News / Alarm bells ringing with the end of de minimis – ultimately it will add costs

US Customs and Border Protection (CBP) isn’t the only outfit struggling as it faces the end of the de minimis exemption of parcels from China.

As abruptly as it had been introduced, the withdrawal of de minimis status from e-commerce imports from China into the US was suspended three days later, buried in a rapidly rising mountain of parcels.

CBP simply wasn’t able to handle the volume of parcels that piled up at an alarming pace. By the time the US government suspended the measure, more than a million were sitting at New York’s JFK airport alone waiting to be processed.

In order to give CBP time to develop an adequate methodology and the necessary resources to cope, the government had to pause its executive order, setting a target date of 1 April for a review with recommendations from federal agencies.

Few people in the industry believe the CBP will be ready by that date. One forwarder executive noted that the agency has to develop and install new IT systems and expand its workforce. Ironically, one reason why the Obama administration raised the de minimis threshold to $800 was to alleviate the pressure on CBP.

Others are also struggling. The US Postal Service is not set up to process tariffs, nor does it have the technology to manage the data requirements associated with commercial shipments that require customs clearance. Some observers reckon the agency will have to partner with a customs brokerage, but even that would be an awkward solution.

The integrators are in a better position, as their systems and the data they gather allow them to process parcels under the new regime without having to invest in technology, noted John Haber, chief strategy officer of Transportation Insight. Moreover, they have customs brokerage arms.

Still, the end of the de minimis exemption for e-commerce from China is giving them headaches.

Currently they figure as the ‘importer of record’ for de minimis shipments in their networks. As long as no duties and customs processing fees are required, this means little more than ticking a box, but without the exemption they will have to pay the duties themselves and claw that back from consumers. Alternatively, they could transfer power of attorney to the consumer, which is a rather complicated customs procedure that would require additional manpower.

Fronting customs charges could hit the integrators’ bottom lines if parcels cannot be delivered or the consumer declines the shipment. Mr Haber noted that in many cases, the value of the merchandise ordered is very low, so faced with $25-$30 for duties and fees, many consumers will likely refuse to accept shipments.

But these problems pale in comparison with the question of where to put parcels as they await clearance.

“Those parcels have nowhere to go,” Mr Haber observed, adding that integrators and other logistics providers would be loath to take on warehouse space. “There’s a lot of cost associated,” he said.

At airports, typically the free storage period for shipments ends after two days, starting the clock on storage charges.

In all likelihood, the torrent of de minimis shipments moved by airfreight will slow drastically, as the advantages in terms of speed and cost hitherto associated with this mode are severely curtailed. E-tailers like Temu have already begun to ship product in consolidations, by ocean, for distribution from warehouses in North America. Mr Haber sees broad change in shipment strategies looming.

“For a lot of companies the end of de minimis changes their supply chain, the way they pick and pack and fulfil, the transport modes that they use, and the materials for packaging their shipments,” said Mr Haber, and he has no doubt about the ultimate impact.

“There are many things in this that will drive additional cost,” he said.