Canadian online retailers are facing a challenging decision following the discontinuation of duty-free shipping for small packages to the U.S. They must now weigh the option of paying high fees on low-value shipments to attract American customers during the holiday season or risk losing that customer base entirely.
Previously, international packages valued under $800 US could enter the U.S. without duties under the de minimis exemption. However, this changed in August when President Donald Trump’s executive order came into effect.
For businesses like Free Label Clothing in Vancouver, the end of duty-free shipping meant a significant impact, with nearly half of their business coming from the U.S. During the holiday season, online retailers like Free Label Clothing are relying on increased sales to stay afloat, despite facing higher shipping costs.
The adjustment to the new regulations has been challenging for many small businesses, with some having to find ways to mitigate customs and duties charges. Options include incorporating duties into checkout costs or having American customers pay duties upon delivery, though this approach carries the risk of returns or unexpected fees.
A survey conducted by the Canadian Federation of Independent Business revealed that 31% of small and medium-sized businesses anticipated being affected by the end of the de minimis exemption. Some businesses have chosen to halt shipments to the U.S. if they couldn’t comply with the Canada-U.S.-Mexico Trade Agreement or afford customs broker services.
To adapt, some businesses are exploring alternatives such as establishing distribution centers in the U.S. to avoid individual package brokerage fees. For instance, Free Label Clothing now allows American customers to place orders once a week to streamline paperwork processing.
Despite efforts to navigate the new landscape, concerns linger about retaining U.S. customers who may have turned to other retailers during the shipping hiatus. The impact of losing this customer base is particularly significant during annual sales events, which can make up a substantial portion of a small business’s profits.
Business owners like Catherine Choi of Hanji Gifts in Toronto have received offers from U.S. customers willing to pay duties themselves, showing the lengths some are willing to go to support their favorite retailers. However, uncertainties around tariffs and shipping risks have led some businesses to suspend U.S. shipments altogether.
The shift away from duty-free shipping has not only affected individual businesses but also carries broader economic implications, as small and medium-sized enterprises play a vital role in Canada’s economy by employing a significant portion of the workforce. The removal of the de minimis exemption has created a ripple effect impacting various sectors of the Canadian economy.