The end of 'de minimis' has hit Temu and Shein. Now, it's a problem for bigger companies like FedEx.

By Bill Peters

Businesses small and large - including companies like Lululemon - have said the end of de minimis has created confusion and higher costs

BofA analysts said the end of the "de minimis" exemption would likely lead to "a muted air peak season" this year for UPS and FedEx.

Since President Donald Trump halted the so-called "de minimis" exemption allowing cheaper goods to flow into the U.S. tariff-free, businesses small and large operating in the U.S., including companies like FedEx Corp. and Lululemon Athletica Inc., have said it has created confusion, higher costs and snags in shipments from abroad.

The exemption allowed goods with a value of under $800 to flow into the U.S. tariff-free, creating a boom in international e-commerce over the past decade. The Trump administration halted it for imports from China and Hong Kong in the spring, and then suspended it for the rest of the world in late August.

Lauren Beitelspacher, a professor of marketing at Babson College, said there would likely be "chaos" for many shipments up ahead, as businesses prepare for higher shipping costs and try to figure out what they actually owe for any given delivery.

Retailers, she said, could get more efficient with how they ship items, potentially hauling them in on pallets and containers as opposed to one at a time. But any workarounds for those businesses would follow several years of pandemic-related disruptions to the world's supply chains and persistent inflation.

"They're going to have to figure out another solution, especially for these lower-cost items that already have thin margins," she said. "There will always be growing pains while companies figure that out."

The Trump administration has argued that suspending the so-called "de minimis" exemption will help keep harmful drugs like fentanyl out of the nation, as well as cheaper products from abroad that it says threaten domestic manufacturing. But economists have worried about the prospect of higher prices for consumers.

On social media, smaller businesses, selling everything from art to heavy-metal records, have complained of unexpected costs on delivery receipts and warned of shipping delays, as customers balk at paying extra import taxes and some postal carriers hold off on U.S.-bound deliveries. But even businesses with deeper supply chains are calling out the impact.

Mega-discounters in Asia like Temu and Shein, which have been among the biggest beneficiaries of the exemption, have seen a drop in sales, as well as a pullback in spending on advertising. BofA analysts last week said Shein had begun to raise some prices.

Yoga-wear maker Lululemon (LULU), which is trying to refresh its selection to win back bored customers, said that it processes around two-thirds of its U.S. online orders through Canada, where the company is based. Most of those shipments, Chief Financial Officer Meghan Frank said during an earnings call this month, would have been under $800.

Oppenheimer analyst Brian Nagel, in a research note this month, said the elimination of the de minimis exemption was a "key contributor" to Lululemon's more cautious financial outlook.

Elsewhere, Tapestry Inc. (TPR), the parent company of Coach and Kate Spade, said last month that it was facing "greater-than-previously-expected profit headwinds" from tariffs and the end of the de minimis exemptions. Management said they expected tariffs to cost the company $160 million in profit this year. Tapestry had net income of $1.13 billion during its last fiscal year, according to FactSet.

"I don't know how many people are paying attention to de minimis, but that was an opportunity that we had taken advantage of," Scott Roe, Tapestry's chief financial officer and chief operating officer, said during the company's earnings call.

"It was the law at the time, and now the law has changed," he added. "So we have to address that."

The history of the de minimis threshold goes back to U.S. trade measures in the 1930s, as the U.S. grappled with the Great Depression's aftermath and tried to minimize potential costs and difficulties of processing low-value imports. That threshold started at $1, then went to $5 in 1990, $200 in 1993 and $800 a decade ago, according to a government summary, as the U.S. tried to open up global trade.

Over that time, an entire universe of online commerce grew around the exemption. Shipments that qualified for de minimis status comprised 92% of all freight entering the U.S., according to government data. U.S. Customs and Border Protection handles around 4 million such shipments a day.

