October 28, 2024 • 50 mins
De minimis, originating from Section 321 of the Tariff Act of 1930, has evolved from its humble $5 threshold (equivalent to $85-90 today) to become a cornerstone of modern e-commerce imports. While the 2015 Trade Facilitation and Trade Enforcement Act's increase to $800 grabbed headlines, U.S. Customs and Border Protection (CBP) notes that the average de minimis shipment value remains around $55-60. The real story isn't the threshold increase, but rather how the pandemic accelerated e-commerce adoption, leading to an unprecedented surge in these shipments—from hundreds of thousands just a handful of years ago to 1.4 billion in fiscal year 2023.
The implications of de minimis extend far beyond simple duty exemptions. This provision has reshaped supply chains, particularly for high-duty products like apparel and footwear, by enabling companies to fulfill orders directly from overseas warehouses or through facilities in Mexico and Canada. While this has benefited consumers through lower prices and faster delivery times, it's created significant challenges for CBP's enforcement capabilities, particularly in screening for counterfeits and illegal substances like fentanyl.
In this episode, we explore:
- The various methods of processing de minimis shipments, including Type 86 entries, manifest clearances, and the unique advantages of different transportation modes
- How the Consumer Product Safety Commission's upcoming e-filing requirements in 2025 could reshape the landscape for apparel and children's products
- The political battle between government agencies seeking stricter controls and private sector entities defending current practices
- Potential regulatory changes, including CBP's proposed $2 per package fee and the possible exclusion of "import-sensitive" products
- The evolving role of customs brokers in this changing landscape, transitioning from data entry to strategic advisors
- The impact of artificial intelligence and technology on customs processing and compliance
Guest: Tom Gould, Principal of his own consultancy, licensed customs broker, Certified Customs Specialist, and current member of the public-private COAC committee, appointed by Treasury Secretary Yellen and DHS Secretary Mayorkas in 2022.
Join us for an in-depth discussion on this crucial topic that's reshaping international trade and e-commerce.
Source Material:
US bipartisan FIGHTING for America Act aims to close de minimis loophole
White House De Minimis Fact Sheet
Blumenauer Legislation Announcement
WSJ: Trade ‘Loophole’ Used By China Should Be Closed, House Democrats Tell Biden (paywall)
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
My name is Scott Case. I'm Cameron Roberts.
(00:02):
And this is logistically speaking.
Well back at the scene of the crime for season two of logistically speaking,
this started a year ago at WestCon and here we are one year later.
It's been a great year, Scott.
I've really enjoyed doing this and we've had a lot of great guests.
(00:25):
We've been traveled the globe with going down to Panama and interviewing the
canal folks as well as getting our feet wet with the Australian underwriting
and a few other places. So it's been an interesting year, a diverse year,
much like trade and transportation. It's, you know, it's all over the place.
(00:45):
And it's really fun too because as you look back sort of at like the news cycle
and you realize that walking through some of the topics that we covered in the
first year really is walking through the topics that were important to the trade
at that given time and at that moment in time.
That's true.
And there's certainly no shortage of things that are important to be watching as
(01:06):
we keep seeing the shifting sands of trade, whether it's focusing on AI,
whether you're looking at how many times
the commissioner of customs can say fentanyl. I don't know. You could just keep,
it's a fun, fun way to spend a day. And certainly it's been
(01:26):
a one that you never really know what is coming next.
You can think things are going to be predictive, but you know, as we've seen,
we had a labor strike that was almost, you know,
going to paralyze the East coast of the United States.
We saw the pivot of trade to the West coast and banner months for the ports of
(01:47):
Los Angeles and long beach.
You have the ever growing trade relationship with Mexico and all the other
interesting things that we've seen in the background of trade and you know,
on the front pages as well.
What was interesting is that the morning that we're recording this here,
it's Saturday morning, October 19th, whatever it is.
(02:08):
But there was a session this morning on AI and just using AI analytically,
at least from a, from a custom broker and forwarder point of view.
And just there was a discussion as well of how CBP uses AI to be able to sift
and where they used to have to have a room full of analysts and a room full of
people to parse through things.
They're now leveraging AI and the amount of just the raw amount of data that
(02:29):
ACE has collected over its existence to be able to look for and find it,
identify trends and all the things we've looked at over the course of the year,
whether it be the outcome from the ILA,
whether it be the dry season that led to all of that.
The phrase seems to be the only constant in supply chain right now is
unpredictability.
So it's really interesting that as all of these people are bringing all of this
(02:52):
intelligence to bear how that's going to be used to sort of,
I don't know if you can really just smooth it all out,
but maybe take the edges off of some of the hazards of what,
what people can't foresee and can't, can't see what's coming down the pipeline.
Well, I think we can definitely,
you're going to see the continuation of tariffs and we'll also see the
(03:12):
continuation of people trying to either lawfully or unlawfully avoid those
tariffs, which is really, I think a nice pivot to,
talking to Tom Gould, our speaker today,
and finding out more about type 86 as well as a de minimis and where all that is
going and how the two of those concepts are similar but not identical and how
(03:40):
major players in the e-comm space are using them to get goods into the country.
All the pitfalls that can befall the brokers who are engaged in them.
And you know,
we heard FPNF yesterday being very critical of people doing those entries for,
(04:01):
you know,
10 cents and whether or not they were exercising supervision and control over
those entries. And I think there's an ongoing,
I don't know if it's a bias is the right word,
but there's certainly a stricter scrutiny being applied to 86.
From DC's point of view and how people are going to be able to use these
(04:25):
programs in the, in the months to come, especially if, you know,
Congress decides to regulate it. And as we learned from Peter yesterday,
you know, we've got what, 14 days left of the session.
And so anything can happen. And you know,
whether people think that a bar partisan legislation that addresses some of this
(04:48):
is going to pass or not will be interesting.
It's probably going to be how narrowly tailored that piece of legislature is to
the specific issue.
And then whether people actually care about the facts of course whether or not,
you know, cause if it's all focused on fentanyl, I don't know if, you know,
because that seems to be the poster child for why we need to stop this setting
(05:12):
aside, you know,
the fact that there's a lot of inconsistency in the data and how hard it is for
customs officers to do what they need to do.
I've been at a exam site when they've been unloading a e-com container and it's
a nightmare. You know, it's not, you know,
(05:34):
a uniform shipment in any way, shape or form.
The containers got all sorts of things in it.
Thousands and thousands of different packages of all size and description.
So sifting through that just to find the package that you think is the suspect
package is a heavy lift.
This seems like a really good time to bring in Tom Gould. Um,
our guest today who's long a veteran of the customs and international trade
(05:55):
space.
Tom is the principal of his own consultancy and is a licensed customs broker
and certified custom specialist and is currently sitting on the public private
COAC committee,
and he was appointed by treasury secretary Yellen and DHS secretary Mayorkas
back in 2022 to that position. Tom, welcome to the pod.
Thank you very much. Let me just touch on what you just mentioned.
(06:17):
Remember there is a lot of e-commerce that comes in across the Southern border,
right? So that is,
it's not exclusively in regular shipments that they're finding fentanyl.
They're finding apparently they're finding a lot of fentanyl in e-commerce
shipments that are being trucked across the Southern border as well.
But I think that it would probably help if I were,
if I could take a moment or two to kind of set the stage of what really is the
(06:40):
issue that we're going,
we're going through and what we're dealing with today with e-commerce,
with low value shipments, with the minimus.
One of the issues is there's all this different terminology that's being used
that really kind of muddies the water for a lot of companies that are look either
utilizing one of the provisions are actually looking to.
So section three 21 is a term that we use that refers to actually
(07:02):
19 U S code section 1321 which is where section
three 21 of the tariff act of 1930 was codified as amended as amended. Yes.
And there's a provision within that that basically says certain low value
shipments are allowed to be imported duty free with limited import data
provided to the government.
(07:23):
So we refer to that kind of overall sometimes as section three 21 or
de minimis or low value shipments.
Those all kind of are the same thing.
And I remember using that in the, in the late 80s,
late 80s early 90s when I was working in an import brokerage and we would have
say a shipment of documents or shipment of manuals.
(07:43):
So I would, I would have something for the same importer,
but there'd be two airway bills.
There'd be one airway bill with hundreds of thousands of dollars worth of
merchandise and equipment on it.
And then there'd be something else sitting there for like 80 bucks worth of
manuals.
Or my favorite one is the boss's daughter or bosses wanting to buy a toy for his
daughter and imported it for, you know, 50 bucks.
Yeah, I know those, those definitely sit there. And what was your,
(08:04):
I thought it was $5 was the first amount for de minimis. Was that a,
I don't recall the, I think you're right.
I think it was $5 back in the 1930s, but that was a lot of money back then.
Correct. Yeah. And I sat and I ran it through a,
I ran it through the machine over here and comparing $1930 to roughly 2024
dollars, that $5 was worth about 85 to nine.
It would be worth about 85 to $90 today. Right.
(08:26):
And one of the things that I think is rather interesting is that people tend
often focus on the fact that the rate,
the number was raised from 200 to 800 back in 2015, 2016. Um,
but what customs is telling us is that change was really irrelevant because the
average value of a de minimis package or a low value package is being imported
(08:47):
as like 55, $60.
And so what customs is saying is that the, the,
the escalation from 200 to 800 really didn't change the issue.
It was really more what happened during the pandemic along with all of the,
all of us buying stuff online, right? It's the e-commerce stuff.
And that's really what shifted the, um, the, the,
(09:10):
the, the cargo from cargo shipments to individual packages shipments.
It wasn't really the dollar threshold being raised,
but it was the fact that there was so much more being purchased online.
And that, that figured, I mean, it, it,
it grew exponentially like a hockey stick throughout the year and has
continued to do so. But CBP also said that for fiscal year 2024,
(09:32):
it came in, I think at about 1.4 billion,
$1.4 billion as compared to 23. It was, that was 1.4 billion shipments.
Was that it? Sorry. You're right. I'm sorry. You're right.
It was 1.4 billion shipments in fiscal year 23. It was like, it was,
it crossed a billion shipments, just over a billion shipments.
(09:53):
And if you go back, um, a few years ago,
they were counting the shipments in hundreds of thousands and not even in
millions.
It has become a major gateway. It has become a major gateway. Yes.
It's exponential. And you know,
I only know from a few of my clients that I've worked with,
it was interesting that they had a brokerage.
