Significant changes to a century-old US import law are set to have a major ripple effect throughout cross-border e-commerce operations. Australian fashion brands and international sellers could soon be facing new trading challenges including pricing and manufacturing disruptions, and increased competition in the US market.
Whether you’re currently operating in, or planning to expand into the US market in your next growth stage, here’s what e-commerce brands and online retailers need to know now.
How are US import laws changing?
Under the Biden administration, the United States plans to eliminate the ‘de minimis’ rule which currently allows goods valued at AUD 1000/USD 800 and under, to be shipped to the US free of import duties and taxes. If, and when, the changes go ahead, standard import fees will be required for every shipment, and those under the threshold will be at higher risk of being denied entry.
What is the purpose of eliminating the import threshold?
With the de minimis threshold in place, many Australian brands and retailers have been able to enter the US market successfully without the need for minimum order values, or having to weave in the added costs of shipping duties and taxes.
The ease of importing low-cost goods into the US has led to a monumental increase in shipments entering the country. The Biden administration reported that over the last 10 years, the number of annual shipments entering below the de minimis threshold increased from 140 million to over 1 billion.
In fact, the de minimis rule has been the key driver of China’s e-commerce boom, with SHEIN and Temu able to disrupt—and overtake—the US retail market with their duty-free, extremely low-cost apparel. Back in June, we investigated the rise of SHEIN and Temu, where together the marketplaces send almost 600,000 packages to the US every day, according to a June 2023 report by the US Congress.
Not only does fast fashion now account for half of China’s total cross-border e-commerce shipments and takes up about one-third of global long-distance cargo aircraft, but the frequency eliminates off-peak periods and causes capacity shortages. With China’s increasing market share, air freight capacity, and unsustainable manufacturing of low-quality items, it was only a matter of time before the US put its foot down.
Ultimately, the scrapping of the shipping threshold aims to level the competition for local US merchants and manufacturers. It also will help protect brands and retailers with higher-value goods that are already paying duties from being undercut by low-cost dupes, and counterfeit sellers—and even fight against the trafficking of illegal goods.
How will Australian brands be impacted?
The change in the de minimis law is something no global-minded fashion brand can afford to ignore. According to Flexport, the US intends to issue a ‘Notice of Proposed Rulemaking’, which could take two to four months to implement, meaning changes may land before Black Friday. Though any law change is a complex process, it’s best to be prepared for what the US is planning to turn around very quickly.
For example, if the US successfully adjusts its de minimis rules, international sellers will need to recalibrate pricing strategies to maintain profitability. While the proposed change may not completely close off the de minimis exemption entirely, it will affect roughly 40% of all US imports, pushing the need for price increases from Australian brands.
“A strategic price architecture must come into play when considering global profitability and cross-border operations,” says Brogan Hembrow, Style Arcade’s Head of Brand & Partnerships.
“Price parodying is common amongst Australian brands shipping into the United States. This is when, for example, a shirt listed on the brand’s Australian website for AUD 100 is mirrored on the American website for USD 100. By not having a straight currency conversion, the local brand can take advantage of additional margin to subsidize or cover additional shipping, returns and duties & taxes. It also allows the international order volume to scale to a point where an off-shore 3PL and returns consolidation can be considered to reduce operational costs.”
Brands must also consider who will end up wearing the costs of the duties and taxes; the customer or the business. If businesses decide to pass on duties and tax costs to the consumer rather than working it into their pricing and margins, this could affect conversion, returns, and the entire customer experience. Duties and taxes will need to be calculated and charged upfront at the checkout, to avoid the customer receiving a surprise charge once the parcel is delivered in the US.
An alternative way to avoid these costs and reduce returns friction will be for brands to establish off-shore distribution centers for localized shipping; something that SHEIN was already planning in a bid to shorten delivery times.
Where delivery times are concerned, businesses will need to adjust customer shipping expectations and returns policies. Robert Khacahtryan, CEO of global shipping company Freight Right Global Logistics, explained to Glossy, “Ending the exemption may also increase customs processing times and add compliance costs for all businesses. While aimed at large players, smaller e-commerce sellers relying on cross-border sales may struggle with the added paperwork and potential delays.”
As the new laws come to light, we’ll be right behind our Australian and international retailers with further insights and strategies to stay on top of your US market expansion with pricing, freight and merchandising strategies.
Main Image Credit: Zeke Goodyear
