The United States is poised to impose drastic changes on the de minimis rule, which permits personal imports of lower value than US$800 to be brought into the country without duties and customs clearance.
On September 13, 2024, the White House announced plans to limit the types of goods that can be imported under the de minimis exemption, as well as to require additional shipment information to be filed.
In a flanking move, the administration asked Congress to pass legislation before the end of the year. This would include the removal of products like textiles and apparel from de minimis eligibility and formalizing planned reforms to combat drug shipments.
The White House has been under mounting pressure to act. Two days earlier, a majority of Democratic members of the House of Representatives sent a letter asking President Joseph Biden to use his executive powers to end a “tariff loophole” that is being exploited by drug traffickers and Chinese e-commerce firms, they wrote. There are at least four proposed bills for legislation on Capitol Hill that would address the issue, but none of them has been passed so far.
Advocates of tighter rules have highlighted a litany of problems associated with de minimis imports, from fentanyl and other drugs and materials to produce them over counterfeit goods to products made with forced labour or items in violation of health and security regulations.
Forwarders have reported cargo owners breaking down shipments into smaller consignments to nudge their value below the US$800 threshold and avoid duties.
The explosive growth of de minimis traffic to staggering dimensions has added to the alarm.
The volume surged from about 140 million shipments in 2013 to over 4 billion last year. The total value of such shipments more than doubled from 2014 to US$23.4 billion last year, which established it as the 12th largest U.S. import category. According to the U.S. government, de minimis shipments account for about 40% of U.S. imports.
Much of this traffic originates in China, which is the primary target of efforts to curb de minimis traffic besides the flow of drugs through this channel. De minimis shipments from China more than doubled since 2014 to over US$4.6 billion.
Users of air freight may want to join in the clamour for a clampdown. Ecommerce has allowed the air cargo sector to defy gravity in the face of weak manufacturing and trade dynamics by filling planes, taking up capacity out of Hong Kong and China with chartered freighters.
This has caused fears of a lack of air freight lift during the peak season. For their part, airlines have refrained from committing capacity to forwarders as they are holding back space for juicier rates ahead.
They are already high. In the week ending September 8, 2024, spot rates from China to the U.S. were up 30% year on year.
It remains to be seen how exactly Washington is going to try to curb e-commerce flows.
On the face of it, changes in tariffs are probably not going to have much of an impact. With tariffs expected to be in the region of 7.5 to 25%, this would be negligible, as prices on Temu and Shein would still be massively lower than those North American producers could muster.
More stringent data requirements and the associated filing requirements are viewed as a bigger potential obstacle. By one estimate, costs related to those would explode from 8 to 15 cents per package to US$15 to US$50, which would likely prompt many U.S. online shoppers to abandon their orders and look elsewhere for comparable products.
Moreover, delivery times would jump two to threefold by some estimates.
A move by U.S. Customs and Border Protection (CBP) to enforce these requirements and refuse entry to any shipment where the required data are not submitted by the time the shipment lands in the U.S. alone may not stem the tide.
CPB clamped down on e-commerce shipments that lacked the necessary documentation at the time of landing in the U.S. back in May, but this effort does not appear to have slowed the wave of e-commerce entering the U.S.
CBP was supposed to enforce tighter data requirements on incoming de minimis shipments by automatically rejecting any parcel not accompanied or preceded by the requisite information in mid-September but announced a little while before the date that it was going to push it back to early next year.
This means customs enforcement of rules would not hamper e-commerce flows during the 2024 peak season.
A number of observers have noted that CBP lacks the resources to mount a sustained effort to stem the tide of e-commerce shipments.
Some argue that the whole effort could end in failure. Niall van de Wouw, chief air freight officer at Xeneta in Amsterdam, stated that the de minimis element is not central to the strategies of large Chinese e-commerce players.
“Shein and Temu were not set up to expose a loophole in de minimis regulations. The cornerstone of the e-commerce business model is the massive and seemingly insatiable consumer demand in the West for low-cost fast-fashion, apparel and textiles,” he said.
“More than a billion shipments now enter the U.S. under de minimis exemption each year, with the majority originating from Chinese e-commerce platforms. This extraordinary level of demand is not going away, and the genie cannot be put back in the bottle,” he continued.
For its part, Shein does not appear fazed by the White House’s plans. In response, the company reiterated comments made last year by its executive chairman, Donald Tang, when he expressed support for a de minimis reform that would “create a level, transparent playing field – where the rules are applied evenly and equally.”
Observers like freight booking platform Freightos doubt that the large Chinese e-commerce players, who are the primary targets of Washington’s efforts around the de minimis theme, would be seriously impeded. Freightos noted that Temu and Shein have been able to subsidize their use of air freight and will continue to do so.
At the same time, “both are exploring efforts that include shifting to ocean freight and establishing warehouses in the U.S.,” which would be a boon to delivery speeds, Freightos pointed out.
By Ian Putzger
Correspondent | Toronto