4 Steps Canadian Exporters Should Take to Grow Their Exports to the United States
In 2020, Canadian businesses exported 375 billion dollars of merchandise to the U.S. and only 148 billion dollars of merchandise to countries other than the U.S. This means that over 70% of Canadian merchandise exports go the United States! Canadian exporters can ship products quickly and cheaply to their American customers which makes the U.S. the ideal market for Canadian exporters.
While many Canadian business are already selling to American customers. these businesses are rarely reaching their full export potential, in part, because of logistics challenges.
We have identified (4) steps Canadian business can take to use logistics to grow their market share and profits in the U.S.:
1. Canadian businesses should offer all-in competitive shipping options to their American customers.
A business looking to increase export sales should market itself as being easy to buy from. Yes, your U.S. customers are interested in your product; however, they could be intimidated if they’re responsible for transporting and importing the product into the U.S. Not offering this could make or break a new sale.
If you view logistics as a competitive advantage, instead of a “cost of doing business”, you can create a positive buying experience for your U.S. customers. Offer them flexible shipping options and offer to customs clear the shipment on their behalf. All your customer has to do is pay for your product and you’ll ship it to them will no strings attached.
Easy. Rinse and repeat.
This is a great option and most successful Canadian exporters already offer this to their U.S. Customers. If you’re not already doing this you’re already missing out on a great opportunity.
2. Offer flexible shipping options, and consider insuring your shipments.
As an exporter you need to make sure that you are offering the best shipping rates and options to your U.S. customers every time. You need to ensure that you are sourcing multiple trucking and courier companies on each shipment.
Don’t assume that because you have negotiated a deep discount with a trucking / courier company that they are automatically the cheapest option. There may be another carrier that can offer a more competitive rate for your shipment depending on:
- Where the shipment is going to
- The transit time requirements
- The weight / dimensions of the shipment
- The type of commodity being shipped
If you want to source multiple transportation options for each shipment, we recommend that you take a quick look at this company that provides multiple shipping options for each shipment you may have: https://openbordershipping.com/
Logistics is not done on spreadsheets; it is done in the real world. Whenever you are moving physical products, you need to prepare for challenges. Extreme weather happens, equipment breaks down, and accidents happen. In order to create a positive buying experience for your customer it is important that you have a process for late, damaged, or lost shipments. We highly recommend that you pay a small premium to insure your cargo. If anything happens to the shipment, you’ll get your money back quickly and you can send another order to your customer.
3. Canadian businesses need to make sure they do not overpay any duties, taxes, and other fees when they ship products to their US customers.
If you make the decision to treat logistics as a competitive advantage and customs clear your shipments to the U.S., you need to make sure that you do not overpay any import fees.
Generally, companies overpay on one or more of these three (3) fees:
Customs duty is generally applied as a percentage of the value of your goods. Duty rates range from 0% – over 100% of the value of product. Canadian companies overpay duty for two reasons:
- The importer reports the wrong HTS (HS) code to U.S. customs and they end up paying a higher duty rate than necessary.
- The importer does not capitalize on the CUSMA free trade agreement. Any goods made in Canada will be duty free when imported into the U.S. under the CUSMA trade agreement. If these goods are not reported correctly unnecessary duty rates will be assessed
Please note that made in Canada means these products meet the rule of origin requirements laid out in CUSMA agreement. For example, if you import a sweater from China into Canada, and then ship that sweater into the U.S. the sweater is considered made in China NOT made in Canada.
HTS (HS) codes, CUSMA, and rules of origin are technical topics that require further explanations. To learn more about these topics please sign up to JORI University or contact us directly.
A merchandise processing fee (MPF) is a fee of 0.3464% of the value of goods up to a maximum of $528.33USD per shipment with a minimum of $27.23USD per shipment. It is assessed by US customs on all formal entries into the US.
The merchandise processing fee (MPF) can be eliminated as long as your customs broker accurately reports CUSMA information to US customs. Many Canadian exporters pay the MPF fee on every shipment instead of capitalizing on this tax break.
- Customs Clearance & Duty Fee On Shipments Valued Under $800 USD
There is a special U.S. customs provision which allows goods to be imported into the U.S. free of duty and of any taxes if the value is under $800 USD. An importer is allowed to import $800USD into the U.S. per day under this regulation. This has massive implications as Canadian exporters of items under $800USD can cheaply ship into the U.S. without pay any duties, taxes, or customs clearance fees.
4. Canadian businesses need to make sure the are accurately reporting commercial data to U.S. customs.
When you, the Canadian exporter, are going to take on the responsibility of customs clearing shipments into the U.S you must ensure that your customs broker is accurately reporting information to U.S customs.
Many exporters are lulled into a false sense of security. These companies have shipped into the U.S. before and everything went well. There were no delays, no inspections, and shipments delivered on time.
This does not mean that the information was reporting correctly and accurately to U.S Customs.
A company can report the wrong HTS codes, the wrong country of origin information or the wrong valuation and U.S. customs will not stop the shipment. US Customs works on an innocent until proven guilty model because they do not have the resources to inspect every shipment for accuracy.
What US Customs does to enforce Customs compliance is retroactive compliance audits. They will review old customs clearances and ask the importer for documentation to support the accuracy of the declaration. If they find inaccuracies…well that’s when the trouble starts.
In the U.S. they group customs inaccuracies into three (3) types of severity:
- Gross Negligence
Here are the possibility penalties associated with each degree of severity.
- Duty Violation: An amount ranging from a minimum of 5 times the total loss of duty to a maximum of 8 times the total loss of duty
- Non-Duty Loss Violation: An amount ranging from a minimum of 50 percent of the dutiable value to a maximum of 80 percent of the dutiable value of the merchandise
- Duty Violation: An amount ranging from a minimum of 2.5 times the total loss of duty to a maximum of 4 times the total loss of duty
- Non-Duty Loss Violation: An amount ranging from a minimum of 25 percent of the dutiable value to a maximum of 40 percent of the dutiable value of the merchandise
- Duty Violation: An amount ranging from a minimum of 0.5 times the total loss of duty to a maximum of 2 times the total loss of duty
- Non-Duty Loss Violation: An amount ranging from a minimum of 5 percent of the dutiable value to a maximum of 20 percent of the dutiable value of the merchandise
As a Canadian exporter we encourage you to take an active role in your customs compliance Work with a customs broker that you know on a first name basis and is working in your best interest. The customs broker is making the declaration on your behalf, so make sure you are confident in their ability to communicate and deliver—the consequences are not for the faint of heart.