International Trade Committee on Nov. 6th, 2017

[The Chair, Liberal, Mark Eyking]

You have time for one quick question with a quick answer.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

To BDC and EDC, how many of your customers are requesting your support and your services when it comes to e-commerce? What percentage of them?

[Shannon Glenn]

We don't track that specifically in terms of a market segment.

Typically, our products are bundled in different ways. We provide a number of services that relate to expanding into new markets. We have financing services. We have advisory services. For instance, we have a very specific product targeted to high-growth firms around expanding in the U.S. We have a number of online tools that are free and that companies can access, as well as a referral program between EDC and BDC. There is a lot of collaborative work with the trade commissioners within each of our local offices.

They can bundle these services as they see fit, so it would be very hard for us to track specifically e-commerce versus other activities.

[The Chair, Liberal, Mark Eyking]

Thank you.

We're going to go to the Conservatives now.

Mr. Dreeshen, you have the floor, sir.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you, Mr. Chair.

Thanks to all of our witnesses today.

I think I'll start off dealing with Canada Post.

In the discussions that have taken place so far, one of the things mentioned was that the reason for these prices is the Universal Postal Union agreement. When we send to someplace else, then, are we subject to that same price, such that we would be paying the 99¢ if we chose to send to China or some other country? I'm curious about how this Universal Postal Union agreement affects Canadians.

[Dennis Jarvis]

What we're trying to do at Canada Post is leverage the different streams so that we can bring products to market that are very beneficial to e-commerce sellers that are sending outside the country.

One example is that we introduced a service that leverages lightweight product categories called Small Packet and Tracked Packet in the UPU environment. We introduced that a few years ago. We've been able to drive significant volume for e-commerce sellers as a result of that, taking it to significant millions of pieces per year. That was specifically targeted to the e-commerce market.

We are very focused on leveraging whatever streams we can within the UPU, but we're also working with other organizations, through bilateral agreements and other things, to drive as much growth as we can and bring cost-effective products to market that are very well suited to the e-commerce market.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you.

Again, the point I was trying to get at was the reciprocity of how we are engaged in that compared with our competitors. I think that was the point being brought out.

The second thing I want to talk about is this. Industry, Science and Technology is about to study rural and remote Internet access and service and so on.

BDC and EDC, when you look at your customers, are there aspects of this that you feel we should be working to improve? I know from when we were down in the U.S. with that committee that the U.S. has the same issue there.

Ms. Glenn, could you perhaps fill us in a bit there?

[Shannon Glenn]

In the survey we just conducted on emerging trends, there are a number of concerns that companies raised with respect to e-commerce, but I don't have the numbers here in terms of all of the concerns. The top ones were shipping costs, hassles of returns, and worries about cybersecurity, as opposed to connectivity. That said, we certainly recognize that it's a challenge on the intuitive level, but we don't have that quantification.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Maybe I will just finish off, in the few moments I have remaining, talking about cybersecurity and the other types of insurance that were described earlier, the risk mitigation products that are out there.

When you are bringing in a product from other countries, you also have to look at the authenticity of the goods that are coming in and whether or not that is also being addressed. It's one thing to make sure we are getting the payments, but are whatever systems on whatever platforms might become available ensuring that this authenticity is being checked? What can someone who wishes to get into this buying, selling, and trading expect for support when it comes to counterfeit goods?

[Todd Winterhalt]

It's very much a real concern, I think, for many Canadian companies, especially when they're looking to a new market for the first time, and in particular a new partner that they've never worked with before. What we've done at EDC to try to help raise the level of awareness and help companies do their own due diligence around those risks is to suggest fairly hands-on engagement with the counterparty.

If we use the example of China, because that's often brought up, there are a number of e-commerce platforms there that are taking counterfeit issues and cybersecurity issues very seriously, and one in particular that we work with has such a stringent policy now in place that if anyone is found to have on-boarded a counterfeit product, not only is that company removed from their platform for life, but the account manager on the Chinese side is also terminated.

There's a growing realization that to play in this space internationally, this is a primary concern for many western companies, Canadian companies included. That is still very much a responsibility that's borne by the Canadian company, and part of what we would do through our advisory services is try to help Canadian companies understand that and select the right partners to do business with internationally.

There, again to Ms. Glenn's comments, we do partner with BDC and the trade commissioner service, by way of example, to try to get that message out to Canadian exporters.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to move on now to the Liberals.

Ms. Ludwig, you have the floor.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

Thank you for your excellent presentations.

I had three areas, just listening to your testimony today, that I would like to learn more about from you.

One is the area of cash flow and access to capital. The next area is female entrepreneurs, and the last area would be non-tariff barriers and shipping across borders.

On the first one, I'm just going to give you an example. I was on the airplane last night flying in from Saint John. I sat next to a business member, and he said the challenge for many Canadian businesses is difficulty getting access to capital. He said that many Canadian banks do not want to invest in some of the higher-risk companies, because, as you know, EDC works specifically at mitigating risk. Now they're going to foreign investors, and he gave the example, Madam Glenn, that BDC charges an interest rate of around 8% for that specific sector versus a Canadian bank, which is much lower, so I'm wondering if you can speak to that, specifically about the access to capital on the cash flow side. Also, for businesses to expand, they need access to capital, and 8% interest can be a little high.

