Getting Started with Moulton Canada

Table of Contents

1. Introduction

2. Shipping US-to-Canada vs. Shipping Canada-to-Canada

3. The Benefits of Shipping Canada-to-Canada

4. Inbound Logistics & Customs Brokers

5. Confirm Your Goods Can Be Imported

6. Nutraceuticals & Health Canada

7. Taxes, Duties, and Setting Up Your Canadian Business Account

8. Payment Processing & Currency Conversion

9. Inventory Management

10. Shipping

11. Returns

12. Customer Service

13. Retail

Introduction

This document will review the steps necessary for preparing to ship Canadian orders from Canada as opposed to from the United States into Canada. Moulton Logistics is proud to announce the launch of its Toronto distribution center which provides you with the option to ship Canada-to-Canada from one central service provider. With Moulton, your account manager, reporting, and billing all remain centralized in the United States so you only have one point of contact for both countries. Canada’s latest census estimates its population around 35 million, roughly equal to 10% of the US population. Canadian and American consumption are quite similar and by including Canada into your marketing and sales plans you can increase your sales by approximately 10% in a cost effective manner. In some cases Moulton clients are seeing Canadian sales representing over 10% of their total sales volume. This document, however, will only focus on the backend considerations related to extending fulfillment services to Canadian consumers and will assume that you will undertake your own economic analysis of the market potential and profitability of expanding your promotions into the Canadian Marketplace. Other marketing and business considerations related to doing business in Canada are outside the scope of this document but can be referenced in a couple of summary articles below: Electronic Retailer Magazine June 2013 Issue – “Bordering on Success – Canada is the ideal launch pad for international expansion.” ERA Marketing Council – “How to do Business in Canada” (Ask your account manager for a copy of this document) Assuming you are familiar with the marketing opportunity and strategy, let’s discuss considerations of the operational backend. Shipping US-to-Canada vs. Shipping Canada-to-Canada

It’s best to ship from Canada-to-Canada if you have proven your marketing efforts and have a good idea of the potential sales volume so that you don’t end up shipping inventory to Canada and then having to ship it back to the US. That’s a costly mistake that needs to be avoided. We would suggest using your inventory in the US to bulk ship a small inventory to Canada to test your campaign, and when ready, begin shipping higher volumes Canada-to-Canada.

The Benefits of Shipping Canada-to-Canada

1. Saving on Customs / Duties and Reduced Sales Abandonment. The duties paid are based on the cost of the product, so if you are shipping from the US to the Canadian consumer your Canadian consumers are paying duties on the full retail value of that product. When the Canadian consumer has to pay extra duty on the retail price of the product there is a high chance for delivery refusal and abandonment which costs tyou money for this lost sale. If you ship a container of product across the border, the duties to be paid will be on your cost of goods and you can build that cost into a Canadian retail price.

2. Savings on Shipping. In this situation you are paying for a much shorter delivery distance and thus the shipping costs will reflect those savings.

3. Reduced Delivery Time. Instead of the product traveling from the US,

then going through customs clearance, then being inducted into the Canada Post network --- the packages will now be picked up directly by Canada Post from the Canada warehouse for a much quicker delivery. Indirect benefits of this reduced delivery time can result in happier customers, increased sales, reduced customer service expenses (including reduction in returns) and the potential for greater upsells.

4. Returns & Reverse Logistics Significantly Less Costly. A return / refusal /

undeliverable from Canada that has to go back to the US will cost you even more for shipping on the return than it did on the way out. Because the shipments are originating in Canada now, any returns will be less costly to come back to the Canadian facility.

5. Inventory Quality Sorting. Furthermore, our Canadian facility can sort good inventory from bad and arrange to refurbish and repair goods, thus saving you more money.

Understanding Pricing & Operations Understanding the backend costs involved is paramount to determining your offer price-points. This information will come from a combination of: Inbound Logistics & Customs Costs + Storage & Order Fulfillment + Shipping + Customer Service You will need to speak with your inbound logistics provider for the first part but assistance with the last three items can be provided by our logistics experts at Moulton. You would be paying some form of inbound cost and possibly duties already, but you should get a quote from your broker for the Moulton Toronto location. See next section. Storage & Order Fulfillment

Our goal is to keep your pricing standardized, however the nature of costs and economies of scale will not allow us to do this completely. Thus as of June 2013, your price for storage and order fulfillment will remain the same, with the exception of a $0.50 surcharge. Inbound Logistics & Customs Brokers

If you need an Inbound Logistics company / Customs Broker Referral, we can help put you in touch with one. Otherwise, it is likely that you already have an Inbound Logistics company who will have most of the information necessary to get your product from manufacturer to a distribution center in Canada. The inbound logistics company will help determine your 10-digit tariff classification, which Canadian Customs will use to determine your rate of duty. Shipping from the Manufacturer vs. Shipping from a US Facility. If you already have inventory on hand at a US location, you may have the option to pack that inventory and have it trucked to the Canada location. Keep in mind that usually it will be most cost efficient to have a container shipped directly from the manufacturer. This way you avoid the expenses of handling the product multiple times. Also, you can avoid potentially paying duties more than once (US duties, then Canadian Duties). Note that if your product is manufactured in the US, under NAFTA you will be provided with a reduced Tariff rate or even Tariff-free status. Your Customs Broker will know about these options. If you are handling your own inbound logistics, visit the Canada Border Services Agency’s Step-by-Step guide to Importing, at http://www.cbsa-asfc.gc.ca/sme-pme/i-guide-eng.html. (We recommend using a Customs and Logistics Broker to handle this.) Ultimately, your Customs Broker can help you determine the best 10-digit Tariff Classification Number that will provide the lowest qualifying rate of duty. Confirm Your Goods Can Be Imported