We helped them get their CFS station and unbeknownst to me,
(10:16):
and I only found this out because of certain things that happened with
customs and whatnot. Um,
they had opened up five CFS stations across the country and we're handling
millions of shipments. Yeah. Uh,
and this was all just in the last five years. Yes. Yeah. That we've,
we've seen that happening all over the country. Yes. Yeah. It's pretty, uh,
(10:38):
the growth is just, it's ridiculous. Yeah.
What I'd like to talk a little bit about is kind of all the different flavors of
de minimis or section three 21 shipments,
because I think it's important to understand that there's a number of different
ways that it happens and there's very nuanced differences.
So you'll hear talk about type 86, which is a customs entry type.
(11:01):
You'll also hear about manifest clearances and the manifest clearances could be a
truck manifest, which is different from an air manifest,
which is different from an ocean or rail manifest.
And when you're looking at the air manifest,
there's the normal air manifest for cargo airlines,
but then there's the express air manifest for, um,
the express couriers like FedEx and UPS.
(11:22):
And it's important to understand the difference because the way that the data is
handled and the way that customs is enforcing the de minimis shipments is
different on those different modes of transportation on those different types of
manifests. So going from the, the,
the traditional, the older manifest styles like the ocean manifest,
(11:46):
rail manifest and air manifest, those systems,
customs never built the ability to automatically clear a shipment,
a de minimis shipment off of those manifests. So if you do that today,
it's a different process. It's a paper process.
What often happens and it depends on the port is that if you want to clear,
(12:07):
for example, an ocean container full of de minimis packages,
you have to create a spreadsheet that lists all the packages and you have to get
that spreadsheet to somebody at customs.
And the person at customs goes through the spreadsheet and line by line,
they have to release each of those shipments.
It takes time and it takes a lot of effort and customs doesn't like to do it
because it's not automated. But then you've got the truck manifest.
(12:30):
So for trucks crossing the Southern border,
coming into the U S from Mexico or the Northern border coming into the U S from
Canada, when customs created the truck manifest system,
it was built after the ocean manifest and the air manifest system.
It's interesting.
You raised the point about having to do the spreadsheet within the ocean
environment. And it goes back to CBP,
not having programmed what's called ocean AMS.
(12:52):
So you had area MS where they would be able to release it and they could release
it. What was called the house bill level and ocean AMS didn't permit them.
You had to release it, the master bill level.
So if you were running one of those CFS warehouses,
you were still tied to that paper process for the underlying individual
shipments. And it sounds like not doing it in the ocean environment,
has come back and bit him in the shorts for trying to do massive numbers of
(13:13):
econ shipments in a single container.
Yeah, that's correct.
And while they've have the ability to release a house bill in the air manifest
system,
they don't have the ability to release an individual package in the air manifest
system.
That's an individual package that's manifested as a section three 21 or a
de minimis shipment.
So there's all kinds of weird little complications like that,
(13:35):
that companies need to be aware of. Um, with the truck environment,
it's a little bit different, right?
If you've got a truck that's crossing the border,
the carrier or their agent files an e-manifest in the ACE e-manifest system.
And there's a checkbox in the e-manifest system for trucks that where you can
check off an individual package as a section three 21 package.
(13:58):
And so that's the way that a lot of the shipments come across the border from
Mexico and us where they'll sell a whole bunch of stuff.
They'll have the stuff that's being sold in a warehouse in Mexico or in Canada
and they'll package it all into the truck and they'll truck,
they'll take the truck across the border and all of those packages will be
released very quickly,
(14:20):
very efficiently under the section three 21 process because the manifest has the
ability for them to do that.
The express couriers actually have their own manifest is that's different from
the air, the air, regular air manifest.
And they can also release those shipments electronically off of the express
manifest.
(14:41):
It's an advantage that the express couriers tend to have over the regular air
carriers when handling the de minimis shipments.
Are you seeing that most of the de minimis comes in through courier or some other
mode? Because it, what I'm not really sure,
based on what my understanding is, what is the most popular way?
Well, customs has issued some statistics and,
(15:02):
and basically what I'm seeing is there's a significant portion that's coming via
truck from Mexico and Canada.
There's a significant portion coming via air and they,
the air shipments tend to use the type 86 entry as opposed to clearing it off the
manifest.
And we can talk about the difference there cause it's important to understand
that.
(15:22):
And those are kind of the primary methods expresses another method,
but those tend to cost more because you're getting a, you know,
a different level of service.
So I don't see as much coming across the express as I do see coming across
regular air and the truck shipments simply because of the cost.
Simply because of the cost. Yeah.
(15:43):
That would make sense because I do know that shipping an international package
through UPS or FedEx seems to be cost prohibitive on an individual basis because
the idea here is you're basically chartering the aircraft or you're, you know,
using a truckload and over the road 53 and the capacity of those is obviously
(16:03):
significant.
And then your per package cost goes down dramatically because it's all being
treated as a bulk load. Correct. That's right. Yes.
One of the things I think we've done too is that we've buried the lead about
de minimis and sort of helping understanding people why this pivot has been
made.
So traditionally if you are going to bring something into the United States,
(16:23):
you're going to be responsible for paying ad valorem duty,
merchandise processing fee, harbor maintenance fee if brought in by ocean.
And that would be for something that say if you were a retailer or you were an
owner of the brand, you were going to bring it into a warehouse.
And then from there you're going to ship it around to a bunch of different
people. The whole,
the whole premise behind de minimis is that the buyer is known at the time that
(16:45):
it's presented to customers, whether through manifest,
whether through type 86 through section three 21 but also more importantly and
more crucially,
those shipments are exempt from ad valorem duties because they're coming in
under that program.
That's correct.
And also they're exempt from the section three Oh one duties that are specific to
products from China,
which is a lot of the heartburn that is now out there in the press and that
(17:07):
Congress is waking up to realize and wanting to remediate in some fashion.
Correct. We're hearing the term loophole that companies are, you know,
are using this loophole they're calling section three 21 and it could be
considered a loophole,
but it's perfectly legal if as long as it's done properly.
But it's a way that companies are avoiding, like you said,
the ad valorem duties, the section three Oh one duties and the fees.
(17:29):
That would probably seems more of an incentive to use that program.
Absolutely.
Perhaps the overall other certainly there's benefits to doing this because of
the, you know,
arguably less scrutiny and less but certainly the lower cost really makes it
more competitive for the seller to deliver the product in this way.
(17:50):
Because if you're eliminating 15% of the cost of goods,
that's a massive commercial advantage over other ways of selling goods.
Absolutely. You're right. Sure.
Think about a t-shirt that has a 16 and a half percent duty rate and it might
have an extra seven and a half percent from China. If it was from China,
(18:11):
you don't have to pay that. That's a significant amount.
Which is why it was appealing at first to like footwear and apparel importers.
But then as other people developed or as other people felt susceptible to the
additional multiples of the duty on three or one out of China,
then it really brought into a much more interested constituency than just the
people who initially thought of being able to avail themselves of the program.
(18:32):
Yes. Do you see any industries that are specifically focused in on this?
Oh, apparel and footwear by far the biggest,
largest quantity of, of goods that are coming across using the section three 21.
Because think about what people buy online.
A lot of people buy apparel and footwear online and those purchases,
as long as they're under $800,
(18:52):
they can be set up so that they can take advantage of the de minimis provisions.
And I can see a compliment between that and the fast fashion industry as well.
Yes, absolutely. Because then, you know, this whole,
you can buy something for $7 or $8 or $9.
It's amazing what you can buy. It doesn't, you know, I haven't, you know,
(19:13):
I don't look in that market necessarily for my own self,
but I could see why it would have mass appeal to the people are shopping on
Instagram or other, you know, Tik Tok,
other websites where they're getting solicited nonstop.
Well, and also think about the, the logistics behind it, right?
When you're placing an order and it has to go through multiple steps to get to
(19:35):
you, it's a, it takes a little bit longer,
but if you're placing an order with the factory and the factory pushes the
product out the door,
hands it to the carrier that's bringing it all the way across to your front door,
it can happen a lot quicker because you don't have as many handoffs.
Interesting.
So the consumer's induced by both the price and by the immediacy.
(19:57):
Yeah. And then there's also companies that are, you know,
sitting up warehousing in Mexico and Canada to take advantage of this.
And so when you have a product that's sitting in Tijuana and you've got an
order from somebody in Chicago,
it doesn't take him much longer than it takes than it would take to ship it from
a warehouse in Los Angeles to Chicago.
Because when those trucks are coming across,
they go basically to the postal service. Is that what you're saying?
(20:20):
Yeah. They, they go to the postal service.
A lot of them go to the postal service or they'll go to the FedEx hub or the UPS
hub or maybe just hand it over to Amazon or some other third party that does
that last mile delivery.
Very good.
I could see why that would dovetail into the e-comm that you were talking about
in the first place.
Yeah.
But you were talking a little bit about trying to differentiate between the
(20:43):
different modes and some of the, the air pieces.
Why don't you flesh that out a little bit?
So sure.
So the,
because of the limitation on the different manifest types for the different
modes,
companies have looked to see what's the most efficient way to process the,
the data through customs to get their shipment cleared.
And so one of the things that customs did,
(21:05):
and I think I'm going to backtrack a little bit.
One of the things that customs did when they came out with the,
when,
when this de minimis started being used more and more was there were a lot of
shipments that are subject to other government agency requirements,
or as we refer to them,
partner government agency or PGA requirements.
So for example,
that you have a pair of sunglasses that might be subject to it's,
(21:27):
I think it's a FDA requirements.
If you have,
you know,
a children's product that's subject to CPSC requirements,
these different products,
they,
while from a customs perspective,
they can be imported duty free with limited amount of data.
The other government agencies have said,
(21:48):
no, wait a second.
You can't import that product unless you provide that government agency with
the required data,
or you tell that government agency that the product is exempt for whatever
reason.
And so because of that customs built what's called the type 86 entry.
And the type 86 entry is a customs entry that a customs broker can file and
(22:10):
clear an individual under $800 package where they don't pay the duty.
They don't pay the fees and taxes.
They provide customs with limited amount of data,
but they provide the government agency,
that other government agency or that PGA agency with the data that they need to
make the determination of whether or not the product is admissible.
(22:31):
Interesting.
I could see where that would be very of interest to the other government
agencies who are trying to regulate everything from,
you know,
endangered species,
invasive species you know,
food and drugs obviously are going to be critical.
Sure.
And a whole bunch of other agencies that are out there and you know,
(22:54):
I could see DOT being for auto parts cause you got the HS seven that you have
to file.
Yep.
So there's a lot of interesting information if you're,
I suppose why wouldn't you be able to import an auto part just as readily as
any other.
Correct.
But there's an interesting side effect that happened with the type 86 entry.
