Coping with Trivial Change: Implications for Global E-Commerce

• How have other countries recently adjusted de minimis thresholds, and what impact have you observed on international e-commerce?

Some countries have recently lowered or eliminated minimum thresholds. For example, the UK and EU have completely eliminated tax thresholds. Canada has also implemented tighter controls, introducing a new software system for customs brokers to enable tighter inspections.

Also read: E-commerce Logistics: Challenges and Solutions in 2024

These changes have had a significant impact on international e-commerce. We are observing increased costs for merchants, who must now either absorb these new taxes and duties or pass them on to consumers. In some cases, customs clearance processes have also slowed down significantly as more shipments need to be inspected and assessed.

For e-commerce companies that had previously “flyed under the radar” by leveraging high minimum barriers, these changes have forced a dramatic shift in their operations. They are now required to provide more accurate declarations, appropriate valuations and detailed product descriptions, which increases their operational complexity and costs.

• How will changes to U.S. minimum rules affect U.S. businesses exporting to other countries?

Changes to U.S. de minimis rules could have a variety of impacts on U.S. businesses exporting to other countries. First, it could lead to reciprocal action by other countries. If the United States tightens rules, other countries may impose stricter regulations on products imported from the United States, potentially increasing costs and complexity for U.S. exporters.

In addition, U.S. businesses may face increasing competition in foreign markets. Currently, the U.S.’s higher minimum thresholds give foreign companies an advantage when selling to U.S. consumers. If this advantage weakens, U.S. companies may find it easier to compete at home, but may face greater competition abroad as foreign companies turn their attention to their home markets or other international destinations.

Ultimately, these changes may lead to a shift in global e-commerce strategies. U.S. businesses may need to re-evaluate their international shipping and pricing models, which could lead to more localized inventory strategies or greater use of fulfillment centers in target markets to more effectively address different minimum thresholds.

• If the U.S. implements stricter minimum rules on textiles and apparel, what are the potential knock-on effects on global supply chains?

If the U.S. implements stricter minimum rules for textiles and apparel, we could see a significant reorganization of the industry’s global supply chains. Currently, many fast fashion and e-commerce companies rely on high barriers to entry in the United States to provide low-cost, direct-to-consumer overseas shipping. Stricter rules may force these companies to rethink their distribution models.

This could lead to increased nearshoring or reshoring of textile and apparel production. Companies may choose to manufacture or at least warehouse their products near or within the United States to avoid the complexity and cost of low-value shipping across borders. This shift could benefit Central and South American countries as potential alternative manufacturing hubs.

Additionally, we may see consolidation in the e-commerce apparel market as a result of these events. Smaller businesses that have been taking advantage of the de minimis rules may struggle with increased costs and complexity – although there’s a lot to look at here – which could result in a market driven by larger companies with more resources to meet these new challenges.

• Do you think these proposed changes to the de minimis rules will affect the competitiveness of U.S. businesses in the global e-commerce market?

The proposed changes to the de minimis rule could have complex effects on the competitiveness of U.S. businesses in the global e-commerce market. On the one hand, these changes could level the playing field domestically. Currently, foreign companies can often take advantage of high minimum thresholds to offer lower prices to U.S. consumers. Lowering this threshold could help U.S. companies compete more effectively in their home market.

On the global stage, however, the impact may be different. U.S. businesses that model themselves around the current minimum rules may find themselves at a disadvantage when exporting to other countries, especially if those countries maintain higher thresholds. These companies may need to quickly adjust their international strategies and pricing models to remain competitive.

Ultimately, the competitiveness of U.S. businesses will depend on their ability to adapt to these changes. Companies that can effectively manage increasingly complex customs clearances, effectively utilize data, and optimize supply chains will be better able to maintain or even increase their competitiveness in the global e-commerce market.

• In your experience, what role does data quality play in effective customs management? With potential changes to the minimum rules, how will data quality become more important?

Data quality plays a vital role in effective customs management. Accurate and detailed product description, correct HS code classification and correct valuation are crucial for smooth customs clearance. Poor data quality can result in delays, additional inspections, and even fines or penalties. With potential changes to the minimum rules, the importance of high-quality data will only increase.

Customs authorities are also likely to increase scrutiny of incoming packages as more shipments fall below the minimum threshold. This means that even small data errors can lead to significant delays or rejections, and businesses need to ensure they have robust systems in place to capture and transmit accurate data on every shipment, no matter how small the value.

As inspections increase, customs authorities may also begin using more sophisticated data analysis to flag suspicious shipments. High-quality, consistent data is critical for businesses to avoid unnecessary scrutiny and maintain efficient operations. Companies that invest in improving data quality and management systems will be better positioned to successfully navigate these changes.

• How do you see companies using innovative solutions or strategies to deal with the complexity of different minimum thresholds in different countries?

We have seen companies adopt a variety of innovative strategies to deal with different de minimis thresholds. One approach is to use advanced analytics and artificial intelligence to optimize shipping routes and methods based on product value, destination country rules and other factors. This allows companies to automatically select the most cost-effective and compliant shipping method for each order.

Another strategy is to implement a distributed inventory model. Some businesses are establishing multiple fulfillment centers in key markets or regions, allowing them to ship from the locations closest to customers and often avoid cross-border shipping altogether. This not only helps comply with minimum rules, but also shortens delivery times and reduces shipping costs.

We are also seeing some companies investing in comprehensive customs compliance platforms. These solutions integrate with e-commerce platforms to automatically calculate taxes and duties at the point of sale, ensure accurate customs declarations, and manage the complexity of varying regulations in different countries. This proactive approach helps businesses stay compliant and avoid surprises or delays in the customs clearance process.

• Are there any common misunderstandings or challenges that businesses face when dealing with other countries’ minimum rules?

A big misconception is about value itself. One of the reasons people talk about the bare minimum so much is wrong valuations. Some companies just put a nominal value at five or ten dollars, but they don’t realize that if the country has a system in place to enforce regulations, those shipments will be flagged and revalued or returned.

Another challenge, especially for US merchants, is description. When selling your product domestically to U.S. consumers, you may present your product with a catchy name. However, when you pass these descriptions for international customs clearance, the descriptions don’t make any sense. Having the right product description, the availability of the HS code for the product, and the correct valuation – these are actually the three key elements to a successful customs clearance.

• Based on your observations of global shipping trends, how would consumer behavior and expectations change if these minimal restrictions were implemented?

If minimum restrictions are implemented more widely, we may see consumer behavior shift toward more domestic purchases. International purchases may become more expensive due to increased taxes and duties, and consumers may choose local alternatives. This could lead to a resurgence of local e-commerce platforms and marketplaces.

Consumer expectations around delivery times may also need to adjust. As more shipments undergo customs inspection and clearance processes, international deliveries may take longer. When speed is a priority, this may also lead to people prioritizing domestic or regional purchases, potentially changing the competitive landscape for e-commerce businesses.

Finally, we may see increased consumer awareness and demand for pricing transparency. Since more costs may be added when importing, consumers may expect to see a clear breakdown of these costs at the time of sale. E-commerce platforms that can provide clear, upfront information about all potential costs, including duties and taxes, may gain a competitive advantage in this new landscape.