Global Small Businesses Face Challenges Due to US Tariff Changes

In New Zealand, thousands of berets are stuck in storage.

These hats belong to Daan Kolthoff, who established South Pacific Berets nearly 20 years ago. The American market makes up between 85% and 90% of his sales.

However, his primary sales route has suddenly dried up.

Recently, New Zealand's postal service, along with many others around the globe, halted shipments to the United States. This decision was driven by the US government's plan to terminate the long-standing tariff exemption, the de minimis rule, for items under $800. This change takes effect soon, affecting about 4 million small package shipments daily.

Small enterprises like Kolthoff's find themselves in a precarious position due to this disruption.

Kolthoff expressed his frustration, saying he had to immediately cancel orders and notify customers, despite having scant information to share. The length of this pause remains uncertain, ranging from days to potentially months.

He has refunded under $2,000 for recent orders from his US clientele and anticipates further financial declines by month's end.

Kolthoff's company, which he operates single-handedly and earns around $100,000 to $120,000 annually, is left with a stockpile of berets that he has already paid for and needs to sell in due time.

Starting Friday, all shipments to the US will incur customs duties, leading postal systems in over 25 countries to halt US deliveries, except for items including paperwork and personal gifts valued under $100.

Postal services cite procedural confusion and the need for time to update their processes to handle the added paperwork. The resumption of regular shipping remains uncertain.

Challenges for Small Retailers

While private shipping companies like FedEx and UPS continue to operate, the costs are often too high for small vendors.

Kolthoff mentioned that the price of delivery can equal or surpass the value of the packages, most of which are priced below $100.

Adapting to Tariff Changes

Simultaneously, Japan's Neko Neko Post, a small stationery enterprise, is hindered by these US tariff alterations. Their American clientele forms a significant 85% of their market.

Founders Sharla Hinskens and Ushka Wakelin expressed their shock at the tariff news, describing it as having a severe impact on their small business.

The pair has chosen not to burden their customers with potential de minimis duties, which could range from $40 to $150 per purchase.

Having established their shop in 2020 with a feline focus, they halted US shipping as of late August, which led to a rush of demand right before the shipping shutdown was announced.

Hinskens and Wakelin noted they managed to dispatch hundreds of orders within days by working around the clock, a previously unheard-of demand for them.

In India, the seller of handloom saris, Kalaneca, witnessed increasing anxiety among its US customers, constituting 65% of its international clientele. Founder Kavea R Chavali employs private couriers for US delivery, dodging postal suspensions, yet noted a spike in orders preceding the deadline.

Her tight-knit team of 19 workers surged from fulfilling a few sari orders to nearly 50 in a single day.

Finding New Pathways

Neko Neko Post is exploring alternative methods to reach US buyers, such as introducing a more compact version of their successful journals and stickers suitable for mailing in standard-sized envelopes. They are also considering hotel deliveries for tourists in Japan.

The nightmarish scenario of abruptly losing their US customer base forces them to contemplate how to maintain their business without this formerly secure market, the founders remarked.

In the US, they generally receive order values ranging from $300 to $2,000, with some customers willing to pay a small additional fee.

Kolthoff, meanwhile, is considering ways to broaden his consumer pool and aims to collaborate with other small business owners in New Zealand also affected by these changes.

Limited Alternatives

Manish Kapoor from Growth Catalyst Group, with previous experience at FedEx and Amazon, mentioned private shipping companies as a potential quick remedy but acknowledged the higher cost per parcel.

Kapoor advised small firms to examine the possibilities of shared shipments or partnerships with freight forwarding services.

Sean Henry, leading Stord, a startup focused on logistics, asserted that grouping or consolidating shipments might be essential for small businesses navigating post-de minimis scenarios.

According to Henry, switching to fulfillment based in the US could significantly cut down shipping expenses, since domestic shipping is typically swifter and more affordable post-tariff change.

Further, he recommends strategies like product bundling or elevating the criteria for free shipping to elevate profit margins.

Despite expert guidance offering strategy insight, nothing entirely addresses the ongoing unpredictability introduced by the evolving US tariff policies.

As services resume, US customers should brace themselves for potentially higher costs to offset these changes.

Kolthoff, for one, cannot manage this price hike given the small scale of his business.