Remember we were talking about the air manifest system and remember a significant
(23:16):
portion of these packages come across via air,
but they've got a clunky paper manifest process to clear that.
Well now the companies have realized that they've got another process called the
type 86 entry that clears much more quickly via air.
You don't have to have a PGA requirements.
So if you're importing something that has no PGA requirements,
(23:37):
you can clear it off the manifest and take a few days to clear it because it's a
paper process or you can have a broker file the type 86 entry for you.
And when the broker files a type 86 entry customs releases it in the system
automatically, it goes much more quickly.
So most of the air shipments that are coming in de minimis are not cleared off
the manifest,
(23:58):
but instead they have a broker that files a type 86 entry with or without the
additional PGA. If it's required, they can file it with the PGA data.
If it's not required,
they type file a type 86 entry with no PGA data gets released very quickly.
So a lot of companies are taking advantage of the type 86 entry when they don't
(24:20):
even need the PGA requirement.
This really raises a good question of for customs brokers who have worked legacy
either at an inland point or a C point and are used to dealing with air and sea.
You certainly have borders located or you have brokers located along the Northern
or Southern border who are used to doing things much more rapidly in a high
volume with a shorter arrival notice time for that's coming in.
(24:42):
If a customs broker is looking at this and going, this isn't going away,
maybe it's just being altered and they haven't entered this de minimis or type
86 space yet.
What should they have in place to either stand it up or to add the questions they
should be asking themselves before they go, you know what,
I'm going to go out and offer this service to a marketplace.
(25:02):
I'm going to go offer this service to a brand.
I'm going to go out and offer this service to an influencer who is shipping
products in from wherever it happens to be.
Well, the broker needs to first understand or first make sure that they have the
system capability of doing it because a lot of the legacy customs broker software
doesn't have the ability to file or has limited ability to file the type 86
(25:24):
entry. It's a different entry type.
It's actually a fairly new entry type and not all the software has built it.
Most of it I think has it now,
but have they refined it to the point where they're able to process a hundred
thousand shipments at a hundred thousand packages at a time?
That's really,
I think one of the first steps that they need a broker needs to look at to decide
whether or not they're going to do it. And then understanding the rules,
(25:46):
the ever changing rules about what can be filed under a type 86 with out the PGA
and what has to happen,
have the PGA and consumer product safety commission is going to be the big next
issue that's going to impact a lot of companies that are using de minimis
shipments today because we're expecting in 2025 that the consumer product
(26:08):
safety commission is going to be requiring an electronic filing of the PGA data,
whether it's a traditional customs brokerage entry of a full container load or
it's a type 86 entry.
And so that's to me the most immediate concern for a lot of companies,
especially apparel companies because it's interesting to note that the consumer
(26:31):
product safety commission flagged over 95% of the HTS classifications in chapter
61 and 62 that's the apparel classification chapters for consumer product safety
commission.
Either the children's product certificate is required or the general certificate
(26:52):
of conformity is either required or may be disclaimed.
So now we have apparel companies that imported a simple de minimis shipment via
truck without a PGA or they imported the apparel via type 86,
without the PGA and now they're going to have to provide additional data to
(27:13):
their broker so that the broker can file the type 86 entry with the CPSC data or
with a disclaim of the CPSC data.
Interesting.
I was reading through the white house's pronouncement about what they're going to
do to reduce the total number of de minimis packages and they seem to be taking a
(27:35):
rather blunt approach, you know, basically saying,
and I'll just read what they have here.
It's like if finalized textile and apparel imports from China would no longer be
eligible for de minimis exemption. Do you see that as being realistic?
Well actually it's even more than that.
It's textile and apparel from any country would be excluded if it's done the way
(27:56):
that the white house said that they want to do it and the way that CBP has said
to Congress that they want to have done.
So what the way that they've done is the,
what the white house said in their in their statement and this actually went to
the white house from CBP is that the white house wants to exclude all import
sensitive products from the de minimis program and they use the definition of
(28:22):
import sensitive products from the GSP or the generalist system of preferences
program.
And if you look at that definition of import sensitive products,
it includes apparel, it includes footwear, it includes watches,
it includes a bunch of other products.
It also includes a provision for anything else that the commissioner wants to add
to the list. And it's not exclusive to China.
(28:43):
It's any of those import sensitive products from any country around the world.
If CBP gets what they want will be excluded from the de minimis program
completely.
So the straw man or the falls flag is that everybody,
and we, we found a bunch of different sources.
Rila has a thought about lowering the de minimis threshold,
harming retailers and consumers.
(29:04):
The express association saying reducing the threshold would overwhelm custom
systems and delay deliveries.
So a lot of the people who are very interested because their livelihood of
transporting small packages,
they see an inflection point that could hurt them by lowering that dollar amount.
That 55 to $56 average that you're talking about,
the $800 isn't the problem. It's the exclusion from the 301.
(29:27):
It's the exclusion from some of these other things in sensitive industries.
That's the real problem.
Yes, you're right.
And so let's talk a little bit about the difference because there's a few
different proposals out there with, with in Congress and potentially be a,
via regulation of being of ways that the government overall is looking at
(29:47):
limiting the use of the de minimis provisions. You mentioned 301.
So one of the proposals is to eliminate products that are subject to the
section 301 duties from the de minimis provision.
And that would eliminate certain products that are made in China from de
minimis. But then there's another proposal that I just mentioned,
(30:09):
which is to eliminate import sensitive products.
And so that would eliminate from across the board, all countries.
If that goes through the whole de minimis provision is going to be significantly
impacted. No more apparel,
no more footwear would come through from any country.
If that doesn't go through,
(30:30):
but they eliminate the ability to use section 321 for products that are subject
to section 301 duties, that would impact products from China,
but not products from other countries around the world.
And I think that's a really interesting angle because people have set up their
supply chains now to do this. So, I mean, as an example, I've,
(30:51):
I've got a young daughter and,
and my family and my, her grandparents liked to buy her things from,
from one of those online marketplaces and where perhaps you'd have eight or 10
different items sitting in a warehouse here in California or another DC
somewhere around the U S that order would come through and get picked from that
DC and be given to the courier at one of many number of companies here and come
straight to her under TIFTO,
(31:13):
the trade didn't trade facilitation and trade enforcement act of 2015,
which was signed in 2016,
which permitted the change in the de minimis amount from two to 800.
That's when companies started going, you know what?
I don't have to bring this here. I don't have to hold this here.
It sort of predated those 301s and people were like, right,
I will just set up that DC in China.
I will set up that DC in Vietnam, wherever it happens to be coming from.
(31:37):
And those order fulfillments,
because they were made to a known entity would get picked and plucked and put in
a soft pack and over you go. And it shows up in your mailbox eight to 10 to 14
days later, but it's not something that anybody's pressing for.
So they're happy for however long it would take to now exclude and to ask
people to change their supply chains back,
(31:57):
not even from a nearshotting point of view,
but a straight into the U S point of view.
I don't know how well that would play.
And as you look at sort of the competing interests of people who are going to
lobby customs, whether it be the U S chamber of commerce,
relay or any of these other entities,
I don't believe that they want to go back there.
I agree. They don't, but this is a very political issue.
(32:18):
There are some that see the loophole and want to curtail shipments from China
or want to lower the, you know, lower the number of shipments.
You have customs that saying we can't handle a billion shipments or 2 billion
shipments a year.
And so there's a lot of different competing political pressure going into this.
And another thing that, you know, you mentioned about the, um,
(32:39):
the setting up the warehouses in China,
you've also got a whole nother constituency of companies that have set up
warehouses in Canada and Mexico that can fulfill those orders.
Even though the products may be made in China,
they're sitting in Tijuana or in Vancouver and they can fulfill those orders to
your granddaughter, maybe overnight or maybe in a day or two.
(33:00):
It does seem to me that customs has gone on an active campaign to really try to
get Congress to do something about it.
Absolutely. Because remember, Congress has told customs,
you've got mandates to do a bunch of things, right?
They got to prevent fentanyl from being imported into the country.
They've got to prevent products that are contained into intellectual property
(33:21):
rights violations like trademark violations from being imported into the
country. They've got,
they've got a mandate to ensure that companies follow the rules and do all
these different things that they're doing.
And so customs is saying a container with a 10,000 packages in it,
it's easy for me to deal with that if those 10,000 packages are all going to a
warehouse.
But if those 10,000 packages are going to go to 10,000 people across the
(33:44):
country and brokers are going to file 10,000 declarations for that one
container, that makes it customs job much more difficult,
at least the way that customs is set up. So customs is saying back to Congress,
if you want us to meet our mandate, got to make it easier for us,
which means lowering the number of packages.
(34:05):
But then you've got the consumers on the other side who are saying,
I like paying less for my products.
So it's a very much of a political battle.
Yeah.
It'll be interesting to see how it plays out because you can see that
eliminating this,
I think would have a very inflationary effect on the average consumer.
I, yes, that's what's being predicted.
(34:27):
The, although Congress is taking this up,
I think there's four or five different pieces of legislation that are at various
stages that have similar but different provisions that are working their way
through Congress to either limit or eliminate the entire section 321 process,
the entire de minimis process. I think something's going to happen.
(34:50):
I don't know what is going to happen,
but at the same time you also have the various different government agencies
that are going through the regulatory process,
meaning customs and one of the,
at least one of the PGA's that are going through the regulatory process.
So if Congress doesn't act,
then the government agencies can act on their own and create regulations that
(35:14):
would potentially limit the use of the de minimis provisions.
You can see how they could use the regulation of the PGA's to limit the scope
and availability of these different programs that are allowing them to,
you know, basically saying, if you have to demonstrate this, this, and this,
it's going to make it harder. Right.
And many of the sellers are not going to be able to comply. Correct.
(35:37):
And the biggest one that was most imminent is consumer product safety
commission.
So the consumer product safety commission is coming out with an e-filing
requirement next year.
And what that's going to impact a lot of is the apparel companies,
children's products, companies. Um,
a lot of products that are consumer products are going to be in poor impacted by
(35:58):
this new requirement. Where, for example,
if you're an apparel company and you're shipping your apparel across the border
via, via truck, um, from Canada or Mexico,
you won't be able to use the de minimis manifest clearance.
You're going to have to file the, um, the type 86 entry,
which means hiring a broker to file the entry for you,
(36:21):
as opposed to having the carrier do it.
It means providing additional information. And it also means, um,
it also means understanding the rules as to when it's required and when it can
be what we call disclaimed, where you're basically saying to CPSC,
my product isn't subject to your jurisdiction.
