The end of duty free and easy purchasing from overseas

The $800 personal de minimis exemption of customs, duties and regularly documentation on personal overseas purchases has been eliminated.

What would the demise of de minimis mean for supply chains? | Supply Chain Dive

DEEP DIVE
What would the demise of de minimis mean for supply chains?
E-commerce companies rely on the exemption to sell U.S. consumers low-cost goods. Experts say they need to be prepared for a change.

Published Aug. 15, 2024

Max GarlandSenior Reporter

A worker bring boxes of flowers into the Avianca Cargo Warehouse before they are inspected by U.S. Customs and Border Protection at Miami International Airport. The agency is grappling with an increase in volume that falls under the de minimis threshold. Joe Raedle via Getty Images
Editor’s note: This story is part of a series on the de minimis rule’s supply chain impact and its uncertain future.

The de minimis exemption: An amendment to U.S. trade law written nearly 100 years ago that has become a key fixture in cross-border e-commerce supply chains.

But how much longer it will exist in its current state is anyone’s guess.

For now, the provision allows companies to avoid duties and taxes for imports below $800. Utilizing the exemption aids fast-rising e-commerce marketplaces like Temu and Shein’s efforts to sell products at ultra-low prices. It can also help companies address consumer trends quickly and ship a wide range of SKUs while mitigating inventory glut, experts say.



That’s why companies in a wide range of sectors — from apparel and consumer goods to health and beauty — have embraced de minimis, said Brian Bourke, global chief commercial officer at Seko Logistics. Consumers, meanwhile, reap its benefits because they can select from a variety of options at nominal cost.

However, changes may come for de minimis regulations in the near future, as U.S. lawmakers and officials look to curb China’s influence and combat contraband entering the country via low-cost packages. While this could complicate cross-border e-commerce operations, consumer behavior will ultimately dictate how much supply chains adjust, industry observers say.

“These regulations will continue to change,” Bourke said. “What won’t change is the demand for international postal shipping.”


U.S. Customs and Border Protection has faced a surge in de minimis shipments as Americans continue to embrace e-commerce.
“Washington D.C.” by Mobilus in Mobili is licensed under CC BY-SA 2.0

De minimis evolves with e-commerce’s rise
Section 321 of the Tariff Act of 1930, known as the de minimis exemption, permits merchandise shipments with a retail value below a certain dollar amount to be imported duty and tax free. Originally introduced as an amendment to the act in 1938, the exemption allowed a person to bring up to $5 worth of goods into the U.S. for personal use without having to pay duties.

“The provision over the years was really intended more for the individuals who go on a cruise or fly to Europe, and they come back with their souvenirs or that beautiful new leather purse or belt from Italy,” said Lenny Feldman, general counsel and customs counsel to the National Customs Brokers and Freight Forwarders Association of America.

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Lawmakers raised the $5 threshold incrementally over the years until it jumped from $200 to $800 in 2016 under the Trade Facilitation and Trade Enforcement Act. The new law expanded the scope of what could be shipped duty-free as Americans became more accustomed to ordering goods from around the world. The COVID-19 pandemic further entrenched those habits.

Today, companies typically leverage the de minimis exemption for direct-to-consumer parcels transported via air cargo to limit their costs while meeting sustained e-commerce demand. This can potentially lead to millions of dollars in savings for larger retailers and marketplaces, Feldman said.

Temu and Shein have emerged as go-to examples of companies with de minimis-reliant supply chains amid the e-commerce outlets’ rising popularity among American consumers. The companies are likely responsible for more than 30% of all U.S.-bound daily volume that falls under the provision, according to a 2023 report from the House of Representatives’ Select Committee on the Chinese Communist Party.

Even Amazon has taken notice of the direct shipping model, with The Information reporting in June that the e-commerce giant plans to launch a discount section on its website that will ship from warehouses in China directly to customers.

Plenty of other brands are also using the de minimis exemption to their benefit, said Izzy Rosenzweig, founder of e-commerce fulfillment company Portless, which helps shippers utilize a Shein or Temu-like model by providing direct cargo flights from China to last-mile fulfillment centers in the U.S.

“Fundamentally, this model is run by efficiency of inventory management.”



Izzy Rosenzweig

Founder of Portless

Rosenzweig says the model’s advantage goes beyond avoiding added costs — businesses can respond quickly to consumer trends and keep inventory lean by shipping products straight from the factory to end customers. It’s one leveraged by Shein, which minimizes the supply-demand gap by manufacturing new products in small initial batches of 100 to 200 items, according to its website. It then produces more of the products that receive high customer interest.

 

The new rules require that the US recipient include his or her Social Security number in the bill of lading.

How many here are willing to do that?

 

Still, the recipient will. Have to verify his or her name and address and show valid ID when paying customs duties and tariffs.

There will also the need to provide Consumer Products Safety Commission and UL or ETC compliance.