eCommerce brands import goods from overseas to the U.S. For these companies, there is a great opportunity to reduce duty and tariff costs thanks to Section 321 of the U.S. Customs regulations. This provision is becoming somewhat of a strategic staple for savvy companies, allowing duty-free shipping of low-value goods less than $800 to the U.S. from multiple countries.
It’s hard to ignore the success stories of eCommerce leaders like Temu and SHEIN that prove Section 321’s great cost saving potential by means of saving on duties. Yet to reap these benefits, eCommerce sellers need to know how to use Section 321 effectively and be aware of its nuances. There’s also a strategic advantage that comes with introducing Canada into the supply chain, which we’ll explore in detail.
The Strategic Advantage of Using Section 321 and Canadian Fulfillment
By importing bulk shipments into Canada and then fulfilling individual orders, valued at $800 or less, from Canada to the U.S., the goods now enter the U.S. duty-free under Section 321.
Before Section 321 was established, specifically in regards to small shipments, the duties would significantly limit the profit margins for businesses. Additionally, bureaucracy strained the operational resources, since the companies aspiring to import into the U.S. had to employ people engaged in the routines of preparing the goods for border crossing, clearance, etc. Now, with Section 321 in effect, most businesses can save up to 20% with Section 321.
Similarly, a simplified clearance process is a blessing; customs authorities can clear the eligible shipments much faster and more efficiently. This means the transit times are comparable to similar shipments sent domestically within the U.S.
Maximizing Cost Savings with Duty Drawback Programs
Upon importing goods to Canada, businesses pay duties and taxes based upon value of the goods imported. Once these goods have been exported to the U.S., companies can reclaim the duties they paid in Canada by leveraging the Canadian duty drawback program. This involves filling Form K32 with the Canada Border Services Agency (CBSA) to get a refund on the duties previously paid on the imports in Canada.
This workaround has been proven a powerful tool to reduce costs associated with duties and taxes paid on goods imported into the U.S, from overseas. In addition, this can be a launching pad for starting operations in Canada in addition to the existing market.
Leveraging Section 321 for Seamless Cross-Border Operations
Cross-border logistics is frequently a minefield of intricate traps. In the Global Supply Chain Survey by Statista, 43% of respondents identified shipments held up in customs as their main concern. 41% cited customs regulations and Harmonized System (HS) codes as major obstacles. Additionally, there are the even more direct issues of supply chain costs, tariffs, delivery fees, and return costs.
Only when you have the favorable conditions for going cross-border can you truly navigate the landscape. Section 321 is one of those conditions. Another important condition is partnering with a specialized 3PL provider that facilitates working under Section 321 and has a warehouse network that suits the needs of the brand.
In my experience working with Section 321, the fulfillment center location and shipment origin is an immensely important factor. At ShipTop, warehouses are strategically located in Vancouver and Toronto, relatively near the US border. This makes transit times to US consumers much faster.
Why eCommerce Brands are Adopting This Strategy
Routing the goods through Canada means it is possible to bypass the steep U.S. import duties. With this shortcut, you can get a competitive advantage compared to companies that import goods directly into the U.S. and pay duties. Plus, the access to the Canadian market alongside the U.S. is not only an opportunity to expand the brand presence, but it is also a chance to safeguard the business from demand fluctuations in either country. That’s why retail brands are eager to implement Section 321; it already accounts for a substantial share of all U.S. eCommerce imports by quantity.
According to a report by the U.S. International Trade Commission, U.S. Customs and Border Protection (CBP) has processed more than 380 million shipments via the Section 321 Data Pilot since it was initiated in August 2019.
The Caveats of Section 321
Section 321 has its own nuances. For instance, incorrect valuations or errors lead to disqualifications or penalties for companies that fail to assess or classify their imported products properly.
Contrary to what some companies new to Section 321 hope for, you simply cannot split a bigger order into $800 orders. Section 321 allows for one shipment with goods valued at less than $800 per recipient per day limit.
Not all products are eligible for Section 321. Items like firearms, alcohol, tobacco, and goods subject to quotas or anti-dumping duties do not qualify. In practice, this means a strong emphasis on proper categorization and valuation before the goods pass the border, with impeccable documentation.
The legislation is also not carved in stone. While the business world was admiring the success of Temu and SHEIN, August 2024 brought news of political initiatives to restrict the import, with more meticulous checks as part of the effort to tackle illicit (e.g. counterfeit) products.
Currently, eCommerce businesses solve the issues that come as a byproduct of Section 321’s complexities (such as the regulations, eligibility concerns and changes in the rules) by collaborating with 3PL providers that can provide the necessary expertise. This is why the Section-321 related minutiae are practically outsourced to the 3PL, who navigate both the regulatory and the physical fulfillment aspects.
How to Use Section 321 Effectively
Effectively utilizing Section 321, requires strategic planning in several key areas.
First, consider the location of your warehouses. Depending on the products you’re importing, consider clustering your warehouses near the U.S.-Canada border. Alternatively, distribute them across different regions. This will help maximize efficiency and coverage. The cost of warehousing is also an important consideration. Keep in mind, Canadian facilities generally offer lower rates than their U.S. counterparts.
Next, focus on enhancing your inventory management process. When operating with high volume amounts of small deliveries, as facilitated by Section 321, having real-time visibility into stock levels is vital. This ensures that you can efficiently manage the flow of goods while staying within the regulatory limits.
Many businesses successfully navigate Section 321 by partnering with third-party logistics providers, especially those with expertise in U.S.-Canada cross-border operations. These providers are well-versed in the necessary documentation and clearance processes, making them invaluable for ensuring compliance and efficiency. By leveraging their services, you can streamline order processing and take full advantage of Section 321, with a single point of contact to handle the complexities of cross-border logistics.
Ash Jamshidpour is the CEO and founder for ShipTop.