Smart retailers look for ways to take additional cost out of the value chain without sacrificing customer experience. In addition, most US Online retailers want to have the ability to expand, not only into Canada, but globally. One strategy where our clients are seeing strong results is cross-border shipping using the little-known Section 321 exemption.
What is Section 321?
Under the recent Canada-United States-Mexico Agreement (CUSMA), there is a provision, known as Section 321, that allows small consumer items valued at less than US$800 and weighing under 22.6kg (50lbs) to cross from Canada to the United States duty free.
For direct-to-consumer (DTC) retailers, this offers an opportunity to take advantage of a clause that waives or refunds duties on items that enter Canada bound for U.S. recipients. For many of our clients, the savings are as high as 15 to 20%.
What is the value of Section 321?
Lower cost per unit:
- Saving up to 20% on duties and tariffs can lower the cost per unit of a retailer’s product, which can be invested elsewhere in your company, or passed on to the consumer.
Fast clearance and delivery times:
- Orders can be picked, packed, and shipped from fulfillment centers the same day they were placed online.
- Using Section 321 reduces the amount of paperwork required to import products into the U.S. and clear them across the border. This speeds up the shipping process and eliminates the risk of delays caused by shipments being held up at customs.
- By adding inventory to fulfillment centers in Canada, you can also expand your distribution into a new market of 36+ million Canadian consumers. For U.S. brands this offers an opportunity to test international growth in a smaller but similar market. Plus, by localizing in Canada your brand can deliver your products faster to Canadian’s with fewer shipping costs.
A seamless customer experience:
- For consumers receiving packages that are shipped using Section 321, there is no difference in the experience compared to if it was shipped domestically. The packages are labelled with a U.S. shipper address, so customers are unaware the goods started their journey in Canada.
- For each package the duties are prepaid, delivery times are as expected by consumers, and returns are processed the same as if the goods came from within the United States.
- In addition, by setting up localized fulfillment hubs in Canada, you can improve the buying experience for Canadian consumers with faster delivery and lower shipping costs compared to if you were shipping from the U.S.
How Does the Section 321 Process Work?
- Retailer orders goods from outside of North America
- SCI receives the goods into one of our secure warehouses
- As American consumers place orders, the items are packed and labelled for U.S. domestic shipping
- Each parcel is scanned and shipped from one of our facilities near the U.S. border
- Parcels clear U.S. Customs and are delivered to a UPS facility to be processed as regular domestic shipments
- U.S. consumers receive their orders as usual
- If Canadian duties were paid, the retailer receives a refund through the Duty Drawback program
Keeping things moving
The key to getting maximum value out of Section 321 is designing and managing the backend logistics from origin to consumer. Our team works with apparel, sporting goods, housewares, consumer wellness and other large volume direct-to-consumer retailers to design fast, compliant processes for Section 321 shipping.
We leverage our facilities in the Vancouver, Toronto and Montreal areas because of their access to ports of entry and proximity to the U.S. border. When shipments arrive, we work with freight forwarders and customs brokers to quickly clear the items and receive them in our GMP licensed warehouses. In addition, we work with our customers to fully understand product origin, which by understanding duties and tariffs, can make recommendations to reduce costs and complex integrations.
The team quickly unpacks, labels and adds the items to the inventory system ready to ship. As they are received, individual orders are repacked, and a domestic U.S. label is applied for same day shipping. Packages are consolidated and shipped to the border for processing, with proper documentation ready to go. The end consumer who is receiving the package in the USA, isn’t aware its being processed in Canada, as they get a tracking number and can follow the entire delivery life cycle.
Reverse logistics are just as seamless. If a consumer chooses to return an item, they contact the retailer for a return shipping label and the package is consolidated with other returns and sent to our facility for inspection. Saleable items are returned to inventory while damaged items are disposed of responsibly or returned to the vendor.
With our partner, ChannelApe, we can support the most complex multi-distribution centre, multi-country strategies, complete with seamless integration into inventory and customer service applications. Regardless of how complex the back-end logistics may be, our clients report their U.S. customers receive their orders in the expected amount of time and, because they are labelled with a U.S. shipper address, customers are unaware the goods started their journey in Canada. We’re pleased to work with great partners such as ChannelApe to bring this service to top U.S. online and omni-channel retailers. The ability for ChannelApe to interact with the brand and provide a global experience for fulfilment and SCI’s trade knowledge into certain global markets, gives brands the ability to expand and provide cost take-out.
Together, we’re saving direct-to-consumer vendors millions of dollars while supporting the complexity of managing a global supply chain with experienced end-to-end logistics strategists.
If you ship more than 500 parcels per month to consumers in the U.S. and if the order size is under US$800 in value, you may qualify for the savings Section 321 can offer. Contact your SCI team for more information.