How Section 321 Is Revolutionizing E-Commerce Order Fulfillment

eCommerce Brands Importing Goods from Overseas to the U.S. For these companies, there is a great opportunity to reduce their duty and tariff costs through Section 321 of the U.S. Customs Regulations. This regulation is becoming somewhat of a strategic staple for savvy companies, allowing duty-free shipping of low-value goods under $800 to the U.S. from many countries.

It’s hard to ignore the success stories of eCommerce leaders like Temu and SHEIN, which demonstrate that Section 321 has enormous potential for cost savings through customs savings. However, to reap the benefits of this regulation, eCommerce merchants must know how to effectively use Section 321 and be aware of its nuances. There is also a strategic advantage to bringing Canada into the supply chain, which we will discuss in more detail.

Strategic Advantage of Using Section 321 and Canadian Fulfillment

By importing bulk shipments into Canada and fulfilling individual orders of $800 or less from Canada to the U.S., goods can now enter the U.S. duty-free under Section 321.

Before Section 321 was in place, especially for small shipments, tariffs significantly reduced profit margins for businesses. In addition, red tape was a drain on operational resources, as companies aspiring to import into the U.S. had to hire people to handle the routine tasks of preparing goods for border crossing, clearing customs, and so on. Now that Section 321 is in place, most businesses can save up to 20% with Section 321.

Likewise, the simplified clearance process is a boon; customs can clear eligible shipments much more quickly and efficiently. This means transit times are comparable to similar shipments shipped domestically within the U.S.

Maximize cost savings with duty drawback programs

When importing goods into Canada, businesses pay duties and taxes based on the value of the imported goods. Once those goods are exported to the U.S., businesses can reclaim the duties they paid in Canada using Canada’s duty drawback program. This involves filing Form K32 with the Canada Border Services Agency (CBSA) to get a refund of the duties they previously paid on their imports into Canada.

This workaround has proven to be a powerful tool for reducing the costs associated with duties and taxes paid on goods imported into the U.S. from abroad. It can also be a launching pad for starting a business in Canada in addition to the existing market.

Leveraging Section 321 for Smooth Cross-Border Operations

Cross-border logistics is often a minefield of convoluted pitfalls. In Statista’s Global Supply Chain Survey, 43% of respondents cited customs hold-ups as their top concern. 41% cited customs regulations and Harmonized System (HS) codes as the top hurdles. Then there are the more immediate issues of supply chain costs, tariffs, delivery charges, and return costs.

Only when you have the right conditions to move cross-border can you truly navigate this landscape. Section 321 is one such condition. Another important condition is partnering with a specialist 3PL provider who facilitates Section 321 work and has a warehouse network tailored to the brand’s needs.

In my experience working with Section 321, the location of the fulfillment center and the origin of the shipment are extremely important factors. At ShipTop, the warehouses are strategically located in Vancouver and Toronto, relatively close to the U.S. border. This results in significantly shorter transit times to American consumers.

Why eCommerce brands are adopting this strategy

Routing goods through Canada means that you can bypass high US import duties. This shortcut can give you a competitive advantage over companies that import directly into the US and pay duties. Plus, access to the Canadian market alongside the US is not only an opportunity to expand your brand’s presence, but also a chance to protect your business from fluctuating demand in both countries. That’s why retail brands are eager to implement Section 321; it already accounts for a significant portion of all US e-commerce imports by volume.

According to a report by the U.S. International Trade Commission, the U.S. Customs and Border Protection (CBP) has processed more than 380 million packages under the Section 321 data pilot since it began in August 2019.

Section 321 Provisions

Section 321 has its own nuances. For example, incorrect pricing or errors lead to disqualification or penalties for companies that fail to properly evaluate or classify their imported products.

Contrary to what some companies new to Section 321 expect, you can’t simply split a larger order into

Not all products qualify for Section 321. Items like firearms, alcohol, tobacco, and goods subject to quotas or antidumping duties are not. In practice, this means a strong emphasis on proper categorization and valuation before goods cross the border, with impeccable documentation.

The regulations are not set in stone either. While the business world marveled at the success of Temu and SHEIN, August 2024 brought news of political initiatives to restrict imports, with more stringent controls as part of efforts to combat illegal (e.g. counterfeit) products.

Today, eCommerce companies are solving the problems that are a byproduct of Section 321’s complexities (such as regulations, eligibility concerns, and regulatory changes) by working with 3PL providers who can provide the necessary expertise. As a result, the nitty-gritty of Section 321 is effectively outsourced to 3PLs who navigate both the regulatory and physical execution aspects.

How to Use Section 321 Effectively

Effective use of Section 321 provisions requires strategic planning in several key areas.

First, consider the location of your warehouses. Depending on the products you import, consider clustering your warehouses near the U.S.-Canada border. Alternatively, spread them out across different regions. This will help maximize efficiency and reach. The cost of warehousing is also a factor. Keep in mind that Canadian facilities typically offer lower rates than their U.S. counterparts.

Then focus on improving your inventory management process. When handling large volumes of small shipments, which is facilitated by Section 321, real-time visibility into inventory is key. This allows you to effectively manage the flow of goods while staying within regulatory boundaries.

Many companies successfully navigate Section 321 by working with third-party logistics providers, especially those with experience in U.S.-Canada cross-border operations. These providers are well-versed in the necessary documentation and billing processes, making them invaluable in ensuring compliance and efficiency. By using 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 of Bottom of the ship.