Oct 27: PSA on Canada to USA knife shipments after the $800 duty exemption was removed

This is a living document which we are updating as the days go by with our experiences and learnings about shipping knives to the USA from Canada since the removal of the de minimis $800 exemption from duties.

While the USA has eliminated the $800 exemption from duties on shipments from Canada, as long as the product is truly made in North America, it can still cross the border duty free, which means our products should ship to USA customers as before, particularly because we are using American steel. If we were using non North American steel, the whole cost of the knife is subject to at least 50% duty unless the correct chapter 99 tariff codes (see next paragraph) are used to report the steel component of the knife so that only the steel part is dutied. But if the steel is American made, the duty goes away. The first challenge was to find the right tariff codes to describe all that, particularly the steel exclusion codes for USMCA, IEEPA and section 232 tariff regimes. The second, greater, challenge is that the shipping carriers and the shipping platforms like Shipstation, weren’t prepared to handle multiple tariff codes per commodity, especially when no user entered codes were required before for under $800 shipments. Even the API used by UPS does not support multiple tariff codes per product, so platforms like Shipstation, that need that API for UPS shipments, don’t have a way to properly transmit and group those codes together. The chapter 99 codes are modifiers of the base commodity code. Probably no carrier wanted to break the APIs by adding that hack, since the 99 codes are “temporary” anyway.

Our first 12 shipments starting August 29 were incurring those over 50% duties (we halted USA shipments until we could avoid those charges) and most customers refused to accept those shipments. We thought we were shipping them correctly by including a USMCA certification of origin and the correct tariff code to describe the knife. We did not know that the US government had added knives into their so called steel derivative products list in the HTSUS tariff bible, chapter 99. The steel tariffs aren’t just about construction grade steel, they are now affecting a lot of products imported to the USA with steel in them. We’ve learned that it requires 4 of those chapter 99 tariff codes at this writing, along with the base commodity code to describe our products’ duty free status, plus a certification of USMCA origin (when the shipment is under $2500 USD, a USMCA declaration in the commercial invoice is sufficient).

So those post August 29th knives are still trickling back to us now. Of the 12 shipments:

• 4 customers paid duties and we have disputes in with UPS that look promising but glacially slow for the customers to be reimbursed those charges.
• 4 of the refused knives have finally made it back to us.
• 4 that have been in limbo, since our customers refused the shipments, have had claims opened and their locations are being investigated. The UPS investigators have been tripping over each other, asking the same questions repeatedly and then ignoring our detailed responses. Some are found and then seemingly lost again, like a return was a new concept. 1 of the 4 claims has supposedly been paid out, but I haven’t seen evidence yet.
• last week we then received an overdue notice for the 8 packages customers refused, telling us we need to remind our customers to pay the duty charges or they will be reversed back to us! Total disorganization.

In September, we made a test shipment with UPS, having entered all the information we understood was required, the shipping tool estimated zero duties but then once UPS got the package, that changed to a 75% duty! Working with UPS support we tried to get a root cause and to remove the duty while the package was in flight. But our customer, out of desperation, paid the duty, after which the UPS team who promised to help solve this said they could no longer help because a different team handles delivered packages. I urged them to concentrate on preventing fires by identifying the root cause for the duty on that shipment, but no luck; they seem to prefer fighting fires, so we had to start from scratch again. On the bright side, we put in a request with UPS to reassess the duty for that customer and after about a week they told us that our customer would be refunded the duties charged. I think UPS has about a 10 day window after duty is assessed to reassess with minimal paperwork. After that it’s a more formal correction process with CBP.

For us it’s been an enormous distraction, using close to 100% of my time for nearly 2 months. During that time I’ve gotten way more familiar with shipping and tariffs than I ever wanted to be. The carriers (and CBP) have been buffaloed overnight into doing a ton of extra work. So, they are using AI to scan shipment data and a lot of mistakes are being made. It also seems like there is a universally poor understanding among the large carriers of how their shipping tools should be adapted to situations like ours. No one and no document that I have seen to date explains how to do what we need to do. They just seem content to tell you to alert your customers of the high duties or build them into your prices and pay them up front.

However I have now turned back to DHL which has always had good cross border service but can be very expensive for more remote parts of the USA. In two test shipments, one got to PA no duties owing and the 2nd one, a few days later, was returned to us, without leaving Canada, because DHL deems knives as weapons and they don’t allow weapons in their network. Back in 2017 it was DHL who recruited us as a customer, knowing exactly what we did and we never had a knife shipment refused/returned. Following that return, I connected with a senior account rep at DHL and he promised us a solution for reliable declarations of our steel derivative products. So far nothing concrete. However we have continued sending DHL test orders with different tariff code combinations. Though they are very slow (for an express service), they do seem to be entering the tariff codes properly with CBP, and some shipments have gone through duty free. But it is still unclear which type of knives they may refuse to accept.

Learnings summary:

1. carriers and their shipping tools and the platforms that use their APIs (like shipstation) don’t yet have a clean solution for handling derivative steel/aluminum products. The first one that does will get our USA business. The carriers’ customs brokerage teams, until now, don’t seem to know what they don’t know.
2. the published guidance, post de minimis removal, from the big carriers is mostly obvious fluff, nothing that covers cases where multiple tariff codes are needed per commodity, like knives or aluminum tennis rackets.
3. In the meantime, because we haven’t gotten plausible answers from the “experts,” we continue sending test shipments to the USA to see what works best. We remain hopeful for a breakthrough soon.
4. For future shipments to the USA we expect some uneven handling of the tariff codes we use, depending on the training level of the staff and software involved. So some shipments may have duty while others won’t. We now recommend our customers pay any owing duty, so they get the knife, and then we help them get that duty back. This is far less expensive and time consuming than refusing to accept the knife and avoids the knife getting “lost” on it’s return.

We will continue to update this post as needed to keep you informed.