Cross Docking – A Potential Solution for US Retailers to Overcome the Canadian Distribution Challenge

Rear view of middle-aged worker with clipboard in shipping yardMany US companies face significant challenges when selling into Canada – from the marketing efforts required to reach this population to overcoming the logistical obstacles of product delivery. As online marketplaces and e-commerce selling have expanded, it has become increasingly easier for merchants to enter this rich market to the north. However, much of the same distribution challenges still come into play, from clearing customs and the additional shipping fees to time delays of cross border shipments and other challenges.

The Traditional Solution

One option has been to employ a third party fulfillment company in Canada. This is a good option for many – simply sending a stock of inventory to a third party warehouse who, in turn, stores the inventory and ships out individual orders to Canadian customers as needed. Canadian 3PL companies can perform these services at cost effective rates, making this an attractive potential solution – but the main challenge is that it requires an investment in additional inventory to meet the forecasted demand. Furthermore, when utilizing a third party logistics solution, another challenge is determining “where to locate” the appropriate 3PL (third party logistics), especially since there are sizeable population centers on opposite ends of the county. Should a 3PL be employed in the Toronto or Montreal area, or should a partner in the Western market, such as Vancouver, be selected instead? While there are companies with multiple locations within Canada, it still complicates the situation.

A New Creative Approach to Cross Border Shipping

In order to overcome some of the inventory carrying and location related challenges of a 3PL solution, some companies are utilizing a rather creative approach – employing a cross docking strategy. This is a hybrid solution that is helping some companies achieve the benefits of a 3PL solution without some of the associated risks and costs.

What is Cross Docking?

Cross docking is the process of unloading product from inbound freight sources directly onto outbound shipping services with little or no storage or processing involved. A real world example of cross docking would entail a company shipping pre-packaged and pre-labeled goods to a cross dock warehouse via an LTL or truckload shipment, only to have the cross dock facility simply unload the shipment, segregate it and load it on the appropriate carriers’ outbound trucks for final delivery to the customer.

Cross Docking Offers a Wealth of Advantages

Implementing a cross docking strategy has many advantages over a traditional outsourced fulfillment relationship. First and foremost, cross docking reduces the costs associated with handling and storage within Canada. Because product is prepared for final segregation and shipping upon arrival to the cross dock facility, only a minimal touch is required and little to no storage costs are incurred since the product is simply segregated and shipped right away. Second, cross docking can noticeably reduce the time it takes for product to reach the end customer especially when a just in time strategy is implemented. Third, by consolidating the shipment, it can reduce cross border shipping costs. Add to this list of benefits that the merchant or seller maintains control over the quality of the pack and sort process, and you can see why cross docking has become such an interesting option. Finally, this type of strategy allows firms to utilize multiple cross dock facilities across Canada – thereby injecting the shipment into the relevant market and overcoming and location challenges of reaching different areas with the expansive Canadian market.

Preparation is the Key to Cross Docking Success

As with anything, cross docking does have some challenges in and of itself. The strategy does require a great deal of preparation and planning. For example, prepping orders (pre-packing and pre-sorting) in the US warehouse and then bulk shipping to the cross docking facility may be required in order to expedite the process. In doing so, the risk of error for the Canadian cross dock facility is minimized since they simply have to do break down the consolidated shipment by customer and route to the appropriate shipping carrier. This combines smaller loads into one larger shipment to pass customs.

A Few Other Considerations

In addition to a increased pre-planning and labor to prep the cross-dock shipments, there are a few other things to keep in mind when implementing this strategy. First, especially since there is a good amount of prep work and planning involved, a cross dock option may require a higher volume of orders in order to make it effective from a cost and time perspective. In other words, going through the motions and details of this type of arrangement may not make financial sense for a low monthly order volume being shipped into Canada. Second, if a supplier or manufacturer is delivering product to a cross-dock facility, then controls need to be put into place for this to be done accurately, as there will still be reliance upon the successful execution of the segregation and ship process within Canada. Due diligence must be taken in terms of selecting an appropriate cross-dock vendor. As long as these factors are taken into consideration and adequately planned out and prepared for, cross docking can serve as a viable option to traditional warehousing and fulfillment.