Exempting Goods Made in China From de Minimis Causing Headaches Early On, Experts Say

Some logistics providers also are grappling with accommodating the sweeping changes, according to sources.

The challenge stems from transitioning from using de minimis as defined in Section 321 to entering the goods via Entry Type 01, which is a formal entry, or Type 11, which is an informal entry. But in doing so, these products are now subject to new 10% duties as well as any other punitive duties, like Section 301, and normal Column 1 duties, according to Amy Magnus, director of customs affairs and compliance for customs broker A.N. Deringer. Product importers also will have to pay merchandise processing fees.

"Many importers will change their strategies and will enter full loads now rather than the small packages which were formerly duty free," Magnus said in an email.

She continued, "If we’re only talking about de minimis, shippers handling these goods are going to have to change quite a bit. Many of their systems are set up to handle Section 321, and they have collected the data required for Section 321. Now, under this new rule, different data is required for formal or informal entries, so that’s an adjustment that will need to be made in addition to many others."

For some importers and shippers, the software to facilitate this entry processing is already in place, according to Jim Masloski of Customs Direct in South Dakota. His firm deals primarily with shipments across the northern border.

However, some shippers aren't as familiar with the new procedures. Furthermore, some carriers are also experiencing issues with this new change, Masloski told ITT.

"There hasn't been any major issues with the software vendors that we use," he said. However, "when you get to the shippers and the carriers, again I'm gonna have to say we're small-to-medium in regards to our volume, but with the impact it had on the carriers on the northern border, they've stopped clearing Section 321. All entries are required."

Masloski continued: "We are getting multiple calls hourly in regards to customers that are trying to figure out how to process the informal/formal process. So they're holding off on shipping. If we're seeing problems hourly, I can't imagine what the larger firms are seeing in regards to the thousands of customers they have. We're getting 50 to 60 calls in an eight-hour period. The phone is growing out of my ear. We've got processes that we can implement, [but] they're not used to it. The cost is an impact because for that type of service it's a different pricing model, and they have to fit that into their margins."

The changes in de minimis policy are also expected to roil the air freight market, which transports high volumes of cheap e-commerce goods from China, as well as the parcel market and express couriers like UPS, said Mike Baudendistel, head of intermodal solutions for freight data analytics firm Sonar, during a Feb. 4 webinar on Trump's tariffs.

Indeed, these changes caused the U.S. Postal Service to temporarily suspend the processing of packages from China for several hours earlier this week (see 2502050068). Processing resumed after USPS and CBP started working together to implement an efficient collection mechanism, USPS said.

FedEx spokesperson Isabel Rollison told ITT that shipments are continuing to move through FedEx's network between the U.S. and China as the express courier adapts to compliance changes.

"We remain focused on supporting our customers and working with them to adapt to the substantial changes resulting from the recent tariff announcements," Rollison said, adding that FedEx "has an experienced team of clearance and compliance experts who are working around the clock."

USPS' challenges come as CBP also must process significantly higher volumes of packages, according to Luis Arandia, partner at Barnes & Thornberg.

"Since the implementation of the China tariffs, I have not had discussions with CBP on the issue yet," he said in an email. "But, without a de minimis exemption, CBP will need to process millions of additional packages per day. ... Processing a greater amount of packages with new tariffs will likely require new processes."

CBP didn't immediately comment.

Brokers, Importers Try to Figure Out Next Steps

To accommodate the new filing restrictions, shippers will need to brace for potentially higher costs, Masloski said.

"Some of these shipping companies are going to adjust if they've got the margins for it. They will adapt," he said. "I think you'll see some different trade flows that occur out of this that haven't happened in the past because of the ability to use de minimis in bulk shipments with different modes, going the informal/formal route. Depending on what their data quality is, it's just another form of doing business."

Arandia echoed Masloski's comments. Additional costs might include the use of a customs broker to enter required information to CBP, like tariff classification, origin and value, as well as a customs bond if a formal entry is filed, he said

Low-value importers "will now have various legal obligations to comply with U.S. customs law" when filing entries, such as "recordkeeping and ensuring the tariff classification is correct," Arandia. "Thus, the Chinese e-commerce firms (specializing in fast fashion and other consumer goods) will be directly impacted and these firms will likely need to raise prices."

Another outcome of this change could be needing to move from a business-to-consumer model or B2C model to a "B2B2C" model, according to Vince Iacopella, executive vice president of strategic growth and president of government and trade relations for Alba Wheels Up, a customs broker.

"Out of China, we see importers that were leveraging de minimis [now] moving those to a formal entry environment, going from a B2C, business to consumer, to maybe a B2B2C. That's what we see from China," Iacopella said.

Another adjustment companies must make is to embrace a willingness be flexible and file different types of entries in different circumstances, Iacopella said.

"Direct-to-consumer is really a way somebody buys something. It's not the way something is filed," Iacopella said. "I think there's going to be a shift away from defining direct-to-consumer as a way you file something. We're going to be filing things in different types of entries, within the regulation, whether they be 01 or a new enhanced de minimis. And as brokers, we have to be adaptable and ready to file along the lines of the regulation, in a compliant way, and along the lines of what our customers' needs are."

Should the ban on using the de minimis exemption for low-value goods made in China continue, one outcome could be smaller American companies with a manufacturing presence in China seeking to be acquired by an entity that shares a similar customer profile because they don't have the capacity to relocate, according to Maggie Barnett, CEO of LVK Logistics, a third-party logistics firm whose clients come from the apparel, footwear, CPG and electronics sectors.

This situation would be more likely for businesses that are on Shopify, as well as those that might produce smaller electronic products, Barnett told ITT.

As brokers and importers accommodate these changes, Iacopella noted the distinction between CBP and other federal agencies involved with making these changes in de minimis, particularly as it relates to products made in China.

"CBP doesn't really make the policy. They have to enforce what the rules are," he said.

Regardless of how quickly the changes in customs actions come, importers must remain on top of the situation, he continued.

"The only thing that's certain is, there's going to be a lot of change, and you just have to be agile about what's coming. How do I file something to get it in -- is it dutiable or not dutiable, and then, what is it doing to my supply chain? What changes do I have to make to the supply chain if I'm not going to the southern border or if I am staying on southern border, if I'm going direct to L.A. or New York," Iacopella said.

"From the customer perspective, they still need to perform. They still need to get their product to their customer or their factory. We need to focus on a predictable outcome for the customer in a non-predictable environment," he said.