Small parcels after the end of T86: Polarization and "changing lanes" for survival

After 87 years of implementation, the tax exemption for small parcels seems to be coming to an end.

Recently, the G7 held a meeting of finance ministers, and one of the important topics was to discuss imposing tariffs on low-value Chinese products.

The G7, or the Group of Seven, consists of seven developed countries: the United States, the United Kingdom, France, Germany, Italy, Japan, and Canada. More than 70% of China's exported small parcels are sent to these markets.

Behind this discussion is not simply a matter of "how much the tariff should be," but rather a reshaping of a hundred-billion-dollar e-commerce market. Data shows that in 2024, the export value of China's small parcels reached $94 billion.

After the United States officially取消 the small parcel tax exemption, many small parcel sellers were forced to suspend their businesses or even withdraw from the US market. "Most small parcels have a profit margin of less than 20%, which can't even cover the tariff. And the declaration fee is expensive. It's better to do FBA," said a seller.

Industry data also confirms the market shrinkage: Data from the air freight consulting firm Rotate shows that from May 2 to 13, the freight volume on the China-US route dropped by 30% compared with the previous four weeks. According to Aevean statistics, in 2024, small parcels accounted for 55% of China's air freight to the United States.

Facing the drastic changes in the industry, some industry experts said that taxing may not necessarily be a bad thing, and there are also opportunities. "Just like during the Russia-Ukraine war, everyone was focused on the war itself, but didn't notice the rise in the gold price. The same is true now. Some people can't continue, but actually some are doing better."

The small parcels, with hundreds of millions of shipments every year in the past, are undergoing new changes.

01 Paying taxes on small parcels is inevitable

In 1938, the United States first established the "small parcel tax exemption" clause, stipulating that small commodities could use T86 customs clearance without paying tariffs, and the customs only conducted minimal inspections. The entire declaration process only took 1-3 days.

Relying on this policy "dividend," China's cross-border e-commerce has experienced a "golden era" in the past decade. Countless cross-border sellers have sold their products to the global market at extremely low logistics costs by leveraging the advantages of the domestic supply chain.

Data shows that in 2024, 4.6 billion small parcels flooded into the EU market, doubling from 2023, and 91% of them were from China; the number of parcels entering the United States also reached 1.36 billion, nearly ten times the 153 million in 2015; in the past five years, the number of cross-border parcels between China and Japan has also increased by about five times.

The exponential growth has forced countries to re-examine the policy boundaries. At the G7 meeting, the Canadian finance minister said that imposing tariffs on low-value Chinese products aims to curb the so-called "overcapacity" and "non-market behavior."

This wave has swept across the world's major economies: The EU plans to implement a fixed fee mechanism of 2 euros per piece, France is accelerating the relevant legislative process, Japan and the United Kingdom have launched feasibility studies, and emerging markets such as Mexico and Vietnam have also successively signaled stricter supervision.

If these measures are fully implemented, China's small parcel exports will face a systematic blow.

First in line are the platform sellers on platforms like Temu that rely on price advantages. The cancellation of the tax exemption policy will drive up the cost of goods, forcing the terminal selling price to rise, directly shaking the price advantage on which they rely for survival, weakening their competitiveness, and leading to a decrease in orders and a decline in profits.

Taking the EU's collection of a 2-euro fixed fee as an example, some industry insiders calculated that the tariff, value-added tax, and handling fee may increase the cost of low-price goods by 10%-30%, which directly poses a survival test for small parcel sellers with thin profit margins.

After the United States取消 the small parcel tax exemption, Temu's order volume dropped sharply. According to Consumer Edge's analysis of credit card and debit card transaction data, Temu's consumption growth among US consumers slowed down significantly in April - from a nearly 50% year-on-year increase at the beginning of the month to almost zero at the end of the month.

An even greater impact is the reconstruction of the business model. The original direct mail system of "receiving orders first, then shipping" relied on the advantage of fast customs clearance. However, full taxation will force it to enter the formal customs declaration process, significantly extending the logistics time. At that time, small parcel sellers will find it difficult to compete with local sellers.

In fact, after the United States imposed tariffs, Temu suspended its direct mail service from China and required full-service sellers to switch to the semi-service model. Full-service sellers only need to supply goods, and the platform is responsible for subsequent links such as logistics; the semi-service model requires merchants to stock a large amount of goods overseas, greatly increasing the cost.

Currently, except for the United States, although the cancellation of the small parcel tax exemption in other countries has not been implemented, the trend is very clear - global supervision of small parcels is becoming stricter, and paying taxes is inevitable. For cross-border sellers, they must make preparations early to avoid being too passive.

02 Some see a sharp increase in orders, while others leave the market dejectedly

After the cancellation of the small parcel tax exemption, sellers are showing a polarization trend.

"Recently, my order volume has increased by 40% compared with before. I can get 18,000 - 20,000 orders per month," Jamin said excitedly during the communication, believing that the change in the tariff policy is actually an opportunity.

Jamin operates a clothing business, mainly through independent websites, which account for more than 90%. The average customer order value is between $140 and $150. "We also raised the price at the front end. The increase of a few dollars in cost due to the tariff has little impact on the profit."

He believes that the increase in order volume is the result of the combined effect of multiple factors. On the one hand, some brands can't survive under the tariff, so customers are flowing to him; on the other hand, he has adjusted his operation strategy, such as increasing advertising investment and strictly controlling product quality to reduce the customer return rate.