And so that's an issue that apparel companies today that make use of the de
(36:43):
minimis provision are grappling with is how do I move from
having my carrier, my trucking company file,
my declarations to now having a broker file my declarations with the consumer
product safety commission.
It'll be an interesting lift for the parties involved to see how they can do it
and do it efficiently. Yes. And to your point,
it does seem to be whether or not we pass legislation that creates a
(37:07):
ban or we use the existing regulatory structure and the
regulators of these individual PGAs set about raising the bar and
requiring certain filings that will only complicate the system and, you know,
basically discourage the use because of an inability to comply.
You're right. And it will complicate the system. But interestingly,
(37:30):
from customs perspective, they're saying that it's going to simplify the system.
It's going to simplify it for them. Um,
but also will potentially give them more authority to do a better job of
enforcing and finding the fentanyl and finding the other problem shipments.
So some of the things that customs is asking Congress to do that's outside of
the, what we've been talking about so far,
(37:52):
there's other things that con that customs is asking Congress to do.
For example, customs is saying to Congress,
we now have more than a billion packages a day that we need to have somebody
deal with. We don't have the resources to do it.
So customs is asking Congress to set a fee. They put the fee of $2,
$2 per package. Um,
(38:12):
that customs is saying they need that money to hire more officers,
to build better systems, to use,
to build the artificial intelligence to find the problem shipments.
And so is that going to happen? That's a possibility. And that's being,
it's been included in at least some of the legislation that we've been,
that we've, we've seen.
It feels like it's a win for brokers,
(38:34):
regardless of which way this thing happens to go down, quite honestly.
You know,
brokers often can take advantage of the chaos that's created by the government
regulations if they understand the rules and if they're able to help educate
their clients on the rules. And you're right. I mean,
it will potentially be a win because you'll now have a shipment coming across
(38:54):
the border from, um, from Mexico or Canada that previous to this new law,
that might be implemented, would not require a broker,
but with the new law,
if it goes into effect the way that customs wants will require a broker.
It does seem interesting how brokers often want greater trade and the kind of the
focus on the, you know,
let's have more versus the qualitative and quantitative difference. You know,
(39:19):
is the broker community interested in disprocessing entries or are they
interested in having a more complimentary consultative role?
And it seems there's a tension.
Absolutely there is. And you know,
this is something that I personally studied for many years and I've always
thought that the future of the broker is much more of an advisory or
(39:40):
consultative role because the brokers are the ones that know how to work
through the system and know,
understand the regulations and know how to do that.
And as we see new technology coming into play,
the artificial intelligence technology,
it's taking over some of the traditional responsibility of the broker.
So for example,
a lot of what a broker does is they get a invoice,
(40:02):
a paper invoice or a PDF invoice,
and they need to key that data into their system so that they can clear the
shipment. Well, today you mentioned earlier that we're at Wescon.
We're at a conference and if you go through the exhibit hall,
there's a bunch of companies that are showing off artificial intelligence tools
that will do that part of the job. So what does that mean for the broker?
It means for the broker that brokers really need to stop thinking of themselves
(40:26):
as data entry clerks and start thinking of themselves as business advisors.
And the brokers that do that,
I think are they going to be the ones that are going to succeed in the future?
I don't think any broker worth their salt really wants to be in the data entry
business. The data entry business is just incidental to them providing the
consultative and high level services that CBP is looking to do.
(40:48):
You can almost see it. And I just, as we've been talking,
the parallel came into my mind. You have,
you have ocean shipping lines who insist on signing contracts with BCOs because
boy, they, it doesn't matter.
They'll sign a 500 TEU contract with a BCO,
but then you go out to like an NVOCC who will sign with them for 50,000.
The thing that that 50,000 at the NVOCC gives them is not having to deal with
(41:10):
50,000 individual shippers. So from the carrier's point of view,
it's like I get to deal with one entity that's going to feed me 50,000 things.
And CBP may be looking at this the same way as they look at a broker going,
I have an opportunity to have a trusted partner in this engagement feed me 1.4
billion things. And it gives me a better,
(41:30):
it gives me a better filter and it gives me a better trust level for what is,
it's hitting my door.
You're absolutely right.
And we're seeing happening is that customs now is looking at the broker and
holding the broker to a higher standard with the type 86 entries.
Customs is expecting the broker to really take a look at that data and make
sure that the data that they're submitting is reasonable. So right.
(41:54):
Customs has shared examples of a shipment of a pen that was had a weight of 500
kilos. Well, maybe it was a typographical error,
but that's a lot of ink. That's a lot of ink. Yeah.
Apparently it was a big statue of a pan or something like that. But anyways,
what pen adjacent, pen adjacent,
but what customs is saying is they're saying to the broker,
(42:16):
you can't just feed us this data.
You can't just copy it and paste it from your customer's system into your system
and feed us the data.
Customs expects the customs broker today to look at the data.
They don't necessarily have to look at the products and reclassify the products,
but they have to look at the data that they have and make sure that it's
reasonable before they pass it along to the two customs.
(42:40):
So I mentioned the weight to reasonableness ratio or what happens if you have a
product description that describes an auto part,
but the classification that's being transmitted is a classification for wearing
apparel. That's the type of stuff that customs is going to go back to the broker
and say, broker, no, no, no, you can't do that.
(43:01):
And they're starting to hold brokers accountable for those types of violations,
not necessarily holding the importer, the consumer liable.
They're holding the broker liable because the broker is the entity that they
have a regulatory authority over,
but it's also the entity that they really can get to, right?
They can't get to the factory because they're overseas.
(43:22):
They can't really get to the consumer because there's too many of them.
So they go to the broker.
I'm FDA would take any product product cold and any affirmation of compliance
code years old.
So it's really kind of funny to hear that that a government entity is going to be
putting filters in place. I mean, I mean,
admittedly CBP had filters in place to look for bad add numbers or other stuff.
But as we look at some of the PGAs, I'm for, for the longest time,
(43:44):
they'd scoop it all up. And without them, I mean,
the onus was to have the edit on the broker side because once you got a bad
product code at FDA's hands, it would take you forever to adjudicate that.
Yeah. Yeah, you're right. And it's, it's again,
going back to that concept of the advisory or the consultative role of the
broker.
It's really the broker's responsibility to educate their customers to make sure
(44:08):
that things are being done properly.
Any final thoughts where you think this thing's going to go?
Well, I think it's going to be a really interesting few months.
We obviously have the election period coming up,
but we also have a lame duck session in Congress.
So we might see something happening pretty quickly. But then again,
we also might see some things happening regulatory, right?
We're going to see a consumer product safety commission regulation coming out.
(44:31):
Customs has two sets of proposed regulations being teed up.
Those are going to take a little bit longer,
but I think it's a time that we need to just watch the news and see what's
happening and see what the sentiment is of the consumers, the,
the government, as well as the parties that are involved in these transactions.
Very insightful, Tom.
Those are interesting thoughts about how this is all going to play out. And uh,
(44:54):
you know, I keep,
I keep trying to come back to like who's the winners and losers in all of this,
because that's always of interest to me because somebody's going to benefit.
Do you see any clear winners?
Well, right now, the biggest winners are the fast fashion companies out of Asia.
Right now, those, those are the ones that are taking the most advantage of this.
Because if you take a look at the volumes of shipments,
(45:17):
apparently there's a couple of companies that we all know the names of that have
a significant portion of the volume of these de minimis packages
coming into the country. So they're the winners today. Um,
there's also some customs brokers and carriers and warehouse companies in Mexico
and Canada that are winners because they've taken advantage of these rules.
(45:38):
I think the consumer is also a winner, right?
Because they're getting lower prices. Um, so those are the winners.
The losers may be some of the more traditional companies that haven't taken
advantage of the,
of the provisions or or their business models don't allow them to take advantage
of those provisions. Um, and again,
you've got all these different parties putting different pressure politically
(45:59):
and we'll have to wait and see what happens. We're, we're going to see,
I think we're going to be seeing a lot of changes in business models and how
businesses work. But again,
we've got technology today that we didn't have five, 10,
15 years ago that will allow these types of things to happen.
Part of the reason why we had a container coming across the border with,
(46:20):
you know, 50,000 shirts being put in a warehouse in the U S was because maybe we
didn't have the technology that allowed an individual consumer to buy a product
and that trigger a shipment from the factory or close to the factory where the
product was made, be delivered to the consumer that wants the product.
Do you think that's going to be like one of the things that we heard from this
(46:44):
morning speaker, the economist, Paul Bingham, you know, I think is, uh,
was at the FTA a couple of years ago as well.
And he did a presentation is pretty spot on about what happened.
And he seems to be convinced that the data suggests a balkanization of trade
regional manufacturing facilities.
And this seems to compliment that in a way of taking away the de minimis or
(47:08):
reducing the de minimis a transaction seems to be encouraging American
manufacturing.
And Scott and I were asking ourselves the question is that we really want to have
more retail or excuse me,
more apparel manufacturing in the United States.
Is that good for the United States to have those kinds of jobs?
You know, I, I think that may be a bigger question than a question that I can
(47:30):
answer.
That's above all our collective pay grade.
But it's a really good question. You know, but,
but let's take a look at something analogous to that.
And that is maybe not necessarily the manufacturing,
but what about where the goods are? And so one of the questions is demand,
right? The consumer that wants the products, do they,
do they want it today or are they willing to wait until tomorrow or are they
(47:50):
willing to wait until next week?
And so if consumers really get to the point where they decide that,
you know what I wanted on my doorstep within a couple of hours,
well then the goods need to be either made or stored close to home, right?
So you look at some of the big e-commerce players,
a lot of them,
the way that they're able to do their business is cause they've got warehouses
all over the place.
(48:10):
I'd say from the television ad I saw this morning on DoorDash,
that is definitely the sentiment because you know, in that advertisement,
this woman comes home from a trip and she,
somebody left some cake out on top of a table and it's,
there's this infestation of ants and she calls DoorDash and
instantly there's a can of raid in her hand as a result of it.
(48:34):
It's kind of a silly ad in a way,
but like apparently that is motivating people who's like, well,
you just got home from a long trip. You don't want to go back out again.
You want to go rest and you don't have to deal with this mess.
We can help you.
And the need is immediate and the satisfaction of that need is
immediate.
Yes. Yeah. Interesting, interesting things. And, and you know, it's, it's all,
(48:58):
you know,
these are changes that are happening with our societies of consumer demand of
manufacturing of distribution, all these things coming together.
