Category: Supply Chain & Logistics

Dive Brief:

• The Biden-Harris administration plans to limit the types of goods that can be shipped via the de minimis exemption while enhancing information collection for such shipments, according to a Friday announcement.
• Although not yet officially issued, through multiple notices of proposed rulemaking, the administration would exclude shipments containing products covered by certain tariffs from using the de minimis exemption while requiring additional data, such as tariff classification numbers and the filing of Certificates of Compliance, at time of entry.
• The administration also urged Congress to pass reform legislation by the end of this year, specifically calling for the exclusion of import-sensitive products like textiles and apparel from de minimis eligibility.

Dive Insight:

The actions being taken by the Biden-Harris administration come after more than a year of mounting pressure to reform or eliminate the de minimis exemption. Most recently, House democrats in a letter asked President Joe Biden to use executive authority to update policy related to the exemption.

According to the administration, Section 301 tariffs make up roughly 40% of U.S. imports. Its proposed rulemaking would eliminate de minimis eligibility for such shipments, as well as those covered by Section 201 and 232 tariffs.

“Improving compliance obligations these new rules will ensure that foreign businesses cannot exploit the de minimis privilege, protecting American consumers and disadvantaged American companies,” the Retail Industry Leaders Association said in a statement emailed to Supply Chain Dive. The organization noted it still opposes section 301 tariffs on consumer goods.

”We also believe that as long as such tariffs remain in place, they should be applied evenly and fairly,” the RILA said.

In terms of enhanced information collection on de minimis shipments, the Biden-Harris administration is proposing the inclusion of 10-digit tariff classification numbers and the name of the person claiming the exemption with each shipment. Such action “will improve targeting of de minimis shipments and facilitate expedited clearance of lawful de minimis shipments,” per a fact sheet from the administration.

Another element of the actions announced Friday would require consumer product importers to file certificates of compliance electronically with U.S. Customs and Border Protection and the Consumer Product Safety Commission when a shipment — de minimis eligible or otherwise — enters the U.S.

“American workers and businesses can outcompete anyone on a level playing field, but for too long, Chinese e-commerce platforms have skirted tariffs by abusing the de minimis exemption,” said U.S. Secretary of Commerce Gina Raimondo in a statement. “With these new actions, the Biden-Harris Administration is standing up for American consumers and cracking down on Chinese companies’ efforts to undercut American workers and businesses.”

The Biden-Administration said that “further comprehensive de minimis reforms are needed,” specifically by congressional action. Beyond formalizing many of its proposed rules in legislation, the administration is also calling on Congress to pass previously proposed de minimis reforms related to fentanyl shipments.

To date, multiple pieces of legislation have been introduced in both chambers, including The Import Security and Fairness Act in June 2023, the End China’s De Minimis Abuse Act in April and the Fighting Illicit Goods, Helping Trustworthy Importers, and Netting Gains for America Act (Fighting for America Act) in August. However, no legislation has been passed by either the House or the Senate.

The de minimis exemption, which currently allows companies to avoid duties and taxes for imports below $800, has been part of U.S. trade law for nearly 100 years, but its use by e-commerce giants like Temu and Shein has pushed it into the spotlight. The exemption has buoyed air cargo and parcel delivery demand, but its impact on other sectors has been more muddied.

For example, manufacturers are split over the impact of the exemption on U.S. production. While groups like the National Association of Manufacturers have espoused the benefits of de minimis, other parties, particularly those in the textile and apparel sector, are less convinced.

The Biden-Harris administration specifically noted the deleterious impact the de minimis threshold is having on U.S. textile and apparel manufacturers. As part of its proposed reforms, the administration announced its intention to increase procurement from U.S. sources and to continue to prioritize enforcement efforts against illicit textile and apparel imports.

“This is an important, common-sense reform and critical first step,” said Kim Glas, president and CEO of the National Council of Textile Organizations, which has been a vocal supporter of eliminating the de minimis exemption, in a statement. “We amplify the need to expedite rulemaking to the fullest extent possible and appreciate [the administration’s] strong engagement with our industry.”

Dive Brief:

• La-Z-Boy is consolidating its cut and sew operations in Mexico to optimize costs, President and CEO Melinda Whittington said in an August earnings call.
• The furniture maker said in a recent securities filing that it would permanently close its leased cut and sew facility in Parras, Mexico, by the end of Q1 of fiscal year 2025, which ended July 27.
• The furniture maker is also shifting upholstery production from Ramos, Mexico, to its other upholstery plants. Products will return to Ramos to be cut and sewn, per the filing.

Dive Insight:

The focus on plant efficiencies in Mexico is part of La-Z-Boy’s larger strategy to build a more dynamic supply chain, according to Whittington. She added that the furniture maker considers its North American manufacturing footprint as a “key differentiator” for production.

“As we mentioned in last quarter’s call, we are prudently managing the consolidation of our cut and sew operations in Mexico to optimize costs, while ensuring no service disruptions,” the CEO told analysts. However, there have been some delays related to the work La-Z-Boy is doing down in Mexico, particularly when it comes to securing labor from a quality and productivity perspective, SVP and CFO Bob Lucian said during the call.

More than half of the company’s cover materials are purchased from suppliers in countries like China and the U.S., before being cut and sewn in its Mexico facilities, according to the securities filing. As of April 27, La-Z-Boy operates four facilities in Mexico to support its “speed-to-market and customization strategy.”

La-Z-Boy has also looked to optimize staffing levels across the company’s Mexico operations. The furniture maker’s number of full-time equivalent employees dropped from 10,500 at the end of fiscal year 2023 to 10,200 the following year, per the filing.

The consolidation comes after active efforts to build its production network in Mexico. In 2022, La-Z-boy expanded its North America operations with several new factories in the country after having to make structural changes to its supply chain to shorten lead times and tackle backlog. At the time, the furniture maker had opened at least two leased manufacturing plants in Mexico.

MSC and Zim have agreed to collaborate on some Transpacific trade lanes as ocean networks shift in 2025, according to an emailed press release from Zim. The partnership is set to last three years.

The new services, which are set to launch in February, include connections between Asia and the U.S. East Coast and Gulf Coast, as well as the West Coast of Mexico and Caribbean ports. The deal includes slot swap and vessel sharing agreements.

The agreement comes as ocean carriers shift their alliance structures, thereby changing the shipping routes available to shippers.

MSC’s current 2M alliance with Maersk is set to expire in January 2025.

In early 2023, both carriers announced they were not renewing their operational agreement. Soon after, Maersk formed the Gemini Cooperation with Hapag-Lloyd, which will become effective in February 2025.

Meanwhile, ONE, Yang Ming and HMM formed the Premier Alliance, which is also set to launch in February. MSC will collaborate with the Premier Alliance through slot exchanges on Asia-to-Europe trade lanes, according to a press release.

“For shippers it appears that the alliance shake-up is indeed leading to more variety in the terms of network setups offered in the market,” Lars Jensen, CEO and Partner at Vespucci Maritime, said in a LinkedIn post on Monday.

The agreement between Zim and MSC is also set to focus on decarbonization by promoting the use of larger eco-friendly tonnage which includes Zim’s LNG-powered vessels, Zim President and CEO Eli Glickman said in the release.

Glickman said Zim is the first carrier to introduce LNG capacity to the Asia-to-U.S. East Coast trade lane and currently offers two services fully operated by these green vessels.

Dive Brief:

• Freight forwarders are working with shippers to strategize how to manage a shifting air cargo market landscape as peak season approaches, Xeneta’s Chief Airfreight Officer Niall van de Wouw said in a Sept. 5 report.
• E-commerce volumes remain a major market indicator, with exported goods from China already up 30% this year, Xeneta reported. In July alone, there were reportedly 37 million downloads of the Temu app.
• Van de Wouw said that shippers should be “nervous” for Q4. “We expect to see a seller’s market out of Asia and across the Atlantic due to the latter’s reduction in winter capacity. We’ve had a hot summer, and we may have an even hotter autumn ahead.”

Dive Insight:

The average air cargo spot rate reached its largest year-over-year growth of 24% to $2.68 per kilogram, Xeneta reported.

On a corridor level, rates on shipments bound for North America saw the largest monthly increase from July — which is typically regarded as the industry’s “slack season.”

Rates from Europe to North America, for instance, were up 7% month over month to $1.77 per kilogram in August, possibly due to the “surging transshipments originating from Asia,” according to the report. Meanwhile, Southeast and Northeast to North America rates were up 6% MoM and 4% MoM to $6.15 per kilogram and $4.68 per kilogram, respectively.

While rates benefited from ongoing balance in supply and demand, global air cargo demand was impacted by the modal shift from ocean to air due to Red Sea disruptions in addition to strong e-commerce growth, per the report. In August, cargo demand was up 11% YoY.

“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season,” said van de Wouw. “This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red hot peak season materialises.”

As preparations for peak season unfold, some companies announced surcharges as shippers and freight forwarders look to secure capacity. DHL Express, for instance, plans to implement surcharges starting Sept. 15, and van de Wouw speculated whether “the peak surcharges some carriers plan to implement will hold.

Other companies are creating more market capacity, including freight forwarder Dimerco Express Group which is launching a new weekly air freight charter service on Sept. 15 between Shanghai and Chicago. CMA CGM Air Cargo, meanwhile, recently launched its first Transpacific connection connecting Hong Kong and Chicago.