President Donald Trump’s weekend order eliminating a duty-free exemption for low-value e-commerce shipments from China, Mexico and Canada could upend business models for many companies engaged in international trade, but stakeholders say the air cargo sector could take the biggest hit. 

Chinese and U.S. marketplaces like Shein, Temu, AliExpress, Amazon and Shopify also could be significantly constrained in the short term.

The U.S. imported more than 2.5 million tons of cargo by air from China last year, including about 1.3 million tons of cheap e-commerce products that are potentially impacted by the U.S. decision to close the trade privilege, starting on Tuesday. The rest is general cargo now subject to a new 10% tariff on Chinese goods, according to data from Netherlands-based air cargo consultancy Rotate. 

Electronic retailers, logistics service providers, express carriers, customs brokers and others are scrambling to understand the new rules and how to reorient workstreams accordingly. Trade professionals say they are confused about how to adjust operations with only a vague announcement from the White House and few answers so far from U.S. Customs and Border Protection. The situation is still very fluid and projected impacts could change depending on whether President Trump changes his mind -as he did Monday giving Canada and Mexico a one-month reprieve on 25% tariffs – or the types of coping mechanisms companies identify.

Companies knew changes were coming after the Biden administration in mid-January gave notice that cheap imports would lose duty-free status if they are subject to tariffs or national security restrictions, a move that primarily targeted China. 

The difference is that Trump invoked rarely used emergency economic powers, on the premise of stopping fentanyl smuggling, to implement an immediate and all-encompassing ban. Biden followed standard procedure for a regulatory change by providing a 60-day comment period, after which CBP would take several months writing a final rule. His proposal to limit eligibility would have covered about 50% to 70% of de minimis traffic from China, according to various estimates. 

The de minimis provision under U.S. trade law exempts goods valued at $800 or less shipped to a single person per day from duty and taxes, and most of the information needed for a formal customs entry. 

Large online retailers, led by Shein and Temu in China, took advantage of the provision in 2023 to legally skip import taxes by shipping direct to consumers instead of to U.S. agents who de-consolidate containers in a warehouse and send individual packages to customers’ doorsteps. The model relies almost entirely on airfreight. Chinese e-tailers kept planes full by renting entire freighters and reserving blocks of space on commercial aircraft to meet customer promises for fast delivery.

In the process, e-tailers rescued the air cargo sector from a recession and pushed it to 12% growth last year. As the e-commerce surge accelerated in the fall of 2023, air cargo rates from China to the United States climbed to more than $6/kg and stayed in the $5-to-$7 range last year, before dipping after the peak season. E-commerce now accounts for one-fifth of airfreight volume and more than 50% of air cargo volumes out of Asia. 

“We can expect to see these companies begin shipping most items in bulk rather than single parcels, which will reduce speed to market and increase the amount of inventory held in the U.S. This could mean a permanent shift from air freight to ocean shipping,” said Tony Pelli, director of supply chain resilience at BSI Consulting, by email. 

Demand from Chinese e-commerce sellers has been so great that it squeezed traditional users of air cargo, such as automotive, pharmaceutical and electronics manufacturers, who had difficulty finding capacity at reasonable prices.

“Closing de minimis to Chinese imports could sharply reduce air cargo volumes from China to the U.S., which would result in significant downward pressure on transpacific air cargo rates and could also lead to lower rates across the air cargo market as capacity currently absorbed by transpacific e-commerce goods is released back into rotation,” said Judah Levine, head of research at Freightos, a freight booking and payments platform, in a blog post.

Anthony Pizza, vice president for business growth and innovation at parcel delivery service SpeedX, told FreightWaves he wouldn’t be surprised if air cargo rates plunge soon. “There will be a massive lapse in airfreight demand as people try to figure out” a new pathway.

CBP says it processes more than 4 million de minimis shipments per day. 

“If that goes to 2 million or 3 million per day that will have a big impact on the amount of airfreight capacity they [Chinese marketplaces] are buying and could result in there being an over capacity situation in many markets. And that will have a negative impact on yields and everything else,” said Neel Jones Shah, a former high-ranking air cargo executive at United Airlines, Delta Air Lines and logistics provider Flexport, in an interview. “Overall, this is not good news for the air freight industry by any stretch. I just don’t know how bad of news it is.”

Levine, in another blog posted on Tuesday, said the rate decline could be dramatic but it won’t be immediate because of the Lunar New Year celebration in China, during which factories close and there is much less demand for airfreight. Freightos estimates that a total exit of e-commerce parcels from the air cargo mode could force down air cargo rates from China to the U.S. by 30% to about $3.65/kg from the current $5.09/kg.

That worst-case scenario may not fully materialize because it isn’t clear yet that all e-commerce would shift from air cargo. Or, it could be worse. Rates in 2023 were elevated because air capacity was still rebuilding from the Covid crisis. Industry capacity is now at a record high as passenger airlines have fully restored their networks, which suggests that global and local rates could fall further, Levine noted. 