And I think one of the interesting things that we're going to be seeing over the
next few years is business models are going to change based on demand and supply
may change because of the changes in the business models and the changes in
(49:20):
demands. And when I say supply,
I'm talking about everything from where the goods are manufactured,
how they're moved and where they're stored before they make it there,
make their way to the final consumer.
And we've not even gotten into things like 3d printing and some of the ways that
now we're, now you're not even doing it with an import.
You're just dealing with something made here.
Somebody places the order and it is literally printed and delivered to them.
(49:42):
Yeah. Are we getting close to the days of the sci-fi,
like star Trek where you want something and you just push a button and all of a
sudden it appears to Earl Gray, hot
materialization of things. Yes, exactly. Absolutely. Well, Tom,
thank you so much for your time. Thank you for being our guest here for the,
for the inaugural season two episode of the logistically speaking pod.
(50:04):
I hope you've had a good time and can we,
can we bring you back at some point in the future if things change or there's
stuff to talk about? Absolutely. Let me know anytime. I'd be excited to do that.
Thank you. Absolutely. Thanks a lot, Tom. Appreciate your time. Thank you.
So for Tom Gould and for my partner Cameron Roberts,
this is Scott case and thanks for listening to logistically speaking.
My name is Scott Case. I'm Cameron Roberts.
(00:02):
And this is logistically speaking.
Well back at the scene of the crime for season two of logistically speaking,
this started a year ago at WestCon and here we are one year later.
It's been a great year, Scott.
I've really enjoyed doing this and we've had a lot of great guests.
(00:25):
We've been traveled the globe with going down to Panama and interviewing the
canal folks as well as getting our feet wet with the Australian underwriting
and a few other places. So it's been an interesting year, a diverse year,
much like trade and transportation. It's, you know, it's all over the place.
(00:45):
And it's really fun too because as you look back sort of at like the news cycle
and you realize that walking through some of the topics that we covered in the
first year really is walking through the topics that were important to the trade
at that given time and at that moment in time.
That's true.
And there's certainly no shortage of things that are important to be watching as
(01:06):
we keep seeing the shifting sands of trade, whether it's focusing on AI,
whether you're looking at how many times
the commissioner of customs can say fentanyl. I don't know. You could just keep,
it's a fun, fun way to spend a day. And certainly it's been
(01:26):
a one that you never really know what is coming next.
You can think things are going to be predictive, but you know, as we've seen,
we had a labor strike that was almost, you know,
going to paralyze the East coast of the United States.
We saw the pivot of trade to the West coast and banner months for the ports of
(01:47):
Los Angeles and long beach.
You have the ever growing trade relationship with Mexico and all the other
interesting things that we've seen in the background of trade and you know,
on the front pages as well.
What was interesting is that the morning that we're recording this here,
it's Saturday morning, October 19th, whatever it is.
(02:08):
But there was a session this morning on AI and just using AI analytically,
at least from a, from a custom broker and forwarder point of view.
And just there was a discussion as well of how CBP uses AI to be able to sift
and where they used to have to have a room full of analysts and a room full of
people to parse through things.
They're now leveraging AI and the amount of just the raw amount of data that
(02:29):
ACE has collected over its existence to be able to look for and find it,
identify trends and all the things we've looked at over the course of the year,
whether it be the outcome from the ILA,
whether it be the dry season that led to all of that.
The phrase seems to be the only constant in supply chain right now is
unpredictability.
So it's really interesting that as all of these people are bringing all of this
(02:52):
intelligence to bear how that's going to be used to sort of,
I don't know if you can really just smooth it all out,
but maybe take the edges off of some of the hazards of what,
what people can't foresee and can't, can't see what's coming down the pipeline.
Well, I think we can definitely,
you're going to see the continuation of tariffs and we'll also see the
(03:12):
continuation of people trying to either lawfully or unlawfully avoid those
tariffs, which is really, I think a nice pivot to,
talking to Tom Gould, our speaker today,
and finding out more about type 86 as well as a de minimis and where all that is
going and how the two of those concepts are similar but not identical and how
(03:40):
major players in the e-comm space are using them to get goods into the country.
All the pitfalls that can befall the brokers who are engaged in them.
And you know,
we heard FPNF yesterday being very critical of people doing those entries for,
(04:01):
you know,
10 cents and whether or not they were exercising supervision and control over
those entries. And I think there's an ongoing,
I don't know if it's a bias is the right word,
but there's certainly a stricter scrutiny being applied to 86.
From DC's point of view and how people are going to be able to use these
(04:25):
programs in the, in the months to come, especially if, you know,
Congress decides to regulate it. And as we learned from Peter yesterday,
you know, we've got what, 14 days left of the session.
And so anything can happen. And you know,
whether people think that a bar partisan legislation that addresses some of this
(04:48):
is going to pass or not will be interesting.
It's probably going to be how narrowly tailored that piece of legislature is to
the specific issue.
And then whether people actually care about the facts of course whether or not,
you know, cause if it's all focused on fentanyl, I don't know if, you know,
because that seems to be the poster child for why we need to stop this setting
(05:12):
aside, you know,
the fact that there's a lot of inconsistency in the data and how hard it is for
customs officers to do what they need to do.
I've been at a exam site when they've been unloading a e-com container and it's
a nightmare. You know, it's not, you know,
(05:34):
a uniform shipment in any way, shape or form.
The containers got all sorts of things in it.
Thousands and thousands of different packages of all size and description.
So sifting through that just to find the package that you think is the suspect
package is a heavy lift.
This seems like a really good time to bring in Tom Gould. Um,
our guest today who's long a veteran of the customs and international trade
(05:55):
space.
Tom is the principal of his own consultancy and is a licensed customs broker
and certified custom specialist and is currently sitting on the public private
COAC committee,
and he was appointed by treasury secretary Yellen and DHS secretary Mayorkas
back in 2022 to that position. Tom, welcome to the pod.
Thank you very much. Let me just touch on what you just mentioned.
(06:17):
Remember there is a lot of e-commerce that comes in across the Southern border,
right? So that is,
it's not exclusively in regular shipments that they're finding fentanyl.
They're finding apparently they're finding a lot of fentanyl in e-commerce
shipments that are being trucked across the Southern border as well.
But I think that it would probably help if I were,
if I could take a moment or two to kind of set the stage of what really is the
(06:40):
issue that we're going,
we're going through and what we're dealing with today with e-commerce,
with low value shipments, with the minimus.
One of the issues is there's all this different terminology that's being used
that really kind of muddies the water for a lot of companies that are look either
utilizing one of the provisions are actually looking to.
So section three 21 is a term that we use that refers to actually
(07:02):
19 U S code section 1321 which is where section
three 21 of the tariff act of 1930 was codified as amended as amended. Yes.
And there's a provision within that that basically says certain low value
shipments are allowed to be imported duty free with limited import data
provided to the government.
(07:23):
So we refer to that kind of overall sometimes as section three 21 or
de minimis or low value shipments.
Those all kind of are the same thing.
And I remember using that in the, in the late 80s,
late 80s early 90s when I was working in an import brokerage and we would have
say a shipment of documents or shipment of manuals.
(07:43):
So I would, I would have something for the same importer,
but there'd be two airway bills.
There'd be one airway bill with hundreds of thousands of dollars worth of
merchandise and equipment on it.
And then there'd be something else sitting there for like 80 bucks worth of
manuals.
Or my favorite one is the boss's daughter or bosses wanting to buy a toy for his
daughter and imported it for, you know, 50 bucks.
Yeah, I know those, those definitely sit there. And what was your,
(08:04):
I thought it was $5 was the first amount for de minimis. Was that a,
I don't recall the, I think you're right.
I think it was $5 back in the 1930s, but that was a lot of money back then.
Correct. Yeah. And I sat and I ran it through a,
I ran it through the machine over here and comparing $1930 to roughly 2024
dollars, that $5 was worth about 85 to nine.
It would be worth about 85 to $90 today. Right.
(08:26):
And one of the things that I think is rather interesting is that people tend
often focus on the fact that the rate,
the number was raised from 200 to 800 back in 2015, 2016. Um,
but what customs is telling us is that change was really irrelevant because the
average value of a de minimis package or a low value package is being imported
(08:47):
as like 55, $60.
And so what customs is saying is that the, the,
the escalation from 200 to 800 really didn't change the issue.
It was really more what happened during the pandemic along with all of the,
all of us buying stuff online, right? It's the e-commerce stuff.
And that's really what shifted the, um, the, the,
(09:10):
the, the cargo from cargo shipments to individual packages shipments.
It wasn't really the dollar threshold being raised,
but it was the fact that there was so much more being purchased online.
And that, that figured, I mean, it, it,
it grew exponentially like a hockey stick throughout the year and has
continued to do so. But CBP also said that for fiscal year 2024,
(09:32):
it came in, I think at about 1.4 billion,
$1.4 billion as compared to 23. It was, that was 1.4 billion shipments.
Was that it? Sorry. You're right. I'm sorry. You're right.
It was 1.4 billion shipments in fiscal year 23. It was like, it was,
it crossed a billion shipments, just over a billion shipments.
(09:53):
And if you go back, um, a few years ago,
they were counting the shipments in hundreds of thousands and not even in
millions.
It has become a major gateway. It has become a major gateway. Yes.
It's exponential. And you know,
I only know from a few of my clients that I've worked with,
it was interesting that they had a brokerage.
We helped them get their CFS station and unbeknownst to me,
(10:16):
and I only found this out because of certain things that happened with
customs and whatnot. Um,
they had opened up five CFS stations across the country and we're handling
millions of shipments. Yeah. Uh,
and this was all just in the last five years. Yes. Yeah. That we've,
we've seen that happening all over the country. Yes. Yeah. It's pretty, uh,
(10:38):
the growth is just, it's ridiculous. Yeah.
What I'd like to talk a little bit about is kind of all the different flavors of
de minimis or section three 21 shipments,
because I think it's important to understand that there's a number of different
ways that it happens and there's very nuanced differences.
So you'll hear talk about type 86, which is a customs entry type.
(11:01):
You'll also hear about manifest clearances and the manifest clearances could be a
truck manifest, which is different from an air manifest,
which is different from an ocean or rail manifest.
And when you're looking at the air manifest,
there's the normal air manifest for cargo airlines,
but then there's the express air manifest for, um,
the express couriers like FedEx and UPS.
(11:22):
And it's important to understand the difference because the way that the data is
handled and the way that customs is enforcing the de minimis shipments is
different on those different modes of transportation on those different types of
manifests. So going from the, the,
the traditional, the older manifest styles like the ocean manifest,
(11:46):
rail manifest and air manifest, those systems,
customs never built the ability to automatically clear a shipment,
a de minimis shipment off of those manifests. So if you do that today,
it's a different process. It's a paper process.