As the marketer and owner of the product, it is your responsibility to make sure that your product is in compliance with any Canadian laws and regulations. A customs broker will be able to help determine this for you. To learn more about prohibited items go to: http://www.cbsa-asfc.gc.ca/publications/dm-md/d9-eng.html. Nutraceuticals are a special category of product and are discussed next.

Nutraceuticals & Health Canada

Canada has stringent rules in place to protect its consumers who use certain nutraceuticals, regulated by their agency, Health Canada. Any ingestible will need to be approved by Health Canada. You can try doing this on your own, however there are specialty companies that can expedite this process. We have a close partner to whom we can refer our clients and who will walk you through this process, so you may benefit from expedient and efficient service and low cost fees when registering your nutraceutical products in Canada for legal distribution, relatively free from regulatory interference. GST / HST Taxes, Duties, and Setting Up Your Canadian Business Account

Your company’s tax strategy is unique, therefore it is advised that you find more information from the Canada Revenue Agency for guidance. Please note that Canada uses a combination of sales tax and a national VAT (Value Added Tax) which is a flow through tax to the end consumer who buys the goods. The Canada Revenue Agency’s information on registering for a business number and registration to collect GST/ HST is available at: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/menu-eng.html. From this page you can get more information on how to register, and how to submit tax returns. There is also information to help you determine if your product is exempt from GST / HST collection. Registration for GST/ HST and Canadian Business Account should take about 10 business days for the CRA to process. Moulton Logistics possesses and maintains the most up to date GST / HST tables for our clients, assuming that their product is not eligible for any special exemptions. If the product does qualify for special rates, they will need to be provided. Payment Processing & Currency Conversion

Thus far, using your same Payment Processor / Merchant Account should not be an issue. You should contact your provider to make sure that they are able to accept and convert Canadian and US Dollars. For Example: If Moulton is collecting in Canadian $ then set your offer code to XYZ and the Payment Processor will convert to US $. The other option is to charge US Dollars on the marketing, but in practice Canadian response rates are higher when the product is priced in Canadian funds because there is less chance for sticker shock due to currency conversion

and lower return rates. This should increase sales, overall profitability, and it would be worth the additional payment conversion. Alternatively, you can open a Canadian Bank Account. For details see the ERA Marketing Council – “How to do Business in Canada”. Inventory Management

As always it’s best not to go into a backorder situation. If you do, you will have the option to wait until inventory is replenished to Canada, or you can ship orders direct to Canadian consumers from the US. However, this is not recommended as you will incur additional expenses per order that were not planned. Packing Slips / Labels / Instructions Packing Slips should automatically contain the GST / HST amounts, subtotals and totals. Moulton’s processes are already set up and optimized for this. For orders shipping to Quebec, the packing slips should be bilingual. Even for those packages shipping outside of Quebec, We recommend that all goods sold in Canada come in bilingual packaging and have bilingual instructions. Please see the ERA Marketing Council - ”How to do Business in Canada” for further reference. Packaging If you use custom packaging supplies, they can typically be stored at the facility in Canada just like in the US. Moulton also has the capability to coordinate purchase of supplies from Canada to save costs. Shipping

Packages will be tendered through Canada Post which we have determined to currently be the best option for price and service. Unlike the US which primarily has zones 2-8, Canada has 1-42 with 1 being the lowest cost and 42 being the highest cost. Their zones don't work the same in terms of distance traveled, the address to be delivered to is given a zone based on how difficult it is to reach. The predominant and average cost will be Zone 14. Returns

All shipments leaving the Canadian facility will have the Canadian facility as the return address so returns and returned inventory will be processed in Canada which will in turn save customer service and inventory costs.

Customer Service

About 1/4 of the population speaks French only and most of them reside within the province of Quebec. It may or may not be required by Canadian government to provide French speaking customer service. If you intend to promote products and services in the Province of Quebec, all product packaging and instructions for products must be bilingual. If products are bound for Canadian national retailers then it is highly recommended that you consult with retailers for direction on product packaging requirements. Retail & Home Shopping Networks Moulton Logistics has a close relationship with major Canadian DRTV marketers. See articles mentioned in the introduction for more information on the Canadian Retail Environment and Home Shopping Networks. Media Buying Agencies Moulton Logistics, as well as our partner, DGA, can refer agencies that specialize in the Canadian market, including media buying and direct mail analytics. Conclusion

When you are ready to explore this option further or have more questions, please contact our fulfillment and logistics experts at Moulton Fulfillment Management and we will schedule a diagnostic call. Sounds pretty good, eh?