“So if this exodus of e-commerce from trans-pacific air is significant and abrupt, the spike in available capacity on this lane could push rates below $3.00/kg, especially while carriers are still shifting freighters back to other lanes – which likewise could spread the rate decrease to other trade lanes,” he said.

Brian Bourke, chief commercial officer at Chicago-based Seko Logistics, was sanguine about any potential disruption for the logistics sector. The announcement has created uncertainty and will have a short-term impact, he said, but the industry is used to adjusting to changing regulatory environments and has proven its versatility in recent years adjusting to changing regulatory environments and diversifying production sources. 

Retooling cross-border e-commerce

According to CBP,  61% of all de minimis entries come from China alone. 

As de minimis air volumes ballooned, sellers quickly shifted to a voluntary entry process called Type 86 because automated CBP clearance can be completed in minutes rather than days. In exchange for speed, companies provide more data, including full product descriptions and harmonized tariff codes. The program quickly became so popular that CBP was overwhelmed by the volumes. The agency says it is difficult to screen products coming through the de minimis program because of the limited and vague data provided.

Freight forwarders and customs brokers profit if they can process the entry type in high volumes.

The de minimis cutoff from China will have a material effect on SpeedX, which helps e-tailers clear parcels through customs and then handles last-mile delivery, Pizza said. 

Temu and Shein, which alone accounted for a third of de minimis shipments in 2023, will now be subject to tariffs of up to 35% and higher customs processing fees, eroding their cost advantage, supply chain experts say. The National Foreign Trade Council, a pro-trade advocacy group, calculates that without de minimis the average $50 package would require about $31 in paperwork, a brokerage fee of $20, plus tariffs and taxes, which would more than double the delivery cost.

Amazon, which last year began selling China-sourced goods directly to consumers through de minimis to compete with the Chinese e-commerce companies, e-commerce infrastructure provider Shopify, as well as express carriers FedEx, DHL and UPS are also likely to be impacted, BSI’s Pelli said.

The Chinese marketplaces were already preparing for more restrictive de minimis rules by building millions of square feet of U.S. warehouses the past couple of years to support a more traditional B2B2C fulfillment model, logistics executives said. That means Temu, for example, will consign goods to its U.S. entity, clear them via a formal customs entry, pay duty and truck them to a fulfillment center, where they will be stored, picked, packed and delivered.

“The structure will, no doubt, change and I think that the added cost, unfortunately, will be passed on to the customer,” Pizza said.

Jones Shah said e-commerce players will still utilize air cargo for overseas fulfillment because they can’t preposition every type of product. 

And, a lot of Shein and Temu vendors will continue to relocate from China to Vietnam, Thailand and Malaysia, which will enable them to send de minimis shipments from the factory to the U.S. by air, explained Derek Lossing, the founder of e-commerce consultancy Cirrus Global Advisors.

Mexico backdoor closed

The White House on Monday afternoon announced that tariffs on Canada and Mexico received a 30-day pause after both countries offered to work out differences with the administration. But the reversal doesn’t impact de minimis because the executive order applies to the country of origin, which means businesses can’t stage Chinese inventory in Canada or Mexico and move it to the U.S. by ground transportation when consumers place an order.

Mexico was also removed as a bypass option last month when the government, without warning, imposed a 35% duty rate on raw materials and parts for apparel manufacturers participating in the IMMEX program, which facilitates duty deferral and taxes for goods that are reexported. The move was seen as a way for new President Claudia Sheinbaum to protect the Mexican apparel industry and also placate Trump’s interest in minimizing China’s ability to export from Mexico. The new rules also eliminated the ability of certified manufacturers – or maquiladoras – to recover import duties at the time of exportation.

Carlos Sesma, senior partner at the Mexican law firm Sesma, Sesma & McNeese, said on the Logistically Speaking podcast that Temu, Shein and AliExpress took advantage of IMMEX by applying a small amount of added value to products, such as embossing a label, to qualify as a manufacturer.

Analysts have mixed views on how consumers will react if e-commerce sellers pass on import fees and duties. One school of thought is that people will curtail orders because of prices and longer transit times. Others argue that the insatiable appetite in the U.S. for low-cost fashion, apparel and household goods cross-border shopping won’t be blunted if the price of a shirt goes up $4 because it will still be much cheaper than store-bought apparel. 

“E-commerce volumes out of China grew 20-30% last year, so it’s going to take a sledgehammer to crack that level of consumer demand,” said Niall van de Wouw,” chief airfreight officer at freight analytics firm Xeneta.

Meanwhile, even if the White House lifts or postpones the de minimis ban on Chinese goods, there is significant momentum in Congress to reduce the de minimis threshold, which was $200 a decade ago. That would be a preferred outcome for de minimis supporters because most low-value shipments would still fall well below that threshold.

Click here for more FreightWaves/American Shipper articles by Eric Kulisch.

Write to Eric Kulisch at ekulisch@freightwaves.com.

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