What often happens and it depends on the port is that if you want to clear,
(12:07):
for example, an ocean container full of de minimis packages,
you have to create a spreadsheet that lists all the packages and you have to get
that spreadsheet to somebody at customs.
And the person at customs goes through the spreadsheet and line by line,
they have to release each of those shipments.
It takes time and it takes a lot of effort and customs doesn't like to do it
because it's not automated. But then you've got the truck manifest.
(12:30):
So for trucks crossing the Southern border,
coming into the U S from Mexico or the Northern border coming into the U S from
Canada, when customs created the truck manifest system,
it was built after the ocean manifest and the air manifest system.
It's interesting.
You raised the point about having to do the spreadsheet within the ocean
environment. And it goes back to CBP,
not having programmed what's called ocean AMS.
(12:52):
So you had area MS where they would be able to release it and they could release
it. What was called the house bill level and ocean AMS didn't permit them.
You had to release it, the master bill level.
So if you were running one of those CFS warehouses,
you were still tied to that paper process for the underlying individual
shipments. And it sounds like not doing it in the ocean environment,
has come back and bit him in the shorts for trying to do massive numbers of
(13:13):
econ shipments in a single container.
Yeah, that's correct.
And while they've have the ability to release a house bill in the air manifest
system,
they don't have the ability to release an individual package in the air manifest
system.
That's an individual package that's manifested as a section three 21 or a
de minimis shipment.
So there's all kinds of weird little complications like that,
(13:35):
that companies need to be aware of. Um, with the truck environment,
it's a little bit different, right?
If you've got a truck that's crossing the border,
the carrier or their agent files an e-manifest in the ACE e-manifest system.
And there's a checkbox in the e-manifest system for trucks that where you can
check off an individual package as a section three 21 package.
(13:58):
And so that's the way that a lot of the shipments come across the border from
Mexico and us where they'll sell a whole bunch of stuff.
They'll have the stuff that's being sold in a warehouse in Mexico or in Canada
and they'll package it all into the truck and they'll truck,
they'll take the truck across the border and all of those packages will be
released very quickly,
(14:20):
very efficiently under the section three 21 process because the manifest has the
ability for them to do that.
The express couriers actually have their own manifest is that's different from
the air, the air, regular air manifest.
And they can also release those shipments electronically off of the express
manifest.
(14:41):
It's an advantage that the express couriers tend to have over the regular air
carriers when handling the de minimis shipments.
Are you seeing that most of the de minimis comes in through courier or some other
mode? Because it, what I'm not really sure,
based on what my understanding is, what is the most popular way?
Well, customs has issued some statistics and,
(15:02):
and basically what I'm seeing is there's a significant portion that's coming via
truck from Mexico and Canada.
There's a significant portion coming via air and they,
the air shipments tend to use the type 86 entry as opposed to clearing it off the
manifest.
And we can talk about the difference there cause it's important to understand
that.
(15:22):
And those are kind of the primary methods expresses another method,
but those tend to cost more because you're getting a, you know,
a different level of service.
So I don't see as much coming across the express as I do see coming across
regular air and the truck shipments simply because of the cost.
Simply because of the cost. Yeah.
(15:43):
That would make sense because I do know that shipping an international package
through UPS or FedEx seems to be cost prohibitive on an individual basis because
the idea here is you're basically chartering the aircraft or you're, you know,
using a truckload and over the road 53 and the capacity of those is obviously
(16:03):
significant.
And then your per package cost goes down dramatically because it's all being
treated as a bulk load. Correct. That's right. Yes.
One of the things I think we've done too is that we've buried the lead about
de minimis and sort of helping understanding people why this pivot has been
made.
So traditionally if you are going to bring something into the United States,
(16:23):
you're going to be responsible for paying ad valorem duty,
merchandise processing fee, harbor maintenance fee if brought in by ocean.
And that would be for something that say if you were a retailer or you were an
owner of the brand, you were going to bring it into a warehouse.
And then from there you're going to ship it around to a bunch of different
people. The whole,
the whole premise behind de minimis is that the buyer is known at the time that
(16:45):
it's presented to customers, whether through manifest,
whether through type 86 through section three 21 but also more importantly and
more crucially,
those shipments are exempt from ad valorem duties because they're coming in
under that program.
That's correct.
And also they're exempt from the section three Oh one duties that are specific to
products from China,
which is a lot of the heartburn that is now out there in the press and that
(17:07):
Congress is waking up to realize and wanting to remediate in some fashion.
Correct. We're hearing the term loophole that companies are, you know,
are using this loophole they're calling section three 21 and it could be
considered a loophole,
but it's perfectly legal if as long as it's done properly.
But it's a way that companies are avoiding, like you said,
the ad valorem duties, the section three Oh one duties and the fees.
(17:29):
That would probably seems more of an incentive to use that program.
Absolutely.
Perhaps the overall other certainly there's benefits to doing this because of
the, you know,
arguably less scrutiny and less but certainly the lower cost really makes it
more competitive for the seller to deliver the product in this way.
(17:50):
Because if you're eliminating 15% of the cost of goods,
that's a massive commercial advantage over other ways of selling goods.
Absolutely. You're right. Sure.
Think about a t-shirt that has a 16 and a half percent duty rate and it might
have an extra seven and a half percent from China. If it was from China,
(18:11):
you don't have to pay that. That's a significant amount.
Which is why it was appealing at first to like footwear and apparel importers.
But then as other people developed or as other people felt susceptible to the
additional multiples of the duty on three or one out of China,
then it really brought into a much more interested constituency than just the
people who initially thought of being able to avail themselves of the program.
(18:32):
Yes. Do you see any industries that are specifically focused in on this?
Oh, apparel and footwear by far the biggest,
largest quantity of, of goods that are coming across using the section three 21.
Because think about what people buy online.
A lot of people buy apparel and footwear online and those purchases,
as long as they're under $800,
(18:52):
they can be set up so that they can take advantage of the de minimis provisions.
And I can see a compliment between that and the fast fashion industry as well.
Yes, absolutely. Because then, you know, this whole,
you can buy something for $7 or $8 or $9.
It's amazing what you can buy. It doesn't, you know, I haven't, you know,
(19:13):
I don't look in that market necessarily for my own self,
but I could see why it would have mass appeal to the people are shopping on
Instagram or other, you know, Tik Tok,
other websites where they're getting solicited nonstop.
Well, and also think about the, the logistics behind it, right?
When you're placing an order and it has to go through multiple steps to get to
(19:35):
you, it's a, it takes a little bit longer,
but if you're placing an order with the factory and the factory pushes the
product out the door,
hands it to the carrier that's bringing it all the way across to your front door,
it can happen a lot quicker because you don't have as many handoffs.
Interesting.
So the consumer's induced by both the price and by the immediacy.
(19:57):
Yeah. And then there's also companies that are, you know,
sitting up warehousing in Mexico and Canada to take advantage of this.
And so when you have a product that's sitting in Tijuana and you've got an
order from somebody in Chicago,
it doesn't take him much longer than it takes than it would take to ship it from
a warehouse in Los Angeles to Chicago.
Because when those trucks are coming across,
they go basically to the postal service. Is that what you're saying?
(20:20):
Yeah. They, they go to the postal service.
A lot of them go to the postal service or they'll go to the FedEx hub or the UPS
hub or maybe just hand it over to Amazon or some other third party that does
that last mile delivery.
Very good.
I could see why that would dovetail into the e-comm that you were talking about
in the first place.
Yeah.
But you were talking a little bit about trying to differentiate between the
(20:43):
different modes and some of the, the air pieces.
Why don't you flesh that out a little bit?
So sure.
So the,
because of the limitation on the different manifest types for the different
modes,
companies have looked to see what's the most efficient way to process the,
the data through customs to get their shipment cleared.
And so one of the things that customs did,
(21:05):
and I think I'm going to backtrack a little bit.
One of the things that customs did when they came out with the,
when,
when this de minimis started being used more and more was there were a lot of
shipments that are subject to other government agency requirements,
or as we refer to them,
partner government agency or PGA requirements.
So for example,
that you have a pair of sunglasses that might be subject to it's,
(21:27):
I think it's a FDA requirements.
If you have,
you know,
a children's product that's subject to CPSC requirements,
these different products,
they,
while from a customs perspective,
they can be imported duty free with limited amount of data.
The other government agencies have said,
(21:48):
no, wait a second.
You can't import that product unless you provide that government agency with
the required data,
or you tell that government agency that the product is exempt for whatever
reason.
And so because of that customs built what's called the type 86 entry.
And the type 86 entry is a customs entry that a customs broker can file and
(22:10):
clear an individual under $800 package where they don't pay the duty.
They don't pay the fees and taxes.
They provide customs with limited amount of data,
but they provide the government agency,
that other government agency or that PGA agency with the data that they need to
make the determination of whether or not the product is admissible.
(22:31):
Interesting.
I could see where that would be very of interest to the other government
agencies who are trying to regulate everything from,
you know,
endangered species,
invasive species you know,
food and drugs obviously are going to be critical.
Sure.
And a whole bunch of other agencies that are out there and you know,
(22:54):
I could see DOT being for auto parts cause you got the HS seven that you have
to file.
Yep.
So there's a lot of interesting information if you're,
I suppose why wouldn't you be able to import an auto part just as readily as
any other.
Correct.
But there's an interesting side effect that happened with the type 86 entry.
Remember we were talking about the air manifest system and remember a significant
(23:16):
portion of these packages come across via air,
but they've got a clunky paper manifest process to clear that.
Well now the companies have realized that they've got another process called the
type 86 entry that clears much more quickly via air.
You don't have to have a PGA requirements.
So if you're importing something that has no PGA requirements,
(23:37):
you can clear it off the manifest and take a few days to clear it because it's a
paper process or you can have a broker file the type 86 entry for you.
And when the broker files a type 86 entry customs releases it in the system
automatically, it goes much more quickly.
So most of the air shipments that are coming in de minimis are not cleared off
the manifest,
(23:58):
but instead they have a broker that files a type 86 entry with or without the
additional PGA. If it's required, they can file it with the PGA data.
If it's not required,
they type file a type 86 entry with no PGA data gets released very quickly.
So a lot of companies are taking advantage of the type 86 entry when they don't
(24:20):
even need the PGA requirement.
This really raises a good question of for customs brokers who have worked legacy
either at an inland point or a C point and are used to dealing with air and sea.