Charlie Skuba, faculty emeritus in marketing and international business at Georgetown University, said that as the government took steps to liberalize global commerce, trade in de minimis items over the past decade increased more than sixfold.

In the past, this was "good for some U.S. businesses (such as merchants) but bad for others (such as U.S. manufacturers)," he said over email. "It has also raised concerns about illegal substances crossing our borders, the trade deficit and national-security issues."

Still, Josh Silverman, the chief executive of Etsy Inc. (ETSY), which has sellers in a variety of countries, said at a conference last week that his company had been working with the Trump administration to develop a "solution" for postal carriers around the world that "allows small parcels to flow very quickly and without adding cost other than the tariff." He did not offer further details.

Lanny Baker, Etsy's chief financial officer, said the company only had a small amount of data so far on the impact on the change in the de minimis rule. Prices for some items on the online crafts marketplace were going up, he said, but added there were alternatives for any products that got caught up in any de minimis disarray.

"If one lane or one type of trade gets a little bit hamstrung for the moment, there are other parts of the Etsy marketplace [to] sort of fill in very naturally," he said. "We've seen that in the past."

But bigger concerns about those trade lanes persist. Early this month, the Universal Postal Union - a U.N. agency that tries to facilitate cooperation among the world's postal carriers - said that postal traffic to the U.S. from its 192 member nations dropped by 81% on Aug. 29 when compared with Aug. 22, as postal operators struggled to adapt to new collection rules. Those rules, the agency said, "for the first time placed the burden of customs duty collection and remittance on transportation carriers or U.S. Customs and Border Protection agency-approved qualified parties."

"Carriers, such as airlines, signaled they were unwilling or unable to bear this responsibility and postal operators had not yet established a link to the list of CBP-qualified parties, causing major operational disruptions," the agency said.

In total, the agency said, 88 international postal operators had suspended at least some service to the U.S. until a fix was available. The agency said it was offering a program to help deliverers calculate the new costs.

Against that backdrop, BofA analysts expressed concern about the fallout for package-delivery giants FedEx (FDX) and United Parcel Service Inc. (UPS).

"The removal of the de minimis exemption is expected to result in a muted air peak season in '25 as the tight peak markets in '23/'24 were driven by air demand from Chinese e-commerce players using the de minimis loop-hole," the BofA analysts said in a research note last week.

FedEx reports fiscal first-quarter results on Thursday. In June, executives said they expected tariffs to cost them $170 million over that period.

"When we talked about the headwind on tariffs, the vast majority of that is impact from China to the U.S.," Chief Customer Officer Brie Carere said on FedEx's earnings call in June. "And within that, the vast majority is the impact of de minimis."

That impact has followed a guessing game on U.S. trade policy this year, amid rapid fluctuations in U.S. tariff rates on other nations.

Kim Vaccarella, the chief executive and founder of Secaucus, N.J.-based tote-bag maker Bogg, which has done a lot of its manufacturing in China, said the company has had to keep a closer eye on shipping charges. Along with shifting tariff rates, she said were there risks of product misclassifications. She said automatic withdrawals from the government to collect those charges, via electronic notice, could hit when businesses, during a given month, might happen to be struggling with cash flow.

"There were periods of time where we had containers on the water at the original 20%, at the 30% and then at the 50-some-odd percent, and then at the 100%," Vaccarella said in an interview last month. "With each one of those time frames, the numbers just went up and up and up."

Those rates, at least on China, have fallen from their peak, and Bogg has shifted some production to Vietnam to manage costs. But Vaccarella said it took around eight months to get up and running there, as Bogg took steps to ensure they could replicate the materials and quality they had in China. Bogg's handbags are injection molded, and she said China had perfected the molding machinery and the production process.

Still, she said, margins have taken a hit. The company, which has around 100 employees, has had to cut costs, and shelve plans for pop-up shops and photo shoots.

"Obviously, the fun stuff goes first," Vaccarella said.

-Bill Peters

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09-16-25 1736ET

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