In September, The White House released a fact sheet announcing new actions designed to crack down on de minimis shipments.1 The current administration’s goal is “to address abuse/overuse by ecommerce platforms (notably China-founded)” and “strengthen efforts to target and block shipments that violate U.S. laws.” The de minimis exemption has been advantageous for ecommerce giants like Temu and Shein, but U.S. brands have benefitted as well. Many industry experts don’t feel the behemoths will be significantly affected. However, the question raised is: How will eliminating the de minimis impact smaller to midsized brands?
De minimis has become a key amendment to a U.S. trade law enacted nearly a century ago. The amendment to Section 321 of The Tariff Act of 1930 aimed to simplify customs procedures for low-value imports. The goal was to:
The de minimis value has increased over the years:
As global ecommerce grows, retailers have sought strategies to improve operational efficiency, save on costs and still offer an exceptional customer experience. In the case of the Section 321 exemption, trade policy has become a strategic lever.
In recent years, this has caused the number of de minimis shipments Customs and Border Protection processes to surge, raising concerns about the growing amount of shipments utilizing the de minimis exemption. According to the White House fact sheet, the number of de minimis shipments has increased over the last decade from approximately 140 million to over 1 billion per year.3
The Mexico-US-Canada free trade agreement allows for duty-free shipments of small consumer orders from Mexico and Canada to the U.S. Companies can strategically position internationally manufactured inventory in Canada or Mexico and streamline their cross-border logistics while capitalizing on duty exemptions.
Direct-to-consumer businesses and enterprises can use this approach to their advantage. It allows them to set up distribution centers near the U.S. border and deliver products more efficiently to American consumers.
Tapping into these existing trade agreements increases supply chain agility and creates substantial cost savings. Businesses can reduce import costs by avoiding direct importation into the U.S. and shipping through neighboring countries instead. This high-level strategy reflects the growing importance of trade policy as a competitive edge. It lets brands improve profitability while responding to the demands of a borderless consumer market.
There are groups concerned with the Section 321 loophole because it bypasses U.S. import duties. This can lead to lost tax revenue and unfair competition with domestic companies. This loophole may also enable the importation of counterfeit or low-quality goods without proper regulation, posing risks to consumer safety. In addition, the growing volume of de minimis shipments puts pressure on U.S. Customs and Border Protection resources, making monitoring and enforcing trade compliance harder.
The current administration announced actions to address the de minimis exemption loophole, looking to target China-based ecommerce platforms in particular – and while it targets China-manufactured products, it extends to textiles and apparel manufactured anywhere outside the U.S.4 The rule changes take aim at shipments that circumvent U.S. trade laws, health and safety standards and intellectual property protections.
The proposed rule changes would exclude the de minimis shipments subject to tariffs under Sections 201, 301 and 232 – and, in particular, textiles and apparel. Other key components of the rules are:
The de minimis rule changes seem likely to happen. This leaves questions regarding the timing and implications. The primary problems brands will face are supply chain disruptions and costs – both duty-related expenses, or potentially needing to move operations, especially if currently distributing from Mexico or Canada.
Brands have already begun to act, developing strategies to avoid supply chain disruptions, excess costs or significant effects on operations, and, in turn, their customers. In essence, they are looking to put contingency plans in place immediately, allowing them to pivot swiftly when the time comes.
Businesses that aren’t prepared could face major logistical challenges and financial impact – for example, when looking last minute for operational re-entry into the U.S., moving inventory and/or using a 3PL stateside. Consider the difference between shopping for a home in a buyer’s market versus a seller’s market. Slowly building a relationship with a 3PL in the U.S. now, you have more leverage regarding pricing, locations, space, etc. Like a buyer’s market, there is more inventory and flexibility.
If you wait until it’s emergent, you’re facing the seller’s market, limited by availability and seller’s controlling costs. It’s far more advantageous to strategize, plan and diversify now.
Join Cart.com for a discussion with supply chain expert Tim Manning, seasoned in emergency management, national security and resilience. He is the President of Berglind-Manning L.C., a consultancy specializing in national security and disaster preparedness. Manning has held key roles in government, including Deputy Administrator at FEMA and White House COVID-19 Supply Chain Coordinator. He has managed critical responses to national emergencies and led global disaster risk reduction initiatives. As a Research Professor at Georgetown University, he focuses on homeland security and global health policy. Manning is a published author and respected advisor, shaping policy on resilience and crisis management worldwide.
Our upcoming webinar, Understanding the 321 de minimis rule changes: What this means for brands, takes place November 1st, 2024, 12-1 EST.
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