You certainly have borders located or you have brokers located along the Northern
or Southern border who are used to doing things much more rapidly in a high
volume with a shorter arrival notice time for that's coming in.
(24:42):
If a customs broker is looking at this and going, this isn't going away,
maybe it's just being altered and they haven't entered this de minimis or type
86 space yet.
What should they have in place to either stand it up or to add the questions they
should be asking themselves before they go, you know what,
I'm going to go out and offer this service to a marketplace.
(25:02):
I'm going to go offer this service to a brand.
I'm going to go out and offer this service to an influencer who is shipping
products in from wherever it happens to be.
Well, the broker needs to first understand or first make sure that they have the
system capability of doing it because a lot of the legacy customs broker software
doesn't have the ability to file or has limited ability to file the type 86
(25:24):
entry. It's a different entry type.
It's actually a fairly new entry type and not all the software has built it.
Most of it I think has it now,
but have they refined it to the point where they're able to process a hundred
thousand shipments at a hundred thousand packages at a time?
That's really,
I think one of the first steps that they need a broker needs to look at to decide
whether or not they're going to do it. And then understanding the rules,
(25:46):
the ever changing rules about what can be filed under a type 86 with out the PGA
and what has to happen,
have the PGA and consumer product safety commission is going to be the big next
issue that's going to impact a lot of companies that are using de minimis
shipments today because we're expecting in 2025 that the consumer product
(26:08):
safety commission is going to be requiring an electronic filing of the PGA data,
whether it's a traditional customs brokerage entry of a full container load or
it's a type 86 entry.
And so that's to me the most immediate concern for a lot of companies,
especially apparel companies because it's interesting to note that the consumer
(26:31):
product safety commission flagged over 95% of the HTS classifications in chapter
61 and 62 that's the apparel classification chapters for consumer product safety
commission.
Either the children's product certificate is required or the general certificate
(26:52):
of conformity is either required or may be disclaimed.
So now we have apparel companies that imported a simple de minimis shipment via
truck without a PGA or they imported the apparel via type 86,
without the PGA and now they're going to have to provide additional data to
(27:13):
their broker so that the broker can file the type 86 entry with the CPSC data or
with a disclaim of the CPSC data.
Interesting.
I was reading through the white house's pronouncement about what they're going to
do to reduce the total number of de minimis packages and they seem to be taking a
(27:35):
rather blunt approach, you know, basically saying,
and I'll just read what they have here.
It's like if finalized textile and apparel imports from China would no longer be
eligible for de minimis exemption. Do you see that as being realistic?
Well actually it's even more than that.
It's textile and apparel from any country would be excluded if it's done the way
(27:56):
that the white house said that they want to do it and the way that CBP has said
to Congress that they want to have done.
So what the way that they've done is the,
what the white house said in their in their statement and this actually went to
the white house from CBP is that the white house wants to exclude all import
sensitive products from the de minimis program and they use the definition of
(28:22):
import sensitive products from the GSP or the generalist system of preferences
program.
And if you look at that definition of import sensitive products,
it includes apparel, it includes footwear, it includes watches,
it includes a bunch of other products.
It also includes a provision for anything else that the commissioner wants to add
to the list. And it's not exclusive to China.
(28:43):
It's any of those import sensitive products from any country around the world.
If CBP gets what they want will be excluded from the de minimis program
completely.
So the straw man or the falls flag is that everybody,
and we, we found a bunch of different sources.
Rila has a thought about lowering the de minimis threshold,
harming retailers and consumers.
(29:04):
The express association saying reducing the threshold would overwhelm custom
systems and delay deliveries.
So a lot of the people who are very interested because their livelihood of
transporting small packages,
they see an inflection point that could hurt them by lowering that dollar amount.
That 55 to $56 average that you're talking about,
the $800 isn't the problem. It's the exclusion from the 301.
(29:27):
It's the exclusion from some of these other things in sensitive industries.
That's the real problem.
Yes, you're right.
And so let's talk a little bit about the difference because there's a few
different proposals out there with, with in Congress and potentially be a,
via regulation of being of ways that the government overall is looking at
(29:47):
limiting the use of the de minimis provisions. You mentioned 301.
So one of the proposals is to eliminate products that are subject to the
section 301 duties from the de minimis provision.
And that would eliminate certain products that are made in China from de
minimis. But then there's another proposal that I just mentioned,
(30:09):
which is to eliminate import sensitive products.
And so that would eliminate from across the board, all countries.
If that goes through the whole de minimis provision is going to be significantly
impacted. No more apparel,
no more footwear would come through from any country.
If that doesn't go through,
(30:30):
but they eliminate the ability to use section 321 for products that are subject
to section 301 duties, that would impact products from China,
but not products from other countries around the world.
And I think that's a really interesting angle because people have set up their
supply chains now to do this. So, I mean, as an example, I've,
(30:51):
I've got a young daughter and,
and my family and my, her grandparents liked to buy her things from,
from one of those online marketplaces and where perhaps you'd have eight or 10
different items sitting in a warehouse here in California or another DC
somewhere around the U S that order would come through and get picked from that
DC and be given to the courier at one of many number of companies here and come
straight to her under TIFTO,
(31:13):
the trade didn't trade facilitation and trade enforcement act of 2015,
which was signed in 2016,
which permitted the change in the de minimis amount from two to 800.
That's when companies started going, you know what?
I don't have to bring this here. I don't have to hold this here.
It sort of predated those 301s and people were like, right,
I will just set up that DC in China.
I will set up that DC in Vietnam, wherever it happens to be coming from.
(31:37):
And those order fulfillments,
because they were made to a known entity would get picked and plucked and put in
a soft pack and over you go. And it shows up in your mailbox eight to 10 to 14
days later, but it's not something that anybody's pressing for.
So they're happy for however long it would take to now exclude and to ask
people to change their supply chains back,
(31:57):
not even from a nearshotting point of view,
but a straight into the U S point of view.
I don't know how well that would play.
And as you look at sort of the competing interests of people who are going to
lobby customs, whether it be the U S chamber of commerce,
relay or any of these other entities,
I don't believe that they want to go back there.
I agree. They don't, but this is a very political issue.
(32:18):
There are some that see the loophole and want to curtail shipments from China
or want to lower the, you know, lower the number of shipments.
You have customs that saying we can't handle a billion shipments or 2 billion
shipments a year.
And so there's a lot of different competing political pressure going into this.
And another thing that, you know, you mentioned about the, um,
(32:39):
the setting up the warehouses in China,
you've also got a whole nother constituency of companies that have set up
warehouses in Canada and Mexico that can fulfill those orders.
Even though the products may be made in China,
they're sitting in Tijuana or in Vancouver and they can fulfill those orders to
your granddaughter, maybe overnight or maybe in a day or two.
(33:00):
It does seem to me that customs has gone on an active campaign to really try to
get Congress to do something about it.
Absolutely. Because remember, Congress has told customs,
you've got mandates to do a bunch of things, right?
They got to prevent fentanyl from being imported into the country.
They've got to prevent products that are contained into intellectual property
(33:21):
rights violations like trademark violations from being imported into the
country. They've got,
they've got a mandate to ensure that companies follow the rules and do all
these different things that they're doing.
And so customs is saying a container with a 10,000 packages in it,
it's easy for me to deal with that if those 10,000 packages are all going to a
warehouse.
But if those 10,000 packages are going to go to 10,000 people across the
(33:44):
country and brokers are going to file 10,000 declarations for that one
container, that makes it customs job much more difficult,
at least the way that customs is set up. So customs is saying back to Congress,
if you want us to meet our mandate, got to make it easier for us,
which means lowering the number of packages.
(34:05):
But then you've got the consumers on the other side who are saying,
I like paying less for my products.
So it's a very much of a political battle.
Yeah.
It'll be interesting to see how it plays out because you can see that
eliminating this,
I think would have a very inflationary effect on the average consumer.
I, yes, that's what's being predicted.
(34:27):
The, although Congress is taking this up,
I think there's four or five different pieces of legislation that are at various
stages that have similar but different provisions that are working their way
through Congress to either limit or eliminate the entire section 321 process,
the entire de minimis process. I think something's going to happen.
(34:50):
I don't know what is going to happen,
but at the same time you also have the various different government agencies
that are going through the regulatory process,
meaning customs and one of the,
at least one of the PGA's that are going through the regulatory process.
So if Congress doesn't act,
then the government agencies can act on their own and create regulations that
(35:14):
would potentially limit the use of the de minimis provisions.
You can see how they could use the regulation of the PGA's to limit the scope
and availability of these different programs that are allowing them to,
you know, basically saying, if you have to demonstrate this, this, and this,
it's going to make it harder. Right.
And many of the sellers are not going to be able to comply. Correct.
(35:37):
And the biggest one that was most imminent is consumer product safety
commission.
So the consumer product safety commission is coming out with an e-filing
requirement next year.
And what that's going to impact a lot of is the apparel companies,
children's products, companies. Um,
a lot of products that are consumer products are going to be in poor impacted by
(35:58):
this new requirement. Where, for example,
if you're an apparel company and you're shipping your apparel across the border
via, via truck, um, from Canada or Mexico,
you won't be able to use the de minimis manifest clearance.
You're going to have to file the, um, the type 86 entry,
which means hiring a broker to file the entry for you,
(36:21):
as opposed to having the carrier do it.
It means providing additional information. And it also means, um,
it also means understanding the rules as to when it's required and when it can
be what we call disclaimed, where you're basically saying to CPSC,
my product isn't subject to your jurisdiction.
And so that's an issue that apparel companies today that make use of the de
(36:43):
minimis provision are grappling with is how do I move from
having my carrier, my trucking company file,
my declarations to now having a broker file my declarations with the consumer
product safety commission.
It'll be an interesting lift for the parties involved to see how they can do it
and do it efficiently. Yes. And to your point,
it does seem to be whether or not we pass legislation that creates a
(37:07):
ban or we use the existing regulatory structure and the
regulators of these individual PGAs set about raising the bar and
requiring certain filings that will only complicate the system and, you know,
basically discourage the use because of an inability to comply.
You're right. And it will complicate the system. But interestingly,
(37:30):
from customs perspective, they're saying that it's going to simplify the system.
It's going to simplify it for them. Um,
but also will potentially give them more authority to do a better job of
enforcing and finding the fentanyl and finding the other problem shipments.
So some of the things that customs is asking Congress to do that's outside of
the, what we've been talking about so far,
(37:52):
there's other things that con that customs is asking Congress to do.
For example, customs is saying to Congress,
we now have more than a billion packages a day that we need to have somebody
deal with. We don't have the resources to do it.