[Shannon Glenn]

Your question is with respect to our broader mandate, and as I mentioned in my introductory remarks, our mandate is to be commercially viable. The trade-off is that our risk tolerance is much higher than the chartered banks. That said, we do have to price to compensate in order to remain commercially viable and to continue to grow to support entrepreneurs. That is the trade-off. They would be able to go to the chartered banks, but their request for financing might not get accepted.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

Perhaps we could just build on that. I'd like to get some feedback from all of you.

You gave the example, Mr. Winterhalt, of EDC being here and offering services for 70 years. We haven't really seen a great output in terms of increased risk and greater expansion into international markets. As I think you mentioned, Canadian businesses tend to be risk-averse. If we look at how we help companies expand and take that risk, what are some of the opportunities, and in particular for women? We've heard in this committee and others that women are often at a greater disadvantage when it comes to getting debt financing and cash flow financing, with limited networks. How do we also encourage more women to get involved in trade?

To Mr. Hart from Canada Post, one of the challenges with shipping that I know some businesses in my area look at is how long it takes to get the parcel—i.e., if we're looking at a good—across the border and then through customs. Many businesses will actually go through the commercial side, claim the item, pay the duty or whatever they have to do at that point, and then ship on the U.S. side. They're saying that's faster.

Those are two big topics, but perhaps you could speak to how to help grow opportunities for exporters and encourage people to get more involved in exporting.

[Rod Hart]

I can start with the shipping one, if you like.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

Thank you.

[Rod Hart]

In crossing borders, for us there are multiple parties involved. The first and most important is the border services agency. They perform a very important job in terms of what is admissible into a country.

Unlike the commercial stream, the postal stream requires that all items be presented to customs for their inspection. That inspection could include an X-ray. It could include a secondary inspection, unlike the commercial stream. In the commercial stream, it's a known shipper, and the known shipper therefore has a lower risk profile. They will only pick out the items they actually want to see. It's a very small fraction. On the postal side, it's more of an anonymous type of sender going to an anonymous receiver.

The cross-border time lag is very important and is starting to get tighter and tighter. We're recognizing the importance of the customs inspection process. One of the things we will be looking at in working with other posts and customs authorities is how to leverage data better. We will be looking at advance data to be able to streamline those processes so that they can see in advance what's coming to them. They don't need to sit on and hold everything and inspect everything or X-ray everything.

Certainly one of the things we're seeing with certain countries, and China would be one of them, is that when items are coming in, they want to see all of them. They want to X-ray everything. They're obviously looking for certain items in their inspection under their risk profiles. There are opportunities to streamline that, and we are working with other posts and customs authorities to do that.

[The Chair, Liberal, Mark Eyking]

Thank you. That wraps up your time.

We'll go to the Conservatives now.

Mr. Carrie, you have the floor.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

I want to continue with Canada Post with regard to the parcel side of the business. What do you see as the potential growth you have on the parcel side, as opposed to the door-to-door delivery type of thing? Is there a great upside in that regard?

[Rod Hart]

I'm sorry; I'm trying to understand your question.

[Colin Carrie, Conservative, Oshawa, ON]

There will be an expansion of e-commerce over the next few decades. What percentage of your business at Canada Post right now is the parcel service versus, say, door-to-door traditional delivery, and what's the potential?

[Rod Hart]

The parcel service is about a third of our business, and it is growing past that. It has been growing phenomenally, with double-digit growth. We'll see close to 20% growth this year over last year. We don't see that slowing down too much over the next number of years, partly because we think Canada has a lot more room to grow, with about 7% or 7.5% of total resale sales being online. I think in the U.K. and places in Europe it's in the mid-teens. There's a tremendous amount of upside.

We are certainly converting our network and transitioning our network from one that has been more mail-dominated with some parcels to one that is much more parcel-centric and that does some mail as well.

[Colin Carrie, Conservative, Oshawa, ON]

What about the potential for technological advances? I know that Amazon, for example, is directly thinking about drones or different ways of delivering. Is Canada Post looking at different forms of delivery? Where would you say you are on the map in that regard, as far as international comparisons are concerned?

[Rod Hart]

I would say we're not going to be cutting edge and bleeding edge on a lot of that technology. I would say that we are learning lots. We are exploring potential opportunities. When you think of how to service Canada and this incredible geography, you ask if there are opportunities for leveraging drones or others to get mail to certain parts of Canada more economically versus how it might be done today. We would certainly be more of a follower, but I would say that we're staying very close to what's happening in drones and unmanned vehicles and many of those technologies. We will have some of our engineering folk staying very close to that to see how it could be applied to Canada Post.

[Colin Carrie, Conservative, Oshawa, ON]

For rural and remote communities, I believe one of my colleagues talked a little about broadband and Internet service throughout. Would the ability for these rural and remote communities to have access to internet services help as far as expanding your business at Canada Post is concerned? Do you see a relationship there?