Many U.S., European, Australian, and other foreign brands continue to fulfill Canadian e- commerce and wholesale orders from U.S.-based distribution centers. While operationally convenient, this model carries significant and often unrecognized financial inefficiencies that directly affect gross margin, landed cost structure, and duty exposure.

Below is a breakdown of the four primary cost impacts.

When product is imported into the United States and later exported to Canada, the majority of U.S. duties paid at time of import become non-recoverable sunk costs, particularly on goods subject to:

• Section 301 Tariffs
• Fentanyl-Related Tariffs
• Reciprocal Tariffs
• Other non-drawback-eligible assessments

Even in categories where U.S. drawback is technically possible, the practical ability to recover duties is very limited for DTC exporters due to:

• Small parcel exports
• High shipment fragmentation
• Low individual line values
• Administrative cost exceeding recovery value
• Inconsistent or missing data across systems

As a result, most brands recover 0% of the duties they theoretically could claim.

When goods are shipped to Canadian consumers from a U.S. warehouse, the customs value must reflect the transaction value — i.e., the price paid by the Canadian end customer.

This forces duty calculation on the highest possible value.

By contrast, if inventory is positioned in Canada prior to sale, duty is assessed on the factory landed cost, resulting in significantly lower effective duty burden. This difference can materially affect margin.

Canada offers preferential or reduced rates — including 0% duty — for imports from key production markets (Vietnam, Cambodia, Bangladesh, etc.). However:

Routing freight through the United States generally invalidates eligibility, because the “direct shipment” requirement is broken.

As a result, brands shipping through the U.S. are forced into MFN duty rates even when their goods would otherwise qualify for 0% entering Canada directly.

Why Now Is the Time

This example using a synthetic t-shirt as an example item highlights:

• China-origin apparel: 60% cumulative duty into the U.S. vs. 18% into Canada
• Vietnam-origin apparel: 32% into the U.S. vs. 0% into CanadaThe delta is substantial.

Conclusion

For most brands, positioning inventory directly in Canada provides:

• Lower total landed cost
• Elimination of non-recoverable U.S. duties
• Reduced Canadian duty via factory-cost valuation
• Access to preferential tariff programs
• Faster and more cost-efficient service to Canadian customers

From a pure margin perspective, this structure is materially more efficient and increasingly necessary as tariff regimes evolve.