Don’t Blame the Higher Price of Goods in Canada versus the U.S. on Transportation Costs

There is in interesting article in the Thursday issue of the Toronto Globe & Mail that addresses the issue of the differential on the price of goods in Canada versus the U.S.  The situation has become so ludicrous that the article makes reference to Canadian manufactured goods (e.g. Ziploc bags) retailing at a higher price in Canada as compared to the United States. 

Even Canada’s Finance Minister, Jim Flaherty, is at a loss to explain the persistent price gap.  In a brief to the senate national finance committee he wrote, “Canadians are rightly irritated when they see large price discrepancies on the exact same products being sold on different sides of the border. . . I share this irritation.” 

Retail chains such as Costco Wholesale Canada Ltd. blame their global suppliers for charging higher prices in Canada that push up the retail prices on items such as soap and toothpaste as much as 30 percent more than in the United States.  Manufacturers blame retailers for imposing stocking fees and blame their government for imposing bilingual labels.  Nancy Croitoru, president of the Food & Consumer Products of Canada blames the variance on the higher cost of doing business in Canada due to smaller, more dispersed markets which drive up transportation costs.  

Let’s take a look at some of these arguments in light of some other data presented in the report.  J. Crew, the famous U.S. retailer opened in Canada last month with a 15 percent premium on Canadian goods and a steep tax on online purchases.  A week after they opened, they backtracked and dropped the online duty charge.  Abercrombie & Fitch, another major retailer displayed higher Canadian and lower U.S. prices on its price tags.  It backed down and made the two sets of prices equal.

Jim Saunders, a practice leader at consultancy Pricing Solutions in Toronto made this refreshingly honest statement.  “It’s really about what the consumer is willing to pay.”  Thank you Mr. Saunders for telling it like it is.  For many years, the Canadian dollar was well below the U.S. dollar in value.  Canadians have become accustomed to paying more for American made goods. 

But those days have come and gone, for now.  The fact that there is so little full disclosure, the fact that the evidence of higher costs in Canada is so hard to find, the Ziploc example, the fact that even the Federal Finance Minister is voicing skepticism, says there is something not quite right here that needs to be fixed, and soon.

As far as the issue of small markets and higher transportation costs, let’s look at the facts.  Most Canadians live within a 100 hundred mile radius of the U.S. border, not near the North Pole.  A closer look at the facts will tell you that many Canadians live in the major urban areas - - - Toronto, Montreal, Calgary, Edmonton, Vancouver.  While the U.S. is ten times the size of Canada that means that it has ten times as many small markets as there are in Canada.

Does it cost more to ship a truckload of furniture from Grand Rapids, Michigan to Toronto than it does to L.A.  Does it cost more in freight to ship a load of fruit juice from Newark, New Jersey to Montreal versus Dallas, Texas?  If transportation costs are an issue, why don’t consumers in L.A. and Dallas pay more for these specific goods as compared to consumers in Montreal and Toronto?  Why aren’t retail prices created based on distance from the manufacturer versus than the country in which they are sold?

This artificially created price discrepancy is hurting Canadians and the Canadian economy.  It reduces the purchasing power of Canadian citizens and causes unnecessary inflationary pressure.  More purchasing power will allow more Canadians to buy more rather than less goods and services.  We need a public inquiry to get to the bottom of these unfair and harmful business practices.  We need to bring the prices of goods down to help Canadians cope better with these difficult economic times.