Proposed reforms of a nearly 100-year-old U.S. tax law called the de minimis exemption has many e-commerce companies — including a number of American small businesses — concerned about potentially adverse impacts to their bottom line. As a longtime Cleveland 4PL warehouse and service provider, we make it our business to help your business navigate the complexities of global logistics. That includes potential rollbacks of de minimis protections.

What is the De Minimis Tax Exemption?

The de minimis tax exemption is found in Section 321 of the U.S. Tariff Act of 1930. It’s an unassuming, small provision, the phrase itself a Latin term for “the law does not concern itself with trifles.”

In principle, de minimis is intended to simplify international trade. It designates packages valued under a certain dollar amount (currently $800) void of duties and taxes. Legal experts opine the intention was more for individuals — say, if you came home from a cruise with a pricey bottle of Caribbean rum or Italian leather purse.

But the law has expanded over time, raising not only the dollar amount that’s covered but also the scope of what can be shipped duty-free. Direct-to-consumer shipments were already gaining popularity prior to 2020, but exploded amid the pandemic. Retailers can save millions of dollars using the de minimis exemption, and consumers get a pricing advantage as well.

The architects of the law almost certainly did not anticipate how much it would grow, particularly among commercial shippers. According to U.S. Customs and Border Protection (CBP) figures reported by Thomson Reuters, the CBP processed 1 billion de minimis shipments last year — a 53% increase compared to just one year earlier. As of mid-summer this year, the agency had already processed 705 million de minimis shipments. About one-third of those are large-scale operators like Temu, though a letter to Congress by the National Foreign Trade Council indicates it’s a critical fixture of the law for thousands of American small businesses.

De Minimis Concerns and Potential Reforms

Regulators have become concerned that there isn’t enough oversight, control or trade reciprocity with the way de minimis is currently handled. Some U.S. lawmakers and industries have said that the $800 (per person) threshold is being exploited, leading to revenue losses and uneven playing fields for domestic producers.

To address these concerns, lawmakers are considering reductions in the de minimis threshold. Reforms could also include tightening enforcement or imposing additional requirements on imported goods.

As a longtime Cleveland 4PL warehouse, we recognize that such changes could disrupt supply chains, increase costs and complicate the import process for businesses that rely on the current de minimis rules.

How a Cleveland 4PL Warehouse Can Help

If there’s anything we’ve learned in operating a successful 4PL warehouse, it’s that those in global commerce always to have a contingency plan. Because disruptions will happen — whether due to regulatory reforms or natural disaster or political strife.

In the face of potential reforms to the U.S. de minimis law, businesses might need to adapt their logistics strategies to maintain operational efficiency. A Cleveland 4PL warehouse can help with a number of tailored services and solutions.

Among these:

• Enhanced customs compliance and expertise. One of the biggest possible challenges of the proposed de minimis reform is the increased burden of customs compliance and more stringent customs procedures. We can help businesses manage these challenges with expert guidance to ensure all shipments meet the necessary requirements. We also offer customs bonded warehousing, where customers can keep imported goods stored securely – or even undergo manufacturing/manipulation – for up to 5 years without paying import fees. We can assist clients with accurate documentation, tariff classification and compliance – all of which can reduce the risk of delays, penalties and additional costs.
• Optimized inventory management and distribution. Because de minimis law reforms could lead to increased costs for imported goods, it’s going to be all the more important for companies to optimize inventory management and distribution strategies. Our team has sophisticated warehouse management systems, data analytics to monitor inventory levels, forecast demand and optimize stock distribution. When a business can maintain the right balance of inventory across the supply chain, they reduce the need for as many frequent imports — and the additional duties that come along with that. We can help companies consolidate their shipments to reduce the number of parcels that fall below the de minimis threshold, thereby optimizing transportation costs.
• Flexible, scalable solutions. Anytime there’s regulatory uncertainty, flexibility and scalability are key to staying resilient and weathering the storm. Our Cleveland 4PL warehouse offers businesses the ability to adapt and change quickly, scaling up or down, adjusting distribution networks or reconfiguring supply chains strategies.
• Integrated supply chain management. One of the key functions of a 4PL is integrated logistics solutions that cover every aspect of the supply chain, from sourcing and procurement to last mile delivery. Companies that partner with a reliable 4PL are going to get greater visibility into their supply chain operations, which makes it easier to identify risks and formulate strategies to address those risks. These are the businesses that are going to respond better to regulatory changes like these.
• Cost efficiency and risk mitigation. We can recommend adjustments to sourcing, shipping or inventory practices that may offset increased duties. Also, by consolidating shipments and optimizing transport routes, our team can help clients reduce their overall logistics costs – even in the face of major regulatory burdens.

If you’re concerned about the implications of proposed de minimis reform, call us for more information about how our Cleveland 4PL warehouse can work to help you get ahead of the issue with improved supply chain management.

Contact On Time Delivery & Warehouse by calling (440) 826-4630 or send us an email.

Additional Resources:

What would the demise of de minimis mean for supply chains? Aug. 15, 2024, By max Garland, Supply Chain Dive

More Blog Entries:

How 2 Know 4 Sure You Need 4PL Warehouse Logistics Services, March 24, 2024, Cleveland 4PL Warehouse Blog