement (CEFTA) Most CEFTA-qualified goods enter Canada free of customs duties. In order to benefit from this preferential tariff treatment, goods must comply with the CEFTA product-specific rules of origin and to attest compliance, the seller’s commercial invoice must contain an origin certification following a specific format. For relevant details, please see the links at the end of this section. The rules of origin are contained in Annex C, Appendix I and the format of the origin certification in Annex C, Appendix II. 4.3.9. Fulfilment Centers, Inventory and Returns The choice of outsourcing your web portal, using a marketplace, or using a third party logistics provider to warehouse and distribute your products or to handle returns should be made based on the costs, convenience and service level. It has no impact on customs duties and taxes, as these third parties usually want to avoid any liabilities with respect to these issues. The importer of record will always therefore be, either the seller (the Swiss exporter as Non-Resident Importer of Record) or the final (Canadian) customer. 4.3.10. US Market Access Goods of Swiss or other origin can easily be distributed to the USA from a Canadian distribution center. Because roughly 75% of Canada’s exports go to the USA, there are efficient already existing North-South transportation systems. More importantly, there is a high duty-free limit for shipments entering the USA (US$800). Goods valued up to US$800 shipped from Canada therefore enter the USA free of duties and taxes, irrespective of their origin. As a result, Swiss companies can efficiently service their US e-commerce customers from Canada, thanks to the proximity, but also cost-effectively, owing to the high duty-free limit. This process is called section 321 (see link at the bottom of this section for further details). Global Affairs Canada import permits: https://www.international.gc.ca/controls-controles/about-a_propos/impor/permits-licences.aspx?lang=eng Canada Customs Tariff for customs duties: https://www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/2020/menu-eng.html Anti-dumping and countervailing duties, measures in force: https://www.cbsa-asfc.gc.ca/sima-lmsi/mif-mev/menu-eng.html CFIA: Safe Food for Canadians Act https://www.inspection.gc.ca/food-safety-for-industry/toolkit-for-food-businesses/sfcr-handbook-for-food- businesses/eng/1481560206153/1481560532540?chap=0 E-COMMERCE GUIDE 13
4. Logistics Canada-EFTA Free Trade Agreement text: https://www.efta.int/free-trade/Free-Trade-Agreement/Canada Health Canada Food and Drugs Act reference guide: https://www.canada.ca/en/health-canada/services/drugs-health-products/compliance-enforcement/importation- exportation/guidance-document-import-requirements-health-products-under-food-drugs-act-regulations-0084.html Standards Council of Canada: https://www.scc.ca/ Canada Consumer Product Safety Act Quick Reference Guide: https://www.canada.ca/en/health-canada/services/consumer-product-safety/reports-publications/industry- professionals/canada-consumer-product-safety-act-guide.html United States Customs and Border Protection Section 321 shipments: https://www.cbp.gov/sites/default/files/assets/documents/2017-Aug/Trade%20Mod%20Section%20321- External%20Issue%20Paper.pdf E-COMMERCE GUIDE 14
5. Nespresso Case Study 5. Nespresso Case Study Nespresso, an operating unit of the Nestlé Group, based in Lausanne, has been a manufacturer of machines that brew espresso and coffee from capsules, or pods, for home or professional use since the invention of the machine by Eric Favre, a Nestlé employee in 1976. By 1986, Nespresso rolled out its machines to consumers in Switzerland, France, Italy and Japan. Starting out as an e-commerce business, Nespresso only opened its first boutique in Paris in 2000 as a concept store. Today, Nespresso has a global network of more than 700 boutiques in 68 countries and has been in present on the Canadian market for over decade. 5.1. THE CANADIAN ONLINE EXPERIENCE The Nespresso Canada e-commerce platform was launched in the early 2010s, a couple of years following the opening of their first brick and mortar boutique. Although Nespresso Canada works collaboratively with their colleagues in the U.S. and in other markets around the world to share best practices, they have their own strategy tailored for the Canadian market. Nespresso believes that it is very important for them to have an online sales channel (website and mobile apps) as it enables them to be accessible to consumers that are living in remote areas and who do not have access to a Nespresso boutique. The full range of products is available through all their sales channels, so customers can choose, based on their habits, how they want to live the Nespresso experience. E-COMMERCE GUIDE 15
5. Nespresso Case Study In addition to a full range of products available on their own e-commerce platform, Nespresso also sells their machines on some of their retail partner’s online platforms: Amazon, Costco, The Bay, Wal-Mart, Amazon Canada, The Shopping Channel, Best Buy, Bed Bath & Beyond and Canadian Tire. The machines sold with their partner retailers are co-branded with Breville and Delonghi. This dual approach allows them to maximize awareness of the full Nespresso universe. During the first few years, the company’s main challenge was to virtually present the brand to Canadian consumers who were not familiar with Nespresso. Their website was initially mainly transactional, and therefore, not fully adapted to what a new market needs in terms of brand awareness. In terms of key learnings from the early days, it is important to design a website that will offer key brand information and a relevant user experience, beyond a sales-only focus. Today, 95% of Nespresso’s customer base is located in the urban centers of Canada. These locations are normally a 1-day shipping point from anywhere in Canada (capsules are manufactured in Switzerland and then sent to warehouses in Canada). They also have a third party logistics (3PL) partner with various warehouses located in key regions across the country. The 3PL partner offers an omni-channel expertise and ability to scale up/down as Nespresso’s needs evolve as a business. In this way, it can manage various types of orders (e-commerce, boutiques, or B2B) and deliver directly to the consumer. The partner also offers warehouses across the country, which helps Nespresso to minimize delivery delays and the overall carbon footprint related to transportation. The combination of their own Canadian logistics networks and carrier delivery reach allows Nespresso to remain competitive in their market segment by shipping to all parts of Canada. Nespresso does not currently sell through social channels, although they do have a strong brand presence on social media platforms like Instagram, Facebook, Twitter and Pinterest. The coronavirus pandemic has offered Nespresso with the opportunity to rethink their online experience and customer journey, as they have had to adapt to the temporary closure of their boutiques across the country. They have had to adjust very quickly to consumers that had never been on their website before and visualize the online experience through their eyes – which has been both very challenging and rewarding. Nespresso had to ensure that the whole journey, from the account creation to the shipping of the order, was simple and flawless. The pandemic has also pushed Nespresso to work even more closely with their Boutiques and Customer Relationship Center, and view it from an omni-channel perspective, focusing on the whole experience they want to offer to their customers. The impact of Covid-19 will definitely change their customers’ behavior and priorities, and thus impact their business model and strategy as they focus even more on the holistic Nespresso omni-channel experience. In terms of opportunities beyond the crisis, Nespresso is focusing on developing delivery services, digitizing their points of sale and boosting customer assistance in the area of live chat – on top of continually improving their website. Finally, we asked Nespresso if they had any advice for Swiss SMEs wanting to set up an e-store either via their own platform or via a partner in Canada. ``It really depends on the product category (for example: is it a category already shopped online or not at all?) and the ability to drive brand awareness and traffic with or without a partner. We think that keeping the user experience at the core of the strategy is a good starting point``. E-COMMERCE GUIDE 16
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