So customs is asking Congress to set a fee. They put the fee of $2,
$2 per package. Um,
(38:12):
that customs is saying they need that money to hire more officers,
to build better systems, to use,
to build the artificial intelligence to find the problem shipments.
And so is that going to happen? That's a possibility. And that's being,
it's been included in at least some of the legislation that we've been,
that we've, we've seen.
It feels like it's a win for brokers,
(38:34):
regardless of which way this thing happens to go down, quite honestly.
You know,
brokers often can take advantage of the chaos that's created by the government
regulations if they understand the rules and if they're able to help educate
their clients on the rules. And you're right. I mean,
it will potentially be a win because you'll now have a shipment coming across
(38:54):
the border from, um, from Mexico or Canada that previous to this new law,
that might be implemented, would not require a broker,
but with the new law,
if it goes into effect the way that customs wants will require a broker.
It does seem interesting how brokers often want greater trade and the kind of the
focus on the, you know,
let's have more versus the qualitative and quantitative difference. You know,
(39:19):
is the broker community interested in disprocessing entries or are they
interested in having a more complimentary consultative role?
And it seems there's a tension.
Absolutely there is. And you know,
this is something that I personally studied for many years and I've always
thought that the future of the broker is much more of an advisory or
(39:40):
consultative role because the brokers are the ones that know how to work
through the system and know,
understand the regulations and know how to do that.
And as we see new technology coming into play,
the artificial intelligence technology,
it's taking over some of the traditional responsibility of the broker.
So for example,
a lot of what a broker does is they get a invoice,
(40:02):
a paper invoice or a PDF invoice,
and they need to key that data into their system so that they can clear the
shipment. Well, today you mentioned earlier that we're at Wescon.
We're at a conference and if you go through the exhibit hall,
there's a bunch of companies that are showing off artificial intelligence tools
that will do that part of the job. So what does that mean for the broker?
It means for the broker that brokers really need to stop thinking of themselves
(40:26):
as data entry clerks and start thinking of themselves as business advisors.
And the brokers that do that,
I think are they going to be the ones that are going to succeed in the future?
I don't think any broker worth their salt really wants to be in the data entry
business. The data entry business is just incidental to them providing the
consultative and high level services that CBP is looking to do.
(40:48):
You can almost see it. And I just, as we've been talking,
the parallel came into my mind. You have,
you have ocean shipping lines who insist on signing contracts with BCOs because
boy, they, it doesn't matter.
They'll sign a 500 TEU contract with a BCO,
but then you go out to like an NVOCC who will sign with them for 50,000.
The thing that that 50,000 at the NVOCC gives them is not having to deal with
(41:10):
50,000 individual shippers. So from the carrier's point of view,
it's like I get to deal with one entity that's going to feed me 50,000 things.
And CBP may be looking at this the same way as they look at a broker going,
I have an opportunity to have a trusted partner in this engagement feed me 1.4
billion things. And it gives me a better,
(41:30):
it gives me a better filter and it gives me a better trust level for what is,
it's hitting my door.
You're absolutely right.
And we're seeing happening is that customs now is looking at the broker and
holding the broker to a higher standard with the type 86 entries.
Customs is expecting the broker to really take a look at that data and make
sure that the data that they're submitting is reasonable. So right.
(41:54):
Customs has shared examples of a shipment of a pen that was had a weight of 500
kilos. Well, maybe it was a typographical error,
but that's a lot of ink. That's a lot of ink. Yeah.
Apparently it was a big statue of a pan or something like that. But anyways,
what pen adjacent, pen adjacent,
but what customs is saying is they're saying to the broker,
(42:16):
you can't just feed us this data.
You can't just copy it and paste it from your customer's system into your system
and feed us the data.
Customs expects the customs broker today to look at the data.
They don't necessarily have to look at the products and reclassify the products,
but they have to look at the data that they have and make sure that it's
reasonable before they pass it along to the two customs.
(42:40):
So I mentioned the weight to reasonableness ratio or what happens if you have a
product description that describes an auto part,
but the classification that's being transmitted is a classification for wearing
apparel. That's the type of stuff that customs is going to go back to the broker
and say, broker, no, no, no, you can't do that.
(43:01):
And they're starting to hold brokers accountable for those types of violations,
not necessarily holding the importer, the consumer liable.
They're holding the broker liable because the broker is the entity that they
have a regulatory authority over,
but it's also the entity that they really can get to, right?
They can't get to the factory because they're overseas.
(43:22):
They can't really get to the consumer because there's too many of them.
So they go to the broker.
I'm FDA would take any product product cold and any affirmation of compliance
code years old.
So it's really kind of funny to hear that that a government entity is going to be
putting filters in place. I mean, I mean,
admittedly CBP had filters in place to look for bad add numbers or other stuff.
But as we look at some of the PGAs, I'm for, for the longest time,
(43:44):
they'd scoop it all up. And without them, I mean,
the onus was to have the edit on the broker side because once you got a bad
product code at FDA's hands, it would take you forever to adjudicate that.
Yeah. Yeah, you're right. And it's, it's again,
going back to that concept of the advisory or the consultative role of the
broker.
It's really the broker's responsibility to educate their customers to make sure
(44:08):
that things are being done properly.
Any final thoughts where you think this thing's going to go?
Well, I think it's going to be a really interesting few months.
We obviously have the election period coming up,
but we also have a lame duck session in Congress.
So we might see something happening pretty quickly. But then again,
we also might see some things happening regulatory, right?
We're going to see a consumer product safety commission regulation coming out.
(44:31):
Customs has two sets of proposed regulations being teed up.
Those are going to take a little bit longer,
but I think it's a time that we need to just watch the news and see what's
happening and see what the sentiment is of the consumers, the,
the government, as well as the parties that are involved in these transactions.
Very insightful, Tom.
Those are interesting thoughts about how this is all going to play out. And uh,
(44:54):
you know, I keep,
I keep trying to come back to like who's the winners and losers in all of this,
because that's always of interest to me because somebody's going to benefit.
Do you see any clear winners?
Well, right now, the biggest winners are the fast fashion companies out of Asia.
Right now, those, those are the ones that are taking the most advantage of this.
Because if you take a look at the volumes of shipments,
(45:17):
apparently there's a couple of companies that we all know the names of that have
a significant portion of the volume of these de minimis packages
coming into the country. So they're the winners today. Um,
there's also some customs brokers and carriers and warehouse companies in Mexico
and Canada that are winners because they've taken advantage of these rules.
(45:38):
I think the consumer is also a winner, right?
Because they're getting lower prices. Um, so those are the winners.
The losers may be some of the more traditional companies that haven't taken
advantage of the,
of the provisions or or their business models don't allow them to take advantage
of those provisions. Um, and again,
you've got all these different parties putting different pressure politically
(45:59):
and we'll have to wait and see what happens. We're, we're going to see,
I think we're going to be seeing a lot of changes in business models and how
businesses work. But again,
we've got technology today that we didn't have five, 10,
15 years ago that will allow these types of things to happen.
Part of the reason why we had a container coming across the border with,
(46:20):
you know, 50,000 shirts being put in a warehouse in the U S was because maybe we
didn't have the technology that allowed an individual consumer to buy a product
and that trigger a shipment from the factory or close to the factory where the
product was made, be delivered to the consumer that wants the product.
Do you think that's going to be like one of the things that we heard from this
(46:44):
morning speaker, the economist, Paul Bingham, you know, I think is, uh,
was at the FTA a couple of years ago as well.
And he did a presentation is pretty spot on about what happened.
And he seems to be convinced that the data suggests a balkanization of trade
regional manufacturing facilities.
And this seems to compliment that in a way of taking away the de minimis or
(47:08):
reducing the de minimis a transaction seems to be encouraging American
manufacturing.
And Scott and I were asking ourselves the question is that we really want to have
more retail or excuse me,
more apparel manufacturing in the United States.
Is that good for the United States to have those kinds of jobs?
You know, I, I think that may be a bigger question than a question that I can
(47:30):
answer.
That's above all our collective pay grade.
But it's a really good question. You know, but,
but let's take a look at something analogous to that.
And that is maybe not necessarily the manufacturing,
but what about where the goods are? And so one of the questions is demand,
right? The consumer that wants the products, do they,
do they want it today or are they willing to wait until tomorrow or are they
(47:50):
willing to wait until next week?
And so if consumers really get to the point where they decide that,
you know what I wanted on my doorstep within a couple of hours,
well then the goods need to be either made or stored close to home, right?
So you look at some of the big e-commerce players,
a lot of them,
the way that they're able to do their business is cause they've got warehouses
all over the place.
(48:10):
I'd say from the television ad I saw this morning on DoorDash,
that is definitely the sentiment because you know, in that advertisement,
this woman comes home from a trip and she,
somebody left some cake out on top of a table and it's,
there's this infestation of ants and she calls DoorDash and
instantly there's a can of raid in her hand as a result of it.
(48:34):
It's kind of a silly ad in a way,
but like apparently that is motivating people who's like, well,
you just got home from a long trip. You don't want to go back out again.
You want to go rest and you don't have to deal with this mess.
We can help you.
And the need is immediate and the satisfaction of that need is
immediate.
Yes. Yeah. Interesting, interesting things. And, and you know, it's, it's all,
(48:58):
you know,
these are changes that are happening with our societies of consumer demand of
manufacturing of distribution, all these things coming together.
And I think one of the interesting things that we're going to be seeing over the
next few years is business models are going to change based on demand and supply
may change because of the changes in the business models and the changes in
(49:20):
demands. And when I say supply,
I'm talking about everything from where the goods are manufactured,
how they're moved and where they're stored before they make it there,
make their way to the final consumer.
And we've not even gotten into things like 3d printing and some of the ways that
now we're, now you're not even doing it with an import.
You're just dealing with something made here.
Somebody places the order and it is literally printed and delivered to them.
(49:42):
Yeah. Are we getting close to the days of the sci-fi,
like star Trek where you want something and you just push a button and all of a
sudden it appears to Earl Gray, hot
materialization of things. Yes, exactly. Absolutely. Well, Tom,
thank you so much for your time. Thank you for being our guest here for the,
for the inaugural season two episode of the logistically speaking pod.
(50:04):
I hope you've had a good time and can we,
can we bring you back at some point in the future if things change or there's
stuff to talk about? Absolutely. Let me know anytime. I'd be excited to do that.
Thank you. Absolutely. Thanks a lot, Tom. Appreciate your time. Thank you.
So for Tom Gould and for my partner Cameron Roberts,
this is Scott case and thanks for listening to logistically speaking.
Popular Podcasts
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com