Sent Items #165: Sunday, September 15, 2024

Wow, what a few days! So much breaking news to get to. Also plenty of FOMO that I won’t be at Parcel Forum this week with many of my friends.

Let’s get right to the news, but before you do so, check out my episode on Kevin Lawton’s The New Warehouse Podcast (link): 518: Finding Your Perfect 3PL Partner with Matt Hertz

Let’s begin with what I feel is the most wide-impacting news story of the year (link): Biden-Harris administration targets Shein, Temu and other “China-founded e-commerce platforms” with new rules to curb alleged abuse of U.S. trade loophole, otherwise known as the “de minimis” law.

I’ve been talking about this in Sent Items for months. Just last month, two issues ago (link) I wrote:

I was wrong (by 3 months)!!! This is the story of 2024!!

As Molson Hart said, “This is the greatest thing that has happened to US e-commerce companies since pandemic lockdowns and stimulus checks.”

According to the release, over the last 10 years, the number of shipments entering the United States claiming the de minimis exemption has increased significantly, from approximately 140 million a year to over one billion a year.

The majority of shipments entering the United States claiming the de minimis exemption originate from several China-founded e-commerce platforms, putting American consumers at risk, undercutting American workers and businesses, and resulting in the importation of huge volumes of low-value products such as textiles and apparel into the U.S. market duty-free. Some e-commerce platforms and other foreign sellers circumvent these tariffs by shipping items from China to the United States claiming the de minimis exemption.

A shipment is eligible for the de minimis exemption if the aggregate fair retail value of the articles imported is $800 or less. De minimis shipments enter the United States with less information than other imports and are not subject to duties and taxes.

The Administration intends to issue a Notice of Proposed Rulemaking - not requiring a passage of law by Congress - that would exclude from the de minimis exemption all shipments containing products covered by certain tariffs. For example, Section 301 tariffs currently cover approximately 40% of U.S. imports, including 70% of textile and apparel imports from China. If finalized, these goods would no longer be eligible for the de minimis exemption.

These are incredibly bold recommendations and proposals, and are being pursued at a far more accelerated schedule than most believed (i.e. this year, rather than “maybe” next year!) This is breaking news and details are still being hammered out and disseminated. It is unclear where things will settle in the near term, and what kind of impact this will have on the broader ecosystem that leverages certain trade/tariff “loopholes”.

It seems the strictest interpretation of this announcement is that Chinese companies selling apparel/textile direct to U.S. consumers (i.e. Temu, SHEIN, etc) will be required to pay significant costs. What is unclear to me is how this will impact U.S.-based brands who source from China, and say, leverage a 3PL in Mexico or Canada to avoid tariffs as well de minimis imports to the U.S. Will this “Section 321” model suddenly break, or will current free trade agreements between U.S. and Mexico/Canada enable this current tax “loophole” to continue to exist?

Who does this appear to hurt the most: Temu, SHEIN, AliExpress. This will likely also hurt 3PLs and fulfillment centers in Canada and Mexico who enable “Section 321” fulfillment. Finally, this will likely also adversely impact air freight companies who have been shuttling millions of parcels a day to the United States for marketplaces taking advantage of de minimis rules.

It is going to be a wild few weeks and months.

According to ShipHero’s Aaron Rubin, TikTok remains the fastest growing e-commerce platform of all time.

I shared a similar chart from Aaron earlier this year, but it is now updated to reflect TikTok market share through August. Truly insane how quickly it is growing.

The Family Business in Alabama That Fights China for Survival (link)

• The CEO of Alabama-based M&B Hangers is at the center of a long-running battle over the import of cheap hangers from Chinese suppliers, products that have made his business one of the last remaining U.S.-based manufacturers of its type.

• M&B’s drawn-out battle exemplifies the challenges that China and U.S. trade policy pose for American manufacturers, especially those that deal in low-value products. Questions over the use of tariffs as a weapon in industrial policy are growing increasingly important as trade takes a prominent role in the presidential race.

• In M&B’s case, the U.S. sided with the company in placing tariffs of up to 187% on Chinese hangers in 2008. Imports plummeted, but the next year steel hangers started arriving at U.S. ports from Vietnam and Taiwan, with signs that they originated in China. Since then, hangers from Thailand, Malaysia, India and Sri Lanka started popping up.

• Magnus believes Washington has finally come around to his view that China is the U.S.’s largest economic threat. In the meantime, he’s also cut his prices by about half, largely because of the competition from China.

Online Returns Fraud Finds a Home on Telegram, Costing Retailers Billions (link)

• A fascinating article on fraud in e-commerce returns. An online customer who returned around 250 orders worth some $24,000 earlier this year got PacSun’s attention. The customer got the refunds but the retailer never received the actual merchandise at its warehouse.

• The National Retail Federation estimated more than $100 billion in merchandise was returned fraudulently in the U.S. last year, amounting to about 13.7% of the overall returned goods retailers received in 2023.

• By one estimate, shoppers last year returned 17.6% of items they purchased online, valued at more than $247 billion. Experts say the ease of online returns has also given criminals new tools to target retailers.

• It has been a few years since I was in-house at a brand thinking about this problem. I hear a lot about it in conversations with the Two Boxes team (whom I advise), and are excellent at identifying fraudulent returns.

Temu Now Ranks as World's No. 2 E-Commerce Site (link)

• Two years after its launch, Temu overtook eBay to become the world’s 2nd most visited e-commerce website. Temu is the only e-commerce company in the Top 20 most-visited list to launch in the past decade.

• Ignoring Coupang from South Korea, it is the only top e-commerce website to launch in the past two decades. Global e-commerce incumbents are well-established, and the status quo at the top has not materially changed in years.

• At the brink of entering the Top 20 is Temu’s often-compared rival, Shein.

USPS ending delivery unit discounts for shipping partners (link)

• This is among the bigger stories of 2024 (into 2025) as well, and one that most shippers are behind in understanding the significance.

• The U.S. Postal Service is ending rate discounts for key shipping partners dropping off packages at the agency’s delivery units (i.e. your local Post Office), finalizing a push that started months ago. The Postal Service “has and will enter into new agreements with package consolidator companies” which align with its strategy. Consolidators like DHL eCommerce and OSM Worldwide use the Postal Service for final-mile delivery of their customers’ parcels.

• The change means new contracts, or NSAs, won’t include discounts for volume brought to the Postal Service’s delivery units, the last stop in its network before the end address. The goal is to maximize the use of USPS’ network assets by incentivizing consolidators using the Postal Service’s Parcel Select offering to bring more volume to its facilities earlier in the shipping process.

• Consolidators already have experience bringing volume to Postal Service facilities upstream of delivery units, but historically delivery unit injection has provided these companies with larger discounts and more control over their customers’ shipments. The Postal Service has 30 contracts with high-volume shippers that cover the majority of Parcel Select deliveries, according to the Postal Regulatory Commission filing.

• My take: This will cost U.S. e-commerce companies $$$. Just in the last few weeks we have seen Pitney Bowes close their e-commerce (parcel) unit. Just last week news circulated that UPS’ Mail Innovations laid off their entire international team. By the end of this year, there will likely only be 1-2 under 1-lbs (ounce-based) carriers. Competition is rapidly going away, and the consolidators that are left will not have the ability to take on all the available business. That will leave lots of brands shipping USPS Ground Advantage - a more expensive option - and one in which many 3PLs do not make any margin on those transactions. If you are a brand, get ahead of this now! Happy to connect you with folks who can help.

DSV signs agreement to acquire Schenker for EUR 14.3 billion (link)

• Just a little ol’ ~$16 Billion US dollar deal in the logistics space!

• DSV announces its biggest transaction to date after signing an agreement to acquire Schenker from Deutsche Bahn.

• DSV expects to grow in Germany and plans EUR 1 billion investments in Germany in the next 3-5 years.

• The combined company is expected to have revenue of approximately EUR 39.3 billion, based on 2023 numbers, and a workforce of around 147,000 employees in over 90 countries.

Enjoy your weekend!

- Matt

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