Why killing de minimis won’t end the direct-from-factory model popularized by Temu & Shein

In recent years, overseas e-commerce companies like Shein and Temu have become synonymous with the de minimis trade exemption, a nearly 100-year-old trade law originally crafted for U.S. tourists. The rule lets retailers bypass duties and taxes on imports under $800, enabling Shein and Temu to offer bargain prices on their wares, like $5 baseball caps and $8 Apple AirPod dupes. Still, both Shein and Temu have previously told Modern Retail their businesses are not dependent on the de minimis exemption.

But in early February, President Donald Trump imposed new tariffs that include a 10% tax on Chinese goods, which he doubled to 20% a few weeks later. Trump also canceled the de minimis trade exemption for shipments from China. Trump has since delayed his stoppage of the de minimis rule until “adequate systems are in place to fully and expediently process and collect tariff revenue,” according to an executive order he signed. But brands know it’s only a matter of time until the trade rule is canceled once again.

The death of de minimis has widely been viewed as a major blow to e-commerce companies and brands that leverage the trade rule to dodge tariffs and save costs. Yet, despite policy shifts, some logistics experts and brands say there’s more to relying on direct-from-factory fulfillment than bypassing duties. The model comes with other benefits that include cash flow efficiency, inventory management and speed.

Even with new duties in place, brands are incentivized to use factory-direct shipping, according to Izzy Rosenzweig, the CEO of Portless, a cross-border logistics startup Portless that replicates Shein and Temu’s fulfillment model by helping brands ship directly to customers from factories in China and Vietnam. 

“De minimis was nice when it existed, but at the end of the day, brands use this business for cash flow savings,” Rosenzweig said. 

For example, brands can start selling goods one day after production since the products are manufactured near the factory. For a traditional retailer that transports factory goods by sea, large inventory may sit in a warehouse for months before being sold, Rosenzweig said. 

Traditionally, businesses importing by sea must prepay for inventory months before it reaches consumers. By contrast, the direct-from-factory model allows brands to wait until products are sold before paying tariffs, reducing financial strain.

“It used to be months until you got your money. Now it’s days later,” Rosenzweig said. “Not a single brand is leaving our model just because they have to pay import duties.”

Much of the public debate about de minimis has centered around Shein and Temu, which have built billion-dollar businesses through low-cost factory-direct shipping. However, many American brands have quietly adopted similar strategies to compete with larger retailers. More than 90% of the brands Portless works with are based in the U.S., according to the company. 

Factory-direct shipping isn’t without its drawbacks. The biggest downside is arguably slower delivery times. Unlike e-commerce companies like Amazon, which leans on its vast network of warehouses and fulfillment centers in the U.S. to deliver packages to customers at lightning-fast speeds, the factory-direct model used by Shein and Temu is generally slower. Shein’s standard shipping is seven to 14 days in the U.S., while Temu’s standard shipping is five to 12 days. Both companies have looked to reduce these delivery times by building out more warehousing in the U.S., as Modern Retail has previously reported.

Andy & Evan, which sells children’s apparel, is one U.S. brand that has been leveraging the factory-direct model for the last two years. Even with de minimis set to disappear, the company isn’t planning to pivot away from the factory-direct model, Evan Hakalir, Andy & Evan’s CEO, told Modern Retail in an interview. 

“The logistical efficiencies and cheaper costs are still going to keep it worth it for us to be shipping out of China, because of cheaper labor, cheaper pick and pack, and cheaper warehousing services,” Hakalir said. 

Hakalir said speed is another benefit. “If we get an order at 4 p.m. today, that product is picked and packed overnight in China, on a flight tomorrow, and delivered to the U.S. postal system within two days,” he said. Customers receive their packages in five to eight business days. “A slight increase in shipping time is a fair trade-off for cutting warehousing and labor costs.”

Andy & Evan originally relied on domestic third-party logistics partners to fulfill orders from warehouses in the U.S. But high labor costs and slow fulfillment prompted them to shift to the factory-direct model. “We were paying nearly $4 per unit just for pick-and-pack in the U.S.,” Hakalir said. By moving fulfillment to China, the company cut that down to $1 per unit — a 75% savings.

While tariffs will drive up costs, Rosenzweig said the financial impact will be minimal. Princes will increase somewhat, but the hikes will be relatively modest, a percentage of 10% to 15% on wholesale costs, as opposed to retail costs, which are generally higher. In other words, while some price increases are inevitable, they won’t be steep enough to threaten the viability of factory-direct shipping. 

‘To the last hour’

While direct-from-factory shipping has benefits for direct-to-consumer brands, the same can’t be said for traditional wholesalers. “If you’re shipping pallets of goods to retailers, this model doesn’t make sense,” Rosenzweig said.

Returns can also pose a challenge for brands using factory-direct shipping because it’s “prohibitively expensive” to have consumers send products back to China, Hakalir said. That is why, despite shipping goods directly to customers in the U.S., Andy & Evan uses its U.S.-based warehousing to receive and process returns so they can be restocked and resold. 

“You need a solution here in the U.S. if you’re going to be shipping direct from China,” Hakalir said. “Having a U.S. warehouse has allowed us to have this relationship with the direct consumer out of China because we take in all the returns through our warehousing network on the West Coast.”

Businesses will also still need to adjust to new realities related to tariffs. Brands are already negotiating lower manufacturing costs with Chinese suppliers to offset tariffs. “Factories in China are scared right now,” Hakalir said. “They’re offering to split the cost of tariffs with brands to keep business.”

Maggie Barnett, CEO of third-party logistics provider LVK, told Modern Retail in an interview that the firm is developing a hybrid fulfillment model as brands adapt to shifting trade policies. Rather than relying solely on direct-from-factory shipping or traditional domestic warehousing, she said she believes brands will look to adopt a blended approach to balance cost, speed and efficiency. For example, brands may leverage air freight to ship trendy or seasonal goods quickly, while relying on ocean freight to ship more evergreen products. Currently, LVK is looking to partner with an apparel brand to pilot this approach. 

When Trump canceled de minimis shipments from China in early February, Portless pivoted to other customs entries like Type 11, paying duties as they would with any other import. With the cancellation of de minimis paused for now, Portless has gone back to chartering de minimis packages on a temporary basis. But, he said, Portless is prepared to go back to Entry Type 11 when and if de minimis is officially scrapped. 

Barnett agreed that DTC brands are continuing to leverage de minimis while they can. As she put it, “They are going to leverage the de minimis to the last hour.”