At De Minimum

The automobile and airplane quickly allowed people to travel further and faster than ever before, but space constraints kept most packing light. Luckily, the 321 section of the infamous 1930s Tariff Act (time is a circle) was included to exempt minimal quantities of goods to be sent back home after traveling abroad. The government wanted to make it easier to send and receive these items hassle-free as long as they’re under a certain value limit. At the time, it was $5, or equivalent to $95 today. That prized lamp from whatever coastal vacation town can now be sent back. Trade can bloom. It was such a small percentage of daily volumes to be of concern.

In 2016, congress, wanting to open smaller business opportunities moved the value provision from $200 to $800 per item. This was under the Bipartisan Budget Act, so keep the pointy fingers down. It was also the highest value limit of many countries. The idea was this could lower trade friction again for sellers and buyers further apart, moving goods higher up the value chain. In a 1:1 transactional environment this is a beautiful process for expanding markets. Companies like eBay connect buyers and sellers alike over their platform and the vendors send their product in multiple 1:1 fashion.

eBay does not collect and warehouse and send bulk orders en masse to our doorsteps in chunks at a time. It is difficult for a US buyer to transact goods across the globe with individual vendors due to the logistics, timing, and cost. Unless the seller already has buying power by other means, it’s an uphill battle. One made tougher with the exemptions removed.

The internet and social media gave rise to ever smaller storefronts and options which increased the demand for people to do the work of making it. Apparel manufacturing in the United States is less flexible for small batch and fab work in this area. Production has fallen over 80% since the end of the 1990s. The FRED chart below shows the successive downshifts in each recession to find lower costs.

Those lower costs were found abroad, which creates a win-win for anyone with buying power. Simultaneously, building out industry sold on large batch work you can invest in. Where we find ourselves today is a case of savvy apples spoiling the bunch.

I’ve touched IP implications and excess capacity, but the trade related issue is in-kind and low value goods have been moving through duty free processes via this century’s old exemption. The volume would be enormous, but the transaction records and shipments get counted at an individual level.

It is under a Type 86 or T86 clearance like all other postal mail. What most cruise ship riders actually bring back, they may not pay duties on, but the admin and checks are closer to the T01 process. Imagine all postage going through this full review.

Second, the US Postal Service is by far the largest parcel service in the country, and funded by taxpayers, keeping the prices low. Therefore, utilizing our own duty free and low cost networks, we inadvertently undercut ourselves further by buying.

Upwards of 30% of daily de minimis traffic is said to have been from Shein, Temu, and others. And as of this week, these channels are now cut off from access. To be clear, this is not all mail, just mail as goods.

Also included, are COOs or chinese-owned goods which you can think of as a homegrown product ready for export versus a manufactured by or origin status type good. These products and others are still allowed to go through the T11 process, think TSA precheck for low-risk and vetted type products generally under $2,500.

Or the old fashioned way. Which brings us to the backlog current providers find themselves. What was once efficient cannot move as quickly in a less efficient process, hence the USPS originally refusing anything currently inbound. It will take some time to sort.

Second order effects extend beyond these sellers and mail carriers as B2B, especially logistics assets that have grown around the influx. The air traffic network has been heavily utilized for the middle mile to get to the US, landing in more internal hubs like Chicago or Memphis while most others come to coastal ports to unload via container. Making the switch and losses in volume will have cascading impact across service providers.

The playing field has become more level again, but the game is changing again too.