During times of economic uncertainty or recession, it is important to strategically evaluate your supply chain and see where efficiencies can be implemented. Direct-to-consumer brands can use a strategic combination of localization and south-bound shipping using the Section 321 exemption to create a North American supply chain that creates efficiencies and saves money, without sacrificing the customer experience.
Localization in the context of supply chain fulfillment is the process of placing inventory in warehouses in the same country as your consumers in order to deliver product to them more conveniently, without the hassle of cross-border shipping. For example, U.S. e-commerce companies can place inventory in Canadian warehouses to expedite the fulfillment and delivery of Canadian customer orders. This method reduces transportation costs, provides faster order fulfillment for Canadian customers, and improves the customer experience through faster delivery and no hidden cross-border duty or tariff fees.
An example of this is Metro Supply Chain’s recent partnership with U.S. brand, Dr. Squatch, a leading men’s natural soap and personal care brand. Metro Supply Chain partnered with Dr. Squatch to successfully expand their e-commerce and wholesale business into the Canadian market through localization. With Metro Supply Chain’s effective end-to-end supply chain strategy including localized warehousing, fulfillment, and transportation operations, Metro Supply Chain was able to support Dr. Squatch’s accelerated growth, resulting in reduced delivery times and improved shipping costs for Canadian consumers.
Section 321 fulfillment is a cost-effective way for direct-to-consumer (DTC) companies to increase profit margins and save up to 20% in duty and tariff costs. Section 321 is a provision of the Trade Facilitation and Trade Enforcement Act that allows small shipments to enter the U.S. duty-free. For DTC e-commerce retailers, this offers an opportunity to reduce their cost per unit through waived or refunded import duties on items that enter Canada bound for U.S. recipients.
By saving up to 20% on duties and tariffs, this lowers the cost per unit of retailer’s product, which can be invested elsewhere in the company, or the savings can be passed on to the consumer.
Using localization and Section 321 as a strategy not only saves money on duties and tariffs, but also creates a more efficient North American distribution model. By consolidating distribution in strategic centers in Canada, e-commerce retailers can optimize operations by servicing both the U.S. and Canadian markets from a single location (rather than having both U.S. and Canadian distribution centers servicing each market). For example, Metro Supply Chain’s distribution center in Montreal, Canada, can distribute conveniently to customers in Eastern Canada, as well as the Eastern United States. Our Vancouver warehouse can serve the western states, and Toronto warehouses can serve the central states.
For U.S. based brands, adding inventory to fulfillment centers in Canada offers the opportunity to expand distribution into a new market of 40+ million Canadian consumers. This approach allows brands to test international growth in a new, geographically close market. Plus, by localizing in Canada your brand can deliver your products faster to Canadians with fewer shipping costs. Once you have inventory situated in Canadian warehouses, you can ship products southbound to U.S. e-commerce customers using the Section 321 exemption and save on duty and tariff costs.
Canadian brands looking to expand into the US can also take advantage of Section 321. If you’re currently only selling to the Canadian market, but have interest from U.S. consumers, and would like to test selling to this market, using Section 321 fulfillment provides this opportunity. To do this you would partner with a 3PL who can fulfill orders from warehouses near the Canada-U.S. border, and ship to U.S. customers. This method enables you to leverage the Section 321 exemption to save money on duties and tariffs. You can also save on operations and inventory holding costs by fulfilling orders solely from Canadian warehouses, rather than paying for additional warehousing and fulfillment from in the United States.
Businesses usually follow one of two distribution models when serving international consumers.
Cross-border fulfillment uses the traditional method of packing and shipping the order from your country to the customer internationally.
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Localization uses warehousing in the same country as your customers.
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If you’re looking to expand into new markets, or create supply chain efficiencies, now is the time to explore localized fulfillment and Section 321 opportunities with an experienced Canadian 3PL like Metro Supply Chain. For more information, request a consultation with our localization and southbound fulfillment experts.