Ready or Not: De Minimis Goods From China to the US Ends May 2
With May 2 fast approaching, the end of de minimis from China to the US will impact a number of parcel shipments – most notably e-commerce. FedEx and UPS have embraced e-commerce as part of their strategic growth targets but with the end of de minimis on this key route, FedEx and UPS may see lower volumes. Meanwhile, consumers will pay higher prices on goods purchased closer to home.
A brief history on de minimis
In 1938, Congress enacted Section 321of the Tariff Act of 1930 to authorize the Secretary of the Treasury to waive or reduce certain duties, fees, and other taxes "in order to avoid expense and inconvenience to the US government disproportionate to the amount of revenue that would otherwise be collected" on certain imported goods with a fair retail value in the country of shipment of $1 or less. Over the years, Congress amended Section 321 several times to raise the threshold and ultimately increasing it to $800 in 2015.
The main purpose of Section 321 was to protect the revenue of the United States by, in the words of Assistant Secretary of the Treasury Chapman Rose, ensuring that customs officials were not "spending a dollar to collect 50 cents." However, that changed in 2015 when section 321 was considered as a trade liberalizing measure.
De minimis exemptions proliferated around the world and de minimis value thresholds and in many cases increased throughout the 1990s through the 2010s. However, by the 2020s, policymakers in many countries began to reevaluate de minimis policies.
By this time, there was a growing concern in the US government about the growing trend of using the U.S. mail to import opioids. In 2017 and 2018, versions of the STOP Act and the Opioid Emergency Response Act proposed amendments to Section 321 as part of an effort to collect more information on merchandise arriving by U.S. mail. However, the enacted version of the STOP Act of 2018 left Section 321 unchanged.
(For a more detailed history including how to handle the rise of the catalog market in the 1950s, check out Congress.gov)
Fast forward to this year and we’ve seen three executive orders concerning de minimis from China to the US. The latest order, April 8, eliminates it on May 2.
“I further declared pursuant to Executive Order 14256 of April 2, 2025 (Further Amendment to Duties Addressing the Synthetic Opioid Supply Chain in the People’s Republic of China as Applied to Low-Value Imports) that duty-free de minimis treatment on articles described in section 2 of Executive Order 14195 is no longer available effective at 12:01 a.m. eastern daylight time on May 2, 2025. I also deem it necessary and appropriate to:
(a) increase the ad valorem rate of duty set forth in section 2 of Executive Order 14256 from 30 percent to 90 percent;
(b) increase the per postal item containing goods duty in section 2 of Executive Order 14256 that is in effect on or after 12:01 a.m. eastern daylight time on May 2, 2025, and before 12:01 a.m. eastern daylight time on June 1, 2025, from 25 dollars to 75 dollars; and
(c) increase the per postal item containing goods duty in section 2 of Executive Order 14256 that is in effect on or after 12:01 a.m. eastern daylight time on June 1, 2025, from 50 dollars to 150 dollars.
UPS and FedEx
In anticipation of a volume surge from China leading up to May 2, UPS and FedEx have increased their fees. UPS reinstated its surge fee of $0.29 per pound for US parcel imports from China, Hong Kong and Macau effective April 13 with no end date while FedEx implemented a $0.45 per pound demand surcharge for US parcel imports from Hong Kong, the Philippines and China from April 15 - May 2.
Extra fees such as UPS’ surge fee and FedEx’s demand surcharge are typically used to “protect” revenue per package, a strategic goal of both carriers as noted in numerous earnings calls.
UPS’ surge fee was first used last September when it imposed a $0.25 per-pound surge fee to shipments from ten countries destined to the U.S., while a $0.50 per-pound charge was levied on shipments from China, Hong Kong, and Macau.
The surge fee is viewed as a way to mitigate the low-yields from Asia-based e-commerce marketplaces like Temu and Shein, which provide substantial volume for carriers but are typically less profitable to deliver than other shipments.
Indeed, UPS introduced this fee after it struggled in Q2 with new customers with higher volumes than anticipated.
“We actually accepted new customers into our network of with certain volume expectations that blew up on us. We are not chasing it. It is just their demand was much higher than we had anticipated,” UPS CEO Carol Tome told analysts last July.
UPS declined to name the new customers, but according to Reuters, its description of them as shippers with "explosive" volume matches the profiles of Shein and PDD Holdings Inc's Temu.
FedEx also has had their struggles with e-commerce volumes. Last November, at the Baird Global Industrial Conference, FedEx CFO John Dietrich was asked about the company’s volume growth outlook, especially with it focused on profitably growing its business.
“E-commerce is going to make up a large percentage, probably up to 90% of the volume growth that our ground network and our freight business will be the beneficiary of. So we can't ignore that the volume is going to be there, we just have to find the right cost structure to accommodate it.”
Cross-border E-commerce Outlook
Some critics of de minimis want it eliminated entirely, not just from China. However, the National Bureau of Economic Research has found that eliminating the de minimis provision entirely would cost Americans between $11 billion and $13 billion, and those higher costs would disproportionately hurt lower-income and minority households.
Indeed, a number of surveys and research papers support that pricing is why many consumers buy from overseas e-commerce platforms. For example, 2024 survey of 2,000 consumers from the UK and US by commerce experience platform Nosto found that 70% say they’re likely to buy fashion from abroad, with lower prices (41%) and a desire for unique or unusual items (33%) among the biggest triggers.
“This is not going to kill them [Chinese e-commerce platforms Temu and Shein] off by any means,” said Aaron Rubin, the chief executive of ShipHero, a warehouse management software firm. “This will just change the business model.”
But the what and how the business model changes and its possible impact on prices remains to be seen.
Also, how prepared is the Customs and Border Protection (CBP) once the de minimis ends is a big question mark. In February, through an executive order declaring the end of de minimis, chaos erupted for a few days. During the days that the de minimis was not in effect, “there were 5 million more shipments that needed customs clearance, which led to issues, bottlenecks that then seemingly led to the U.S. administration changing their mind on it and reinstating the de minimis,” DHL Group CEO Tobias Meyer told analysts in March.
Hilton Beckham, the assistant commissioner at the Customs and Border Protection recently told the New York Times, “Our automated systems are fully updated to capture, assess and administer all new duties, and clear guidance will be provided to support uniform enforcement across the nation.”
- Cathy
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I wear a number of hats these days. I’m also helping out the Reverse Logistics Association as a research manager, and at JOC, I help out as a research analyst and write a weekly LinkedIn newsletter, Freight Forward, summarizing JOC & other published articles and providing an outlook for the week ahead. In addition, be sure to check out my website and be sure to sign up to receive more blog posts.