But more small parcel sellers are still struggling.

"Previously, there was no tariff. Now, not only is the tariff imposed, but it's also imposed on top of the customs clearance handling fee and freight. Unless your self-shipped products have extremely high profits, it's simply impossible to do business," said a seller, expressing the current common dilemma.

Recently, the reduction in tariffs has not improved the situation. According to a previous White House executive order, the tariff rate for small parcels has been reduced from 120% to 54%, with a fixed tariff of $100 retained. However, according to Reuters, the actual ad valorem tariff rate for small parcels has dropped to 30%.

Therefore, the current tariff rate for small parcels is that if sent through the postal channel (USPS), it will be charged at an ad valorem tariff rate of 54% or a fixed fee of $100 per item. If sent through commercial express services such as UPS, FedEx, and DHL, only a 30% ad valorem tariff rate will be charged, which is a significant reduction compared with before.

"It's just a reduction, not zero. Self-shipped products are all of low value and developed by taking advantage of the tax exemption policy. Even if the small parcel tariff is reduced, it's still higher than the value of the goods," said a seller helplessly. "Without the restoration of the tax exemption policy, there's no future for small parcels."

In fact, the sellers most affected are those with low-value and low-profit products. An industry insider told BrandsFactory that the average selling price of direct mail small parcels is about $15, and usually $1 - 2 is declared during customs clearance. Even with a 30% tariff, the profit will be reduced by three or four yuan. After deducting various costs such as logistics and advertising, there's basically no profit or even a loss.

In the future, direct mail small parcels will definitely have to make changes. "Product selection needs to be more cautious. You must choose cost-effective and high-selling essential products with sufficient profit margins," a seller told BrandsFactory.

He further added that it's better to choose products with high profits and relatively low sales volume rather than blindly stock up on goods. After all, transporting low-value goods may result in losses now. "For example, for an ordinary mobile phone case weighing 0.1 kg, the logistics cost is $3 - 4, while the product selling price is only a few dollars. After adding the platform commission, there's no profit at all."

Some industry experts believe that "this is also a disguised way to promote the reshuffle of the small parcel market. Only higher-quality and compliance-oriented products can survive in the future."

"In the past, many direct mail sellers survived by relying on the tax exemption policy and engaged in cut-throat competition. In the future, the products that can remain will mainly be those with high profit margins, including high-value products and small items with extremely compressed costs," the expert summarized.

03 T11 is not yet mature. It's recommended to ship after the end of May

After small parcels need to go through formal customs clearance, T01 and T11 have become the mainstream alternatives to T86 customs clearance.

T01, or formal entry, is the most common customs clearance method. It requires the submission of various complete documents including the certificate of origin. The procedures are complex, and there are category restrictions. T11, or informal entry, has a limit that the commodity value must be less than $2,500, but the process is simpler and is currently the preferred option.

Compared with T86 customs clearance, the T11 model requires higher costs. In addition to paying the tariff for each parcel, there is also an additional commodity handling fee of at least $2.6 per order. At the same time, due to more complex declaration documents and customs inspections, the fulfillment cycle will also be extended accordingly, at least 1 - 3 days more.

Consolidated declaration is a common method under the current T11 customs clearance. A logistics provider gave an example that combining 50 small parcels into "one bill" for declaration can optimize the operation efficiency. However, the total value of the consolidated parcels needs to be fully taxed, and the categories should be as consistent as possible - mixed goods are likely to cause the customs to unpack and inspect.

"We tested common solutions in the market, including T01, T11, transfer flights, and multi-country port transfers. T11 has the best effect," a YunTu customer service manager told BrandsFactory. "Currently, the customs clearance is going smoothly. The only drawback is that the delivery time is 1 - 3 days slower, but overall it can still meet the 14-day delivery standard required by platforms such as Amazon and independent websites."

However, some logistics providers said that the T11 customs clearance is not yet mature. The ports have not established a unified and efficient customs clearance mechanism. Even for the declared product names, the US customs officers have to manually input the information, while T86 has a relevant data system that can automatically identify and complete customs clearance quickly.

"The efficiency of T11 customs clearance is still very low, at least 4 - 5 days, and it's only for some goods. Currently, due to a shortage of personnel at each customs clearance port, a large number of goods are积压 waiting to be processed."

Moreover, there are also detailed differences in the regulations of different customs clearance ports. According to BrandsFactory, the Chicago Airport once closed the T11 customs clearance. Although it has now reopened, it does not allow consolidated declaration. That is, the goods of multiple recipients cannot be consolidated for declaration. Each recipient must be declared separately as a set of entry data, so the customs declaration fee has increased sharply.

"Currently, domestic platforms and sellers have significantly reduced the volume of parcel shipments and are taking a longer observation period to test the T11 customs clearance model," a freight manager told BrandsFactory. "This includes understanding the customs clearance efficiency, stability, cargo handling capacity, inspection rate of the US customs clearance system, and the handling methods of customs at different destination ports."

"It's expected that by the end of May, after about a month of testing, there will probably be a result on whether the T11 customs clearance is stable. If the order is not urgent, it's recommended that customers wait until after the end of May to ship," said the person in charge of a logistics company frankly.

This article is from the WeChat official account “BrandsFactory”, author: Chen Ting.