Section 321: Expert perspective from Kyle Hency, Co-founder/CEO at GoodDay
Tara Daly
·February 11, 2025
If your brand imports products into the United States from other countries, then you likely know about Section 321 and why it’s important.
If not, here’s a quick refresher: Section 321, otherwise known as de minimis, refers to a U.S. Customs and Border Protection regulation allowing for duty-free entry of shipments into the U.S. that are valued at up to $800 per day per recipient for certain product classifications. The regulation enables many DTC ecommerce businesses to avoid import duties and expedite customs clearance when shipping from overseas.
We talked to several ecommerce leaders for their read on the situation, and you’ll hear from more of them over the coming weeks.
Today, Kyle Hency shares his unique perspective. Hency did his time in the ecommerce trenches, as co-founder and CEO of Chubbies, a line of ultra-comfy shorts, swim trunks, and other menswear. He drew on the challenges he faced as a merchant to develop technology that optimizes the ecommerce experience, subsequently co-founding our very own returns operations solution, Loop, and GoodDay, an ERP designed for Shopify businesses.
Hency’s experience as a former merchant, paired with his insights as a technology operator who works closely with ecommerce brands, gives him unique insights into this pressing issue.
Hency: This is a big deal as duties can range from 10 to 40% of your total Cost of Goods. Taking advantage of Section 321 can take one of the largest line items in your P&L to $0.
Typically, this works by setting up a 3PL in either Mexico, Canada, or China and shipping direct to customers in the US via small parcel. If the goods are below $800 in value, the duties are zero. Some athleisure brands were seeing 5-10 absolute % point improvements in gross profit margin.
But the new federal administration is planning on doing away with de minimis shipments for goods originating in China, Mexico, and Canada. Here’s what that means for your brand, and what you can do about it.
The impact of suspending Section 321
Hency: Brands are already seeing a financial impact from the suspension of the rule. With new items being imported, the duties are more expensive than brands originally thought they’d be, even though these brands ordered these goods 3-6 months ago.
It appears that the use of de minimis on products coming from China is already shut down (paused as of 2/8), and there are still some moving pieces on Mexico and Canada. Most brands' default assumption is that Section 321 is going to be fully abolished, though no one knows exactly how or when that will happen.
Brands who were shipping 100% of their goods via Section 321 are the most impacted by the loss of Section 321. They can continue to ship the goods they had imported prior to these changes, but all new items imported today will have higher duties on them. This will drastically lower their gross profit.
What can you do to adapt?
If your brand has relied on Section 321, it’s time to consider making some changes around your logistics strategy. Brands that can bring agility to their operations will achieve greater resilience than brands that don’t make modifications.
Hency: Most brands I’ve spoken to are either moving to situations where they are working with a single 3PL that has operations in the US and one of those countries, or they’re quickly setting up US-only 3PLs, assuming that’s where all of their products are going to end up anyway.
It’s important to remain flexible. Most people are leaning on optionality because it's so unclear where we’re going to end up. In some cases, I’ve seen brands who were 100% in Mexico or Canada open up a US facility really quickly and move up to 60% of their units to that facility. They will ship out of both the US and abroad until the picture becomes clear, and then re-balance inventory again.
This situation is pretty analogous to quickly changing tariff policy, which is also happening in the background. Brands who are highly adaptive, make decisive plans, and who are proactively working to avoid having too much exposure to the impact of changing regulations will be rewarded. Brands who leaned all the way into Section 321 will have a tough Q125. I suspect people will eat the margin in the short term to keep their customers happy, and re-balance and optimize their business once the dust settles on global policy changes related to the administration.
See how Loop can help you streamline your cross-border returns operations. Get a demo.
In this article
Stay in the loop
Subscribe for product updates and Loop's biweekly newsletter.
Retain more revenue with Loop today
With Loop, your brand can offer everything from refunds to direct exchanges to shopper incentives and more. Even better? These exchanges build your business.