FedEx earnings dented by the conclusion of the duty-free tariff exception
The U.S. government's policy change, enacted by President Donald Trump, has caused a significant ripple effect in the air freight and shipping industry. The policy change, which eliminated the "de minimis" exemption that had allowed packages valued under $800 to enter the United States duty-free, has been in effect since May 2 and was later extended to the rest of the world on August 29.
This policy change has affected a large number of direct-to-consumer shipments, with an estimated 1.4 billion annual shipments impacted. Companies most affected by the removal of the small package exemption for shipments from the USA are European postal operators, including the Swiss Post, which has had to suspend parcel shipments to the USA due to new US customs regulations requiring full customs declarations for all imports regardless of value. This has led to severe logistical disruptions and likely negative impacts on their revenues from US-bound parcel services.
In the U.S., the policy change has had a financial impact on companies like FedEx. The firm anticipates a $170 million financial impact from U.S. tariffs during the quarter, as reported by its Chief Financial Officer, John Dietrich. Rival UPS reported a significant drop in average daily volume during May and June, attributing it to the end of de minimis treatment for purchases from China-linked e-retailers.
The policy change has raised prices on everyday imports for U.S. shoppers, and air freight demand has tumbled following the end of the exemptions. This trend is projected to continue through the end of the year. However, some higher-value goods shipments may prove more resilient. Carriers could potentially capture business previously handled by global postal services that are now scrambling to implement tariff collection systems.
The policy change has also had an impact on certain industries in Europe. German exporters in the food industry and metal processing sectors have experienced deteriorated export outlooks and declining foreign sales due to increased US tariffs and stricter customs measures.
As the industry adapts to these changes, it remains to be seen how the U.S. government's policy will shape the future of air freight and shipping.
