Firm helps U.S. companies bypass China tariffs via Canada

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Guest post by FreightWaves’ Nate Tabak

As the Trump administration prepares to impose more tariffs on $300 billion of Chinese goods, a Canadian firm is banking on growing its business of helping e-commerce companies avoid them. 

Stalco, a Toronto-based third party logistics provider, began offering a service in 2018 that allows firms in the U.S. to re-direct shipments of Chinese goods to Canada. Stalco then fulfills the orders, shipping them to individual consumers in the United States – and facilities the return of any duty that Canada collected.

“We saw the potential, with all this talk about China and tariffs,” said Steven Page, the president of Stalco. 

“Small businesses are getting killed,” Page added. 

Stalco typically ships an array of consumer goods for online purchases. The company uses provision of the U.S. customs code, Section 321, which exempts shipments valued at $800 and below from duties. They’re limited to a single shipment and importer per day.  

While the practice may go against the spirit of the Trump administration’s tariffs, it also appears to be legal, trade lawyers said. 

“If you import Chinese merchandise into Canada and send it into the U.S. in orders of $800 or less, you can do it without entry or payment of duty. It’s legal,” said New York-based trade lawyer John Peterson.

Canadian trade lawyer Cyndee Todgham Cherniak agreed that Canadian-based fulfillment of Chinese goods to U.S. consumers under Section 321 is legal. “That’s totally allowable,” she said.

She differentiated from illegal transshipping, when the true origin of goods is concealed.  

“Where you have a problem is if someone brings 500 pairs of Chinese sunglasses into Canada, and then puts a ‘Made in Canada’ label on them,” Cherniak said.

Cherniak said she has seen greater interest from U.S. firms setting up distribution operations to serve Canadian customers without incurring tariffs on Chinese goods. 

Pillow, toys and shoe-cleaner

The same provision of the customs code can be used to bring goods directly from China duty-free. But Canada’s proximity to the United States makes it possible to fulfill orders much more quickly – though same-day delivery isn’t offered. 

Products being shipped typically are low-cost, unbranded goods. Shoe-cleaner, toys and pillows, to name a few, are examples. 

“It’s random,” Page said. 

The cost savings can be substantial. Page recalled how a shipper was able to save as much as $100,000 on a single shipment of inflatable couches.

So far Stalco’s tariff bypassing service accounts for about 5 percent of the company’s business. Page estimates the company has taken in fewer than 50 shipments from China, and fulfilled around 10,000 orders. 

Goods typically arrive via ship at the Port of Vancouver and reach Stalco’s Toronto-area facilities via rail. They’re then broken into individual shipments before being trucked to the U.S.

Stalco’s overall third-party logistics business handles over 40,000 orders per week. Page said it has a capacity of around 160,000 – leaving a lot of room for growth of its small tariff-bypassing business

Stalco isn’t the only firm in Canada helping U.S. business avoid tariffs. But Stalco is doing it quite publicly, even hiring a U.S. public relations firm. 

Page, for his part, isn’t concerned about the practice drawing the ire of U.S. authorities. 

“I can’t see it making a dent on the scale of trade,” Page said.