Logistics firms that focus on ecommerce are bracing themselves for a rocky May, when the US fully withdraws de minimis exemption for online purchases from China and Hong Kong.
The firms are advising clients to prepare for disruptions and delays – one is predicting “chaos after chaos”.
Yesterday, the White House doubled down, updating its de minimis rules for Chinese imports by increasing the ad valorem duty from 30% to 90%, increasing the $25 charge imposed from 2 May to $75 and, from 1 June, raising it again, to $150.
Unlike industrial importers, which currently have no indication if, or when, tariffs from locations they are sourcing from will be adjusted, the ecommerce sector has a firm deadline: from 2 May all parcels from China will have to undergo customs clearance.
“Compared to the tariffs, de minimis seems to be the least of the problems,” said Rick Watson, CEO and founder of RMW Commerce Consulting.
“De minimis was going to happen anyway. People figured this was going to change,” he added, pointing out that the Biden administration had already set the wheels in motion for this.
“There is still plenty of uncertainty,” added Brian Bourke, chief commercial officer of Seko Logistics. “We have to watch the news by the hour,” he said, pointing to frequent changes in tariffs and statements from Washington.
Canadian logistics provider eShipper has been busy educating clients about information requirements for an undisrupted clearance process and how to fill in customs forms for shipments entering the US.
“The most important thing is to be compliant. The cost of non-compliance is a lot higher,” said Imtiaz Kermali, eShipper’s VP sales and marketing.
After the de minimis exemption for ecommerce goods from China is removed, the next step will be formal entry clearance. Type 1 is for sellers that register as the importer of record, while Type 11 allows a third party, like a logistics provider, to act in this role.
“If I do that, I take the risk of paying the tariff, of ensuring of what’s in the box is real and charging the customer for the tariff. That’s a whole bunch of headaches,” Mr Kermali said.
This is novel territory, so nobody offers insurance on this at this point, he added.
Another headache is over US Customs & Border Protection’s (CBP) ability to handle the avalanche of clearances by May. The quick end to the initial withdrawal of de minimis on China-origin parcels in February illustrated that the agency did not have the capability to do this, and most observers reckon it will take some time before it has the necessary system, tools, and staff levels.
Last year, more than 1.3bn de minimis shipments, with a total value of $64.6bn, entered the US, 60% of them originating in China. On average, more than 4m ecommerce shipments arrive in the US every day.
“A lot is coming down to AI. CBP is going to use more technology to identify shipments they think they need to inspect,” Mr Kermali said.
However, when it comes to the clearance process, he expects problems and delays. eShipper is telling customers to brace for delays and that it is going to be a bumpy ride.
“Once it [the end of de minimis exemption] happens, it’s going to be chaos after chaos,” Mr Kermali said.
Mr Bourke said the previous experience had provided valuable lessons that should help navigate the challenges. Still, he expects disruptions.
“With any change as significant as this, you can expect delays all around,” he said. “It’s a challenge across the board.”
There is a good chance that volumes will be a little less heavy. Already there are signs of slowing traffic, said Mr Kermali, who expects orders to shrink while prices rise.
Already, many sellers are raising pricing, apparently in a strategy of gradual increases to avoid the shock of an abrupt surge hitting the consumer.
And consumer confidence is brittle, Mr Watson noted. Not only are shoppers facing higher prices, but the spectre of a recession is clouding job prospects, while employees in the civil service are worried about wholesale job culls, he pointed out.
Mr Bourke said the number of sellers looking to do direct fulfilment from US locations is going to rise, a strategy that embraces ocean transport feeding US warehouses rather than direct airfreight shipments out of China.
Indeed, Amazon Haul, a competitor to sites like Temu, has begun to list more inventory, including US apparel, which is shipped within the US and with shorter delivery times. But Haul items will continue to ship from a variety of locations, Amazon told media. It said it was adding branded products in fashion, home and beauty.
Despite the threat to airlines of the ending of the de minims exemption, Mr Bourke does not see airfreight falling off a cliff, though.
“It does not undermine the case for airfreight. The formula why that’s popular still exists. The consumer can find a deal, and the shipper does not need to have inventory and working capital tied up,